Quantitive Easing 2

The Federal Bank of America is going ahead with another round of Quantitive easing to the tune of $600bn. The gernal idea being to try and help kick start growth in America.

Is it really the right thing to do, or is it the easy thing to do. It will certainly pump money into some business and the financial sector, but will it have any affect on Americans and their day-to-day business. It has already pumped in $1.7tr into the economy with effect in some areas but did not appear to fix some of the underlying problems.

Is this action just stpring up trouble for a later date in terms of inflation. Will the excess money drive down the dollar and in effect remove it from being the reserve currency of choice.

What would happen if the dollar was dumped for gold, as a more secure option, on the open market? And why isn't America going for any form of deficit cutting as the rest of the world appears to be swinging in that direction?

Overall from what I can see it will lower the value of the dollar but should not cause inflation at this point. We have ratcheted interest rates down about as low as they can go and inflation can easily be held off by small increases in interest rates. The lower dollar value might stimulate some export sales, I know it will aid the company I work for at least in this area.

Right now the US can get away with this as we are the reserve currency, if the world market opted off the dollar we will be in trouble but then so will the world. Right now the US is "too big to fail" and so we merrily play these little games. Apparently the G20 knows that a strong US economy buoys up the worlds economy and thus they quietly play along.

In the end I do not think this will do a lot towards stimulating growth but with a Republican congress coming in with the Tea Party darlings being the stars of it, the Administration will have a hard time passing any other stimulus packages and is using this one they control.

How exactly does this sort of thing help? I've heard this called "the wrong kind of quantitative easing", but I don't grasp the mechanics of it all well enough.

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Originally posted by Peeta Mellark

How exactly does this sort of thing help? I've heard this called "the wrong kind of quantitative easing", but I don't grasp the mechanics of it all well enough.

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Nor do I, and I've been trying to follow this.

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Originally posted by Peeta Mellark

How exactly does this sort of thing help? I've heard this called "the wrong kind of quantitative easing", but I don't grasp the mechanics of it all well enough.

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It will make more money available for loans but the problem is the banks are not going to come close to loaning out a large percentage of $600 billion. So in the end it is going to be a small stimulus in a huge package. Like some wiseacre uncle giving you a 20 $1 bills for Graduation in a 3' cube box.

I'm probably going to sound stupid here, but why exactly do we keep giving money to banks when they're the ones who fucked things up?

Politicians seem to really like banks. It is a mutual admiration society that involves a lot of money going both ways. (I wish I was joking but I pretty much believe this.)

The long term ideal of the QE is to try and kick start of the housing market and promote growth in new business. For that to happen it needs Banks to start lending their money to homeowners/buyers and businesses. To do that it is takeing a very long roundabout route to get money to the banks through the financial system.

Chances of all that money coming round and not lining someone's pocket or the banks bottom line is very low.

The problem is that without banks, people cannot buy a house or businesses cannot invest against future earnings. It means that growth in the economy is very, very slow.

Also, it looks like the USA is the only country that is going down this route in an attempt to devalue its own currency.

Well we can afford to devalue our currency when you come right down to it and it usually acts to stimulate exports and tourism. The US is still in a different position from any other individual country and the EU is not quite the tight economic machine to take over from the US yet. If the US economy rises, it will bring up the rest of the world with it and the dollar will of course rebound.

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Originally posted by What Exit?

Well we can afford to devalue our currency when you come right down to it and it usually acts to stimulate exports and tourism. The US is still in a different position from any other individual country and the EU is not quite the tight economic machine to take over from the US yet. If the US economy rises, it will bring up the rest of the world with it and the dollar will of course rebound.

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The dollar is the world's current reserve currency. if you devalue it, you make all those holdings worthless. At that point, there will be no point holding dollars and everyone will switch to a new currency. China could flood the world with dollars making it a fairly worthless currency if the USA goes to far, they currently own about $2tr of US debt. That's more than the Feds current QE of $1.7tr.

The alternative to currency is hard goods like Gold, Silver, precious metals, oil or foodstocks. So as people look for safer things to invest in, it will push up the prices of all those goods at the same time. The knock on impact on third world countries will be pretty nasty as they will no longer be able to afford it.

How much do you think this is going to devalue the Dollar? I expect it to be a small amount. Also as I said above, this is a game the whole world is playing. If the Dollar gets devalued by countries like China dumping the dollar the entire economic system of the world goes boom and we go from the Great Recession to another Great Depression instead.

Well the dollar has already gone through parity with currencies like the AUS Dollar and is likely to drop further. Anything pegged to it is in for a really bumpy ride.

I wonder if plans for a global reserve currency will be forced through under threat of dollar devaluation.

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Originally posted by CatInASuit

I wonder if plans for a global reserve currency will be forced through under threat of dollar devaluation.

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Several million American nutcases just declared you the Antichrist for saying this.

Any particular reason, other than the US government is doing its utmost to head in this direction.

I now feel tainted though, Sarah Palin next speech calls for a stop to QE2. I feel even more tainted because someone has given her some valid reasons and her scriptwriters have done a good job.

There are some very strange, very religious ideas that some Americans have about currency. It seems to come largely from a very bizarre reading of the Book of Revelation.

As far Palin, even a stopped clock is right twice a day.

I guess we will have to see what comes out of the latest G20 meeting in South Korea.

Well Obama was rebuffed by the G20 in trying to get China to stop manipulating the value of the Yuan. (sp?)

He was also effectively rebuked for the QE2.

I think there is more for the rest of the world to fear from an American devaluation of the dollar than China keeping it's currency pegged at the level it is. Hence the outcome.

I just hope trade barriers can be avoided.