Quantitative Easing 2
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“Quantitative Easing 2”
As the economy slowly climbs from the Mortgage crisis and the Great Recession, policymakers and economists have been at each others throats seeking to correct the growing problem of unemployment and a stagnant economy. The people in Washington have toiled with legislation and bailouts, while many do not understand the problems facing the economy we are seeing a world where bureaucratic arguing cannot help jumpstart an economy after such a hit as the Great Recession that almost mirrors the Great Depression. When problems with the economy occur we cannot turn to politicians who only seek reelection and lobbyist money, action must be taken and the Federal Reserve has the power to turn around our economy if the American people let it happen and start creating new jobs and increase consumer demand.
The crisis was a result of easy money and securities being packaged incorrectly because of the massive profits gained from misinformation and no transparency. Banks have taken a hit and are now very wary to do anything that could drag them into the red. The recession is said to be over, but with the unemployment rate hovering around 10% (and this doesnt account for discouraged workers) the main concern for the Fed has to be creating jobs which generally comes from expanding businesses who in turn increase hiring and spike consumer confidence, demand , and spending because people will have income. The move the Fed has employed in order to promote growth is quantitative easing which is a simple idea in economic principles that may not have the real world effects that we as economists would like to see. Quantitative easing by definition is, “A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity” (Investopedia). This may seem like a very easy thing to decide on doing if you are just an employee at McDonalds or Wal-Mart, but to the educated eye it is walking the fine line between helping the economy greatly and inflating our dollar to a horrible level. The first round of quantitative easing came in 2008 and in early November of 2010 the Fed has decided the numbers for Quantitative Easing 2. What we are now seeing is that the markets have reacted as the Fed announced the second quantitative easing, and as the Fed announced it would buy $600 Billion worth of treasury debt, inflation is not occurring and debt markets are reacting accordingly.
When the Federal Reserve announced that they were going to enact more quantitative easing, investors predicted what the number would be, and when the official announcement came out, the stock market reacted with some price drops and an increase in 10 and 30 year bond yields. Quantitative easing has many critics, both foreign and domestic, it “has been criticized by Republican politicians as well as officials in China, Germany and Brazil, who say it has weakened the dollar and risks igniting inflation. Bernanke countered in a Nov. 19 speech that central bankers are unwaveringly committed to price stability and that the U.S. was at risk of letting too many people be out of work for too long”(Lanman). Quantitative easing has started, but it is going to be a process over a few months and its results will only truly be felt down the line. What the Fed would really want to see is expansion in businesses and increased borrowing in all sectors, but this is something that is hard to come by after the economy completely stalled out after the crisis.
With $600 Billion being pumped into our economy we could usually expect inflation, but we have not seen inflation, and experts such as San Francisco Fed Executive Vice President John Williams who said, “I see the risk of high inflation as remote,” because “there are no signs of the kind of overheated economic activity that triggers inflation,”(Derby). Although he shows his optimism for no hyperinflation from such a tremendous