FINANCIAL TIMES: The Federal Reserve has launched an all-out effort to shore up the US economic recovery with a fresh round of quantitative easing– nicknamed QE2 – and will buy $600bn of longer-term Treasury securities by the middle of next year…
The start of QE2 is one of the most significant decisions the Fed has made in years. The move is probably the last chance to boost economic growth and tackle the 9.6 per cent US unemployment rate as there is little chance that the new divided Congress will agree to further fiscal stimulus.
Quantitative easing is a way for the Fed to boost the economy by driving down long-term interest rates when short-term rates are already at zero. But many economists question how much the Fed can boost the economy when households are saving to compensate for the lower value of their homes. Some also fear the effect on the rest of the world should QE2 cause the dollar to fall further… (more)
EDITOR’S NOTE: John Maynard Keynes likened such actions when interest rates approach zero as “pushing on a string.” This is an acknowledged act of monitary policy experimentation and desperation by the Fed, a “Hail Mary”, in recognition that the political log jam prevents enacting much needed short term fiscal policy stimulus. There is no way to add jobs while reducing deficit. Now that the funny games of electioneering are behind us, perhaps politicians will put such a foolish notion behind them and act responsibly.
