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Rob McAllister

Quantatative Easing 2

Monday, November 8, 2010 - Article by: Rob McAllister - West Seattle Mortgage, Inc. 85705 - Message

Last week was a busy week on the economic front. The Fed announced they were going to spend another $600billion to purchase Treasury Securities. The expectation from many is that this will keep interest rates low through next summer. I am not going to argue that this action will keep rates low, but I will warn that what the Fed is doing is not good for the housing market (interest rates) in the longer term picture.

Why is the Fed buying Treasuries? This will ultimately drive the US dollar lower...which has already happend. Many may not like this, but it does make our products cheaper for export when the dollar is weak. When we export more we hire more employees to make those products and those people have money to spend which will help the economy recover. All very good things...right?

These are all great things in the short term, but the trouble with this is that it could cause inflation...velocity of money may catch up with us and with inflation rates will go up. This could also hurt our investments and retirement accounts with a devalued dollar our investments don't seem as attractive to foreign investors which may keep the stock market from gaining much.

In the end I would say that the Fed is stuck making bad long term plans to get our short term needs met. We all make these types of choices in life-some more than others. When the Fed does it we should take advantage of the short term benefits (very low rates) and be thoughtful in our own long term plans that there will be a time to pay this all back (collectively as a country.)

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