Friday, June 21, 2013

The End Of QE

Stock markets throughout the world went into a nosedive ever since Federal Reserve chairman Ben Bernanke practically said that the central bank is preparing to wind down its stimulus policies this year.

Better known as quantitative easing (QE), the program is basically a massive bond buying program by the US government in an effort to dope the economy into recovery. Now Bernanke said that their bond buying may be stopped later this year and QE may end sometime in 2014.

The markets dived on the news but frankly I think ending the program now is a good thing. QE has to end sometime, you can't expect the Federal Reserve to keep on buying bonds forever, so with the US economy showing some signs of life, ending it now is more ideal than ending it later when the economy is under pressure. Also the results of QE had been decidedly mixed.

Although the US economy has been slowly recovering, it's growth has been at less than 2% even with all the money dumped into the market. Frankly, the QE has not very effective in stimulating the world economy, or even the US economy. So although the markets had reacted badly, I think Ben Bernake is doing the right thing here. This may be the right time to end QE.

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