Warning: QE2 Is Ending!
Anyone who's been paying the slightest bit of attention to business news has heard as much about QE2 ending on June 30 as they did about the world ending on May 21.
Except, on June 30, QE2 really will end.
So what's the big deal? And what is QE2 anyway?
QE2 is the sequel to the original Quantitative Easing that came out in 2008. It's a program where the Federal Reserve Bank, led by Chairman Ben Bernanke, backs up the truck to the nation's banks and unloads huge piles of money.
The Fed makes its move by creating money electronically, then buying assets such as bonds and commercial loans from the banks. These transactions increase liquidity in the banking system – meaning the banks are bulging with cash.
So now the banks are flush. Bankers have so much money they don't know what to do with it all. Sure, they stuff some of it in their pockets as bonuses, but the rest they put "on sale," in the form of low interest rates, and try to push it out the door as mortgages, car loans, student loans, credit-card loans, small business loans. All to try to jump start the U. S. economy.
The problem is, Quantitative Easing didn't work too well. Bernanke couldn't make interest rates low enough to get anyone to buy a house, or entice consumers to shop at the mall. So when QE1 ended in November 2010, and the economy was still sputtering along like my old Jeep, the Fed immediately came out with QE2 – on the theory that if one QE didn't work, two QE's certainly would.
Now QE2 is scheduled to expire at the end of June. And the question nobody knows the answer to – as discussed in "The End of QE2 – Does It Matter?" — is whether or not shutting off the tap of free money will hurt the economy. How could they? Nobody knows if QE1 and QE2 actually did any good. The best guess is that all that money got to Wall Street, but not so much to Main Street. And that's why Main Street is still coughing and belching like an old beater, while Wall Street purrs along like a new BMW.Continued on the next page