(To read David Banister's article on how to play gold right, click here.)
The point of the program is to keep long term interest rates low, encouraging borrowing and spending by consumers and companies. The idea, if Bernanke and his FOMC allies are right, is that yields will tumble and people will start buying homes again. Expecting greater inflation ahead, they'll also buy more stuff at the mall. In turn, companies can start hiring and unemployment will fall.
However, there has been deep skepticism about the program in the canyons of lower Manhattan where many economists worry that all this money printing will weaken the dollar and spark inflation which, once unleashed, will prove difficult to control.
(To see Nadeem Walayat's piece on why buying uranium is like buying gold in 2001, click here.)
Put it this way: Besides Barton Biggs of Traxis Partners, can you name another major fund manager who supports this policy? Even close allies of Bernanke appear hesitant. Fed Governor Kevin Warsh, for instance, voted for the Fed's program, but said he is less optimistic than some that additional purchases would have “significant, durable benefits for the real economy.”
Still, while many investors might be worried about the unintended consequences of all this monetary experimentation, a lot of them probably appreciate what the program has recently done for their portfolios. We might not know whether quantitative easing can address serious structural economic problems, but we sure do have proof that it can provide a quick sugar high to investment markets.
(To view Kevin Depew's thoughts on China downgrading US Credit rating, click here To read the rest, head over to Minyanville.
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