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Just in case you started thinking QE2 was a good idea


Reason's Anthony Randazzo, a much smarter man than I, has written down some reasons the second round of quantitative easing isn't such a good idea. Here are two of them:

Third, the monetary expansion (literally creating money out of thin air, changing the numbers on a computer account, and printing the cash to back it up) is inflating the value of the dollar. On the one hand, this does help exporters in the short term because it makes American goods cheaper and easier to sell. However, it also means that investors get less of a return on their investment dollars because the value of the dollar relative to other currencies is shrinking. Put another way, if you invest in the U.S., the value of your profits will buy less goods elsewhere because of inflation. This means less investment in the U.S. and that means... less JOBS.

Finally, while the first round did keep interest rates low, it didn't spark a massive recovery. Since this is less money than the first time, the skepticism around QE2 is healthy. And that is not to mention that rates are already at historic lows and it is very possible QE2 won't hit the minimum goal for moving interest rates Even the Fed knows it is rolling the dice here.

And given the very real danger of inflation crushing the economy in the future, this is a dice role that wasn't wise to make.

His entire post is definitely worth the read. He's also put out a paper on the issue.

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