QE2 Weighs in dollar

In a few weeks, the United States could overtake China as currency manipulator world's largest. Don't get me wrong: I'm not predicting that the United States will officially war global currency. However, I believe that the quantitative easing program expansion of Federal Reserve Bank (dubbed QE2 investors) will exercise the same negative impact on the dollar as if the United States had followed by China and intervened directly in the Forex market.

For the last month or so, markets have been preparing for QE2. At this point he is seen as a near certainty, with a Reuters poll showing that all 52 analysts who were interviewed believe is inevitable. On Friday, Ben Bernanke eliminated any remaining questions, when he declared that, "it seems — everything being equal — is a case for further action."At the moment, it's just a matter of course, with estimates of markets ranging from $ 500 billion to $ 2 trillion. that would bring the total quantitative easing maybe $ 3 trillion, exceeding $ 2.65 trillion in China's foreign exchange reserves and earn the distinction of being the largest, sustained currency intervention in the world.

The Fed faces the dilemma that their initial quantitative easing program not significantly stimulate the economy.He brought the liquidity for the credit and financial markets – stimulating the increase in assets prices – but this does not translate into business and consumer spending. Thus, the Fed is planning to double down on your bet, comforted by the low inflation rate (currently in a 50 year low) and a stable balance. In other words, she feels that have nothing to lose.

Unfortunately, it is difficult to find someone who believes that QE2 seriously will have a positive impact on the economy.Most expect that goes from buoys financial markets (stock and commodities), but that will achieve little if anything else: "The real problem with the economy is a lack of consumer demand, not the availability of bank loans, the interest rates of mortgage or large amounts of cash held by companies provide more liquidity into the financial system through QE2 won't fix the balance sheets of consumers or unemployment."The Fed is hoping that greater expectations of inflation (bond prices already reflected in lower) and low-income incite consumers and businesses in action. course also is hopeful that a dollar cheaper will lead the GDP by narrowing the imbalance of trade.