Will Round Two of Quantitative Easing Help the U.S. Economy?

Online, November 13, 2010 (Newswire.com) - Federal Reserve Chairman Ben S. Bernanke recently announced the Fed would buy $600 billion in Treasury securities through the middle of next year in an attempt to reduce the long-term costs of borrowing and to keep prices from spiraling downward. But will this round of 'quantitative easing' really help our economy? Financial advisor Dennis Tubbergen questions that logic.

"The supposed goal of the Federal Reserve in dumping money into the economy by buying U.S. Treasuries was to provide banks with enough liquidity to make loans and have the 'money multiplier effect' kick in, whereby each dollar injected into the economy is transformed into multiple dollars," explains Tubbergen. "The bottom line is that the Fed's policies thus far haven't worked.

According to a recent discussion paper posted on the Federal Reserve Board's website by economists Seth B. Carpenter and Selva Demiralp, the transformation has not happened as yet and is not likely to work for the current economy. Tubbergen agrees.

Tubbergen, who is CEO of USA Wealth Management LLC, a federally registered investment advisory company, refers to John Mauldin's weekly e-letter in which Mauldin states, ". . . bank reserves increased dramatically since the start of the financial crisis. Reserves are up a staggering 2,173 percent from $47.3 billion on September 10, 2008." The e-letter goes on to say M2 is up only 11.4 percent since September 10, 2008 and bank loans are down $140.2 billion."

"According to this article, reserves are up and loans are down," explains Tubbergen. "The bottom line is that the Feds' policies haven't worked."

In an October 29, 2010 article in The Wall Street Journal, the winner of this year's Nobel prize in economics stated quantitative easing by the Fed won't help unemployment because there is already 'lots of liquidity' in the U.S. economy. Christopher Pissarides went on to state the U.S. should allow the dollar to weaken and he blames 'fiscal indiscipline' as the cause of the problems with the U.S. economy.

"The Fed is now considering round two of 'quantitative easing,' injecting still more hot-off-the-presses dollars into the economy in the hopes of policy working this time," concludes Tubbergen.

And where will that get us, in Tubbergen's opinion?

"Closer to national bankruptcy," Tubbergen states.

For more information on Dennis Tubbergen's views, visit www.dennistubbergen.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.