Three Potentially Disastrous Outcomes From Ben Bernanke’s QE 2 Wager

Saturday, November 20, 2010
By Paul Martin

by Phoenix Capital Research

Ben Bernanke has made a very dangerous bet.

The Fed’s Quantitative Easing 2 announcement of $600 billion in additional Treasury purchases is literally a “bet the farm” move. True, the Fed had already engaged in an unbelievable amount of bailouts both known and unknown. However, the Fed’s previous moves were all made when 1) the world financial system was teetering on the brink of collapse and 2) other countries were engaging in similar practices.

In contrast, the Fed’s new QE 2 announcement comes at a time when the consensus is that the US economy is recovering (I don’t buy it, but most analysts/ commentators do) and other central banks have publicly declared they won’t be engaging in additional easing (the ECB and UK) or are outright tightening credit and raising interest rates (China and Australia).

So this time, the Fed is going at it alone. Indeed, the only other major economy that is determined to engage in more intervention is Japan, which has thrown trillions of yen down the toilet for decades with nothing to show for it. And it’s not like Japan is pleased about the Fed’s move as it devalues the Dollar and cuts into Japanese export margins.

Consequently, even the country engaging in more QE is NOT a fan of Bernanke’s QE 2 plan. However, this is just ONE of the myriad of problems QE 2 faces. The three biggest problems with QE 2 are:

1.1) The potential for a US Dollar break-down
2.2) Treasuries falling and pushing interest rates UP
3.3) China retaliating.

The Rest…HERE

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