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From the best I can tell, if one insists on using a printing press analogy, this printing press is using "disappearing ink".


The money injected will be removed once the bonds mature.  I think they are buying 5 year bonds right?  Given that they are Treasury bonds, there is a guarantee that these dollars will indeed make it back to the Fed on schedule.  How come it isn't this simple?


I can see an argument that if they buy muni bonds or mortgage bonds that these bonds might not be repaid, and to the extent that they suffer losses then that's ink that doesn't disappear.  But when buying Treasury bonds, it looks very much like disappearing ink.







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I think it will have vast unintended consequences. Namely relating to global trade. China and other Asian countries will devalue or have a hard peg, Japan and the UK will follow and the EU will be screwed / annoyed. We also may spark another asset bubble. Finally while I am enjoying my stock market gains, I dont see how you re inflate the housing market. You need buyers and capital isn't flowing back into housing which is where Americans were getting their capital from. It will finally flow out of bonds but into where?


They can take away the punch bowl. But what happens if some drunk idiot burns down the house or knock it over?

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This is my understanding, so take it with a grain of salt....With QE2 the printing press analogy may not be the best. Yes, the FED is creating money but they are using it to buy longer term TBills. They are doing this for two reasons: first short-term rates can't really go any lower; secondly they hope that by buying longer dated bonds they can drive down longer-term interest rates (in the hope that already over-leveraged consumers will once again start buying). The net effect is to basically cancel out newly created money when they buy long dated bonds. The danger is they create another asset bubble. To me this shows how weak the economy really is and I wonder why the market dosen't get it? But then maybe I don't get it....




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