Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Why QE2 INCREASES the Risk of Deflation

Economics / Deflation Nov 10, 2010 - 03:25 AM GMT

By: Submissions


Best Financial Markets Analysis ArticleTim Waring writes: Markets lapped it up!

QE2 was met with rapture by commodity and stock markets as traders and investors continue the easy money ride of a sinking dollar. The effect on the real economy is unknown but common sense rather than models suggests this extra $600billion is a mistake.

GDP growth at the stroke of a pen?

In order to have GDP growth, the US will have to continue to do what it is best at, namely attract the brightest talent globally to its universities, retain a significant proportion of this talent, and be at the cutting edge of innovation development. As Alan Greenspan once said, developed nations have no one to borrow technology from. Their GDP growth is low as humans are not smart enough to develop technology any quicker. You can not magic growth out of a hat but try telling that to the Fed.

A Life Less Certain

QE2 has just made the average taxpayer even more worried about rising costs of oil, food etc plus higher taxation to come to eventually pay off the even bigger mess that the government has got him into. In short, he feels POORER from QE2 and will act accordingly. He is less likely to leave his job to start new businesses and therefore job creation opportunities go out of the window. He is likely to spend less rather than more this Christmas and beyond. As for small businesses, they are behaving like consumers (perfectly rationally) and de-leveraging in anticipation of tough months and years ahead. So why then does the FED expect them to do a 180 degree turn and taking up loans just because they may be a few basis points cheaper? Ain't gonna happen.

The Trade Deficit

Ben Bernanke can have no idea of how de-stabalising the dollar will affect the trade deficit. Maybe it will help exporters, but this could be wiped out by an oil price spike. Even if there is a positive trade balance effect, I believe this will be a jobless boon to the economy. Guess what - no extra jobs, no feel good feeling on the street.

Its a Party.... but your not invited!

The average man on the street can not enjoy the benefits of this money printing, and indeed is most likely to feel poorer as he knows he will have to pay it back in the future. Life on main street is now essentially a different world to Wall Street. Wall St met QE2 with excitement as stocks and commodities soared. Some traders griped they would have liked to have seen a bit more than $600m but hey ho. QE2 added more momentum to a an already strong trend. The biggest growth business for 2010 has been trading an unstable dollar.

QE2 is Extra Head Wind

On Main St, there are no quick fixes, just the hard graft of finding work, setting up small businesses, innovating and differentiating services and products from competitors - essentially graft, elbow grease, creativity and uphill scrapping. By de-stabalising the dollar the Fed has fuelled uncertainty. This has ADDED to deflationary pressures in the wider economy.

Tim Waring

I am a businessman and an investor, not an economist. Having spent the last 15 years in starting and running businesses I have a keen interest in how economic theory meets real world markets and economies.

© 2010 Copyright  Tim Waring - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules