FED, the effects of a QE3

The situation is critical in the U.S., so that the Fed could think of a new measure of quantitative easing, the QE3. The moment, however, the central bank of the United States had considered the QE2, the last year these days, it was believed that the 862 billion dollar stimulus program would have to create 3.5 million jobs. Something that has not happened. Why?

In principle, there are three ways in which a quantitative easing could help the economy. The first is to stop the classic liquidity crisis, the second is to give a stop to the crisis of confidence, stopping those who want to take their investments from the market, then by increasing aggregate demand. Of course, there is also the possibility that a QE could damage the economy, by reducing the value of the dollar, rising inflation and inflationary expectations.

Just a crisis of confidence was probably due to concerns about the financial situation of European banks, which hold large amounts of defaulted sovereign debt of countries. This crisis of confidence is evidenced by the incredibly low market rates of interest on Treasury securities.

Most people believe that an inverted yield curve heralds a recession, we are now in a time when we have an inverted yield curve at the point where it is assumed that new money should go into the economy. Not surprisingly, therefore, see the economic indicators that signal a recession. With inflation accelerating, the specter of stagflation again looms over the country.

America does not need a QE3, needs a complete reversal of policy the Fed should announce an upper limit for the price of gold and use open market operations to the reserves as necessary to enforce this maximum price. To do this, the Fed should leave interest rates are set by markets.

The ultimate solution for a stable U.S. dollar, the stable economy and stable financial markets require that the Fed can keep the dollar stable.