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Desperate Federal Reserve Speeds Up the Printing Presses :$600 Billion in QE2

November 3rd, 2010

Ben Bernanke, Chairman of the Federal Reserve, is up to his old tricks and gimmicks. His earlier bout of quantitative easing, totaling nearly two trillion dollars, was a miserable failure, attested to by an official U.S. unemployment rate of 9.6% and unofficial but more accurate rate of 17 percent, when underemployed and discouraged workers are accounted for. With no likelihood that Congress will spring for a second economic stimulus spending program, Bernanke and the Fed are now implementing QE2.

The second round of quantitative easing by the Federal Reserve will involve the purchase of 600 billion dollars in long-term U.S. Treasuries by the 2nd quarter of 2011. This is a gamble by the Fed, which I don’t see having a snowball’s chance in hell of being any more effective than the first round of quantitative easing. Furthermore, printing money out of thin air to buy government debt, in effect monetizing the debt, creates the risk of severe inflation, failed treasury auctions and the radical devaluation of the U.S. dollar.

It may be that Bernanke is doing QE2 precisely to weaken the dollar, though he would never say so publicly. In theory, a weaker dollar would make U.S. exports more competitive, leading to the creation of new jobs. However, as reported in an earlier blog, virtually every major economy is manipulating its currency in a race to the bottom. Not even dollar devaluation, if that is the Fed’s goal, will reverse the negative character of the U.S. economy and its grim unemployment crisis.

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