Yesterday, the Fed announced QE2, which will simply be another $600 billion purchase of Treasury Securities. This, of course, is on top of QE1 that totaled $1.7 trillion of purchases
QE1 did nothing to grow the economy. It did help the large money-center banks and Wall Street investment bankers but not the consumer. I guess if you consider the rise in financial assets, stocks and bonds, then the consumer has benefited. The current market condition is very similar, in an eerie way, to the 2007 real estate bubble, which did not end well. Make no mistake that this financial asset (stocks, bonds, and metals) bubble will play out just as poorly as the real estate bubble did.
Once again, one should never under-estimate the power of the Fed, which I did. (I definitely knew better.) From 2008 to 2010, the Fed’s adjusted monetary base increase by 211%, which is unprecedented in the history of the Fed. The consequences of such a massive liquidity inducement into the financial system are the current financial asset bubble and the utter destruction of the dollar. I will have more later this evening.
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