Fed’s QE Infinity Can Be Bad for Economy
The Federal Reserve announced that it will implement another round of stimulus that targets the housing market, drive down unemployment and generate wealth. But all the money printing and price boosting can lead to bad things.
After the announcement, investors buy up stocks and metals and at the same time sell bonds and the US dollar. Analysts have been looking at the risks that the quantitative easing can bring to the economy and marketplace.
The Fed announced that the QE will be implemented for as long as it takes to improve the economy. It is one way that chairman Bernanke wants to tell Washington to be serious about fiscal reform and economic growth. At present, Congress and White House must work together to come up with the solution to avoid falling off the fiscal cliff of spending cuts and tax increases.
Because of the Fed policy, the dollar’s value will decline. Washington will remain in a gridlock and the dollar will become weaker until things are resolved by Congress. Analysts expect the fiscal cliff issue to be resolved after the November election.
Moral hazard rewards bad behavior. The Fed will support the stock market no matter what. At present, the Standard & Poor’s 500 and Dow Industrials are nearing their historical highs. The latest Fed action spurred the increase in the stock market even if the economy remains on life support. The investors met the latest QE announcement with a 200 point increase on the Dow Thursday and more Friday. It is difficult to get out than getting in.
Once the QE Infinity is implemented, the Fed’s balance sheet will go past $3 trillion. It can reach the $4 trillion mark before it is completed. It is good to see that the Fed is trying its best to improve the economy.