On Wed, Dec 8, 2010 at 1:03 PM, Sabri Oncu <[email protected]> wrote: > David Leonhard in NYT: > >> Yet Mr. Bernanke and other economists usually add another point. Any >> additional spending now, they say, should be paired with future >> deficit reduction. Otherwise, the long-term deficit will continue to >> rise, and nervous investors may eventually demand that the federal >> government pay higher interest rates. > > This is what QE2 is about. QE2 is Fed lending to the Treasury in > disguise and at very low interest rates: the Fed sends 85% of the > interest payments back to the Treasury. The Fed can send all of it > back, if it so chooses.
QE2 *could* have been stimulative if the Fed bought new T-bonds directly from Treasury and paid for them with printed money, which the Treasury could spend. But the Fed did not do that. They bought from the existing stock of bonds from private holders. That gives nothing to the Treasury to do more stimulus. Instead, it provides cash to private holders of Treasury bonds, but the private sector is already flush with cash and stubbornly refuses to spend it.. -raghu. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
