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April 15, 2013 / Admin

Quantitative Easing; Friend or Foe?


Todd Bliman, editor at Fisher Investments MarketMinder, takes a good look at Ben Bernanke’s quantitative easing program and its effects on the economy and lending.  – Matt Goldhaber, VP, Fisher Investments

QE’s Theoretical Foible in One Lesson

In every trade, there’s a buyer and a seller. Similarly, in every loan, there’s a borrower (debtor) and a lender (creditor)—a pretty basic lesson, to be sure. But it’s one that’s often overlooked in discussion of what the Fed calls its “extraordinarily accommodative monetary policy“—essentially, quantitative easing (QE). Understanding this clearly is key to assessing the outcome of a potential end to QE.

For the better part of the last five years, Fed Chairman Ben Bernanke’s stated mission has been to pin borrowing costs low—providing, in his view, an economic stimulus by making borrowing cheaper. Bernanke seems to believe the animal spirits (or confidence) of the borrowing public need to be stirred. He figures cheap money is the elixir to awaken the urge, financing home purchases, promoting business investment and spurring consumption in general. And, in part due to his efforts, money is cheap! Ten-year government bond rates are presently 1.86% (as of March 28, 2013) and 30-year conventional mortgages will run you a paltry 3.94% today. That latter figure means a $1,000 monthly principal and interest mortgage payment will support a loan nearly three times larger today than it did in the early 1980s.

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