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American Capital Agency Corp. Message Board

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  • sbrown101750 sbrown101750 Nov 15, 2010 9:12 PM Flag

    More on Quantitative Easing

    There is another part of what the Fed is doing that is not discussed very much. What the Fed is doing has been called stimulus or QE2 or Quantitative Easing. By the terminology it sounds like the Fed is trying to "juice up" the economy and reduce unemployment. However, the real reason they are buying treasuries has a much more sinister under current.

    The Fed is terrified that the bond market will crash. If the bond market crashes, bond prices will plunge, interest rates will skyrocket, the dollar will plunge, and commodity prices will go up. We could face the worst economic mess ever,
    namely stagflation. Last week's treasury auction was lousy, and we are starting to see Treasury yields rise now.

    The Fed's solution is to go in and buy the securities to artificially create demand and keep Treasury yields(and interest rates)low.

    God help us if this doesn't work. If it doesn't work, we will all look back at the last two years as an economic boom time.

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