Will the money supply and risk grow with more quantitative easing?
*Barron's, by Randall W. Forsyth, October 4, 2010
”The Helicopters Are Hovering
The prospect of more quantitative easing helps risk move ahead in September, but beware unintended consequences.
THE POWER OF THE PRESS. Usually that’s thought of as media influence, which once was centered on pages printed with ink on devices not terribly differently from Herr Gutenberg’s.
The financial markets are also feeling the power of the printing press, or its modern electronic equivalent. The prospect of central banks ‘printing money’ by purchasing government securities made the month just ended a September to remember. It’s the electronic analog of dumping dollars from a helicopter, the Milton Friedman metaphor cited by Federal Reserve Chairman Bernanke in a speech last November that earned him the moniker ‘Helicopter Ben.’
The prospect of more quantitative easing was introduced by Bernanke in his speech at the central bank’s annual Jackson Hole conference in late August, in which he suggested inflation may be lower than the Fed’s preferred floor and it would take action if the economy didn’t strengthen in accordance with its forecast. The Federal Open Market Committee seconded the chairman, that the Fed stood ready to take action while inflation was too low to meet the twin objectives of price stability and maximum employment.
With a new flood of liquidity anticipated, risk was back on in September, with a nearly 9% surge in the Standard & Poor’s 500.”
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