America’s Faltering Empire
October 12, 2010

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Given the abject failure of MP1 (the first round of money printing, aka. quantitative easing, QE1) to get credit flowing again, create jobs, and generally spur economic activity, it is reasonable to ask why we would expect MP2 QE2 to have any discernable, lasting effect on the Real Economy. The Federal Reserve has a dual mandate to keep prices stable and maximize employment. Despite buying $1.3 trillion worth of agency debt (Fannie & Freddie MBS), house prices are falling again. As for the jobless rate, no comment is necessary.

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Various Fed officials have been talking up MP2 QE2, which by all reports is scheduled to begin shortly after the November elections. As Reuters’ James Saft reports, the talk is scary, not to mention crazy—

A round of speeches from key Fed officials has given the clear view that, faced with deteriorating conditions and trapped by the lower bound of zero in its monetary policy, the Fed is preparing to once again buy up large amounts of Treasuries, perhaps even more than the government is issuing on an ongoing basis, in an attempt to drive down market interest rates and stimulate the economy.

What’s the plan?

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