The Fed’s QE2 program is destined to become one of the most talked about economic policies of our generation. The debate on whether or not the program was necessary, and what impact it had, will probably rage on for years.
So what do we really know about QE2? And more importantly, was it a waste of time and money?
One thing’s for sure, anyone who says definitively QE2 has been helpful or harmful is just making stuff up. There are simply too many factors involved.
As always, the answer probably lies somewhere in the middle.
Here’s what we can do… speculate on the program’s influence on certain aspects of the economy. Keep in mind, even the economists are just giving educated opinions when it comes to QE2.
That being said, it’s pretty clear most economists feel QE2 is having mixed results. In other words, the program is having both good and bad influences on the economy.
Let’s start with the good part…
Before Fed Chairman Bernanke announced QE2 in August of 2010, there was a real concern about deflation in the US. Well, deflation is totally a non-factor now. And QE2 probably had a lot to do with that.
Because of QE2, there was just too much liquidity in the system for prices to drop any further.
And that’s a very good thing.
Make no mistake, deflation is really, really bad. It’s quite possibly the worst thing that can happen to a country’s economy.
And that’s not all…
The stock market thrived throughout most of the QE2 period.
Around the time QE2 was announced, the S&P 500 hit a low of around 1,050. In May 2011, near the end of QE2, the index had climbed to over 1,350. A 300 point increase in roughly 8 months… not too shabby!
But, QE2 also had its share of negative effects… or in some cases, no effect at all.
Let me explain…
Unemployment and housing aren’t any better off than before the program began.
What’s more, whether by design or not, the US Dollar got crushed by the liquidity created from QE2. Now, a cheap Dollar can have its benefits, particularly for exporters. But in this case, it seems the weak Dollar has created more trouble than good.
You see, commodity prices tend to rally on a weak dollar. And the last thing Americans need are higher gas and food prices.
To be fair, fundamentals may have a hand in these commodities’ meteoric price increases… but a weak Dollar certainly didn’t help.
Here’s the bottom line…
QE2 seems to have staved off the serious threat of deflation. And it likely helped boost stock prices. However, the economy doesn’t seem to be any better off than it was before QE2. Jobs are still scarce, and the housing market remains in the tank.
And now, stocks are taking quite a beating… particularly penny stocks.
But, there’s good news on the horizon. Most economists believe the second half of 2011 is going to be strong – the recovery will resume as expected.
And when the money starts pouring back into stocks, penny stocks could really soar.
Who knows where we’d be if QE2 had never happened. It seems a huge economic crisis may have been averted. But, it’s anyone’s guess how history will view the controversial program. For now, we just need the economy to get back on track.
Yours in profit,
Category: Breaking News