Congratulations to Eva who won a copy of The RESP Book. I’ll have one more draw before year end so stay tuned.
Quantitative easing is economic political correctness for printing more money. After printing billions of money, the Federal Reserve has announced another round of quantitative easing last week. Specifically, the Federal Reserve will be purchasing mostly U.S Treasuries from individuals and institutions; the theory is that sellers of these treasurers will now have money to either spend or lend. Whether printing more money ultimately solves the economic problem remains to be seen (and I am of the school that it will not). However, there are some clear winners from quantitative easing.
The short-term winners are the banks. With interest rates so low and the Federal Reserve buying treasuries, banks can borrow money at low rates then buy treasuries knowing that the Federal Reserve will be supporting their prices. In essence, banks are profiting in the spread between treasury prices and low cost of borrowing. It sure is less risky than making loans, which is what the Federal Reserve wants the banks to do (lest one forget the angry at banks during the recovery from the 1991 recession).
If you believe quantitative easing is going to be a failure, the next winners could be equity investors. As Fortune pointed out recently, the Bank of Japan is now directing investing in the stock market to prevent the destruction of wealth. Talk about the law of unintended consequences- this recession was triggered by unnecessary risk taking and those being rewarded are the same risk takers.
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