The big news on the economic front is that the Federal Reserve has decided to launch a second round of “quantitative easing” – dubbed QE2.
The ultimate goal of QE2 is to pump more money into our financial system to avoid deflation. On Thursday, USA Today took a closer look at what this is likely to mean to you.
A weaker dollar
If the Fed starts circulating more dollars, then it stands to reason that each dollar with be worth less. If you’re a manufacturer, this is good news, as it makes US exports cheaper. Of course, a weak dollar also means that things like foreign oil imports may well end up costing more.
Low mortgage rates
Mortgage rates generally follow Treasury rates. Because the Fed is taking steps to keep Treasury rates low, mortgage rates are likewise expected to remain low.
Higher inflation
What’s the opposite of deflation? Inflation! As long as it doesn’t spiral out of control, inflation will lift stocks, though it will punish bond investors. It will also punish retirees, or anyone else living on a fixed income.
Low savings rates
As long as interest rates remain low, there won’t be much interest to be made by keeping your money in a savings account. In fact, these low rates may contribute to improved stock performance as people flee low yielding bonds and perhaps start investing money that they might otherwise leave in the bank.
The other day, while I was at work, my cousin stole my iPad and
tested to see if it can survive a 30 foot drop, just so
she can be a youtube sensation. My apple ipad is now broken and she has 83
views. I know this is totally off topic but I had to share it with someone!
I wonder, has the US consulted with the IMF on this issue. This will effect more than just the US.
We might be in better shape ..IF
We stop giving so much foreign Aid.
The government takes pay cuts or no pay
MEANING the President & Senators
They sure have great benies.
The Senators can find ways to CUT Spending…
Just buy lots of Silver, Oil and Gold and enjoy it utill both parties of congress wake up.
You said we are making other nations rich, but what happens when our money is not worth the paper its printed on?
If the US goes into a massive default and our currency is deemed worthless are the countries, i.e. China & Japan, going to come over here and take all their stuff back? I really like my camera, phone, iPod, PS3 but if I have to give it all back to keep my country I am willing.
This means we are making other nations rich. Cheap labor wins. Corporations can ship the jobs and do not need to pay taxes until the money is brought back here. So what they do build schools and universities outside united states and spend the money there. Corporations are not patriotric. They need to satisfy shareholders. It is funny I am a replican but I am concerned what is going to happen to this country on long run. One of my very conservatives repuplican, who was colleage of mine, lost his high income job now he has been looking for a job for almost a year. Call center jobs, manufacturing jobs, industrials jobs all IT jobs you name it everything is outside the U.S. The productivity is going up. Corporations are keeping money in reserve. No lending no creation of small business jobs. Quantitative easing has repurcussions. Emerging markets can become wealtheir. We cannot compete with millions of people ready to work for low wages.In this country productivity is going up because people are working harder to keep their jobs. You figure.
Well one reason for QU2 is because there isn’t much
money left in America it’s all gone over seas along
with our good manufacting jobs. As long as Americans
keep buying foreign products we’ll need more QU2’s.
I think the damage the Fed has done to our economy has been grossly underestimated, and that we are headed for inflation big-time.
I also think anyone buying RE atm as an investment is insane, when gold miners are going to blow away just about everything else for the next few years at least. Good luck simply not losing money in RE over the next few years, especially as municipalities continue to rob homeowners blind. I’ll take TIPS over RE.
My favorite guy who called the real estate collapse *years* before it happened is Adam Hamilton at zealllc.com. I highly recommend his free article that comes out every Friday.
Passing along this very interesting article on real estate to you guys too:
http://patrick.net/housing/crash.html
This guy certainly has his own angle. Curious to hear what you think of it.
What I love is the fact that CPI is calculated “less food and energy”. So what exactly is being tracked for inflation and how can we protect ourselves?
Every trip to the grocery store seems to cost more, yet I am not making more money each month which tells me that my purchasing power is getting weaker.
I just received my tax bill for next year on my house, the county has found a new way to up the amount I pay while telling me that my house has dropped in value another $25,000 since last June. At this rate my house will be worthless in the next 3 to 5 years.
I know everyone keeps saying to look longterm, it just isn’t easy at the moment.
#5 Daddy Paul) If you don’t want to “fight the Fed”, then do exactly what they want: buy real-estate using the longest term mortgage you can get. If you have cash left over, buy more real-estate as investment properties.
Housing prices are really low (of course depending on area), and mortgage rates are historically low.
Very well written. My question is where to invest in such an enviornment?
A lot of people are worried about QE2. My concern is that the Fed is giving money to pay themselves back with money that will never be able to be paid off completely because they print the money.
It’s like we’re double dipping on interest owed to the Fed because of this decision.
I don’t believe that that the dollar will crash! I don’t think we will have major inflation, but there will automatically be an inflation adjustment.
What impact will this have on real estate prices? I just bought a house and it would be nice to have bought at the lowest. Anyone have any thoughts on the future of real estate in general and/or what effect quantitative easing will have on the real estate market?
Gone to the grocery store lately? We’re experiencing inflation now.
If mortgage rates get much lower, the banks will have to pay us to live in our own homes.