Helicopter Ben to the Rescue!

Posted by Sir Four at 1:41pm Sep 14 '12
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The Federal Reserve is set to engage on an aggressive new round of economic stimulus...this time the commitment is totally open-ended. Bernanke isn't piddling around this time: the Fed will inject $40 billion per month into the economy via mortgage-backed security purchases with no end, until the unemployment rate falls (below 7-ish percent). This is expected to do a few things: bring confidence and stability to the market, foster more mortgage refinancing (which puts more money in homeowners' pockets), keep mortgage rates low on new purchases (allows more buyers to buy, more sellers to sell), encourage banks to lend to businesses seeking credit, and hopefully the increased economic activity, stability, and credit availability will lead to more hiring and growth.

Some people object to QE, citing too much government interference, too much loose money going to the banks, and the possibility of inflation. On the last point, inflation has been under 2% since May. It's just not a primary concern right now. The top concern is to foster more growth and more hiring--that trumps all, because when you have growth and hiring, the other problems become less a big deal and can be resolved later. My personal view is that Bernanke waited too long to announce QE3. It should've been started several months ago.

The stock market agrees with me, btw. It had a strong rally on the news. I'm actually kicking myself because I've been waiting for a stock market dip to get back into index funds.