October 18, 2010
The Recklessness of Quantitative Easing
John P. Hussman, Ph.D.
With continuing weakness in the U.S. job market, Ben Bernanke confirmed last week what investors have been pricing into the
markets for months – the Federal Reserve will launch a new program of “quantitative easing” (QE), probably as early as
November. Analysts expect that the Fed could purchase $1 trillion or more of U.S. Treasury securities, flooding the financial
system with additional bank reserves.
A second round of QE presumably has two operating targets. One is to directly lower long-term interest rates, possibly driving
real interest rates to negative levels in hopes of stimulating loan demand and discouraging saving. The other is to directly
increase the supply of lendable reserves in the banking system. The hope is that these changes will advance the ultimate
objective of increasing U.S. output and employment.
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