Tuesday, November 2, 2010

Is QE2 not a fix for the real ecomomy but a Bond rescue aka pre-emptive attack on the STD virus?

Have we overlooked the obvious, and over analyzed the "economic impact" of QE2?
The Fed, unlike any other investor, has near perfect information, including from its own $1T of MBS, trillions of dollars worth of special programs and facilities and its everyday supervision of banks.

QE2 is unquestionably a monumental, extraordinary measure. It's been a grand total of 3 correction ~9 weeks from signal to implementation which can be summed up in a word; rapid. Yet with much public dissension among Fed governors, economists and foreign officials; the WSJ has a good summary here http://online.wsj.com/article/SB10001424052748704865104575588683125522068.html?mod=WSJ_article_LatestHeadlines

"It's the economy stupid" is a Bill Clintonism, CONSUMER spending is ~ 2/3 of the "economy". Surely the Fed cannot be unaware the problem is how to stimulate aggregate final demand at the consumer level.

However, buying bonds, does what? Puts cash in the hands of Professional Investors who do one thing - keep it in the washing machine aka "the markets"; it does not create businesses, it does not create jobs; it DIRECTLY inflates bond prices, indirectly all other assets.

Little of this "QE2 Cash" finds its way to most consumers.
Consumers, are rightfully frightened, need jobs for income, once in a job, need to feel secure it will last for longer than 6 months. Now a distant secondary source of income comes from savings and investment accounts. In the past, such income came largely from tapping the "equity in their house" NO MORE. Wages from jobs over the past 10 years is flat at best.

Perhaps Mr Bernanke should be more forthcoming and reveal "It's NOT the economy stupid"
QE2 from the get go - seems disconnected from stimulating Final Aggregate Demand; unless the Fed's agenda is different in which it is trying to front run the enormous negative effects of STDs (Securitization transmitted damages) as in this Special FiduciaryALERT

Ending the siesta on the taxpayer's dime - one easy to read blog at a time.

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