Yesterday, I went to the Bank of Just Say No to apply for a loan.   The soothsayers on the news report the institutions have more money to lend due to Quantum Easing 2 (QE2) and at a cheap interest rate.  After all, my Chihuahua, Diego needs a new fall collar and my husband is tired of painting my toenails.  It was going well until the employment portion of the application and it said “Mortgage Loan Officer.”  They had me escorted out of the building.

Last week, Uncle Bernanke and the Fed gave the nation a Zoloft lift by throwing  $600 billion into the economy.  QE2  has brought out hostile reactions from China, Germany and Sara Palin. Economists throughout the world have derisive opinions varying from it’s the end of our world as we know it, to, the Fed should have taken action six months ago.

Why did Uncle Bernanke dispense an anti-depressant to the American Economy?  We have stumbled into doldrums and can’t seem to find our way out.   There is a fear that our economy’s painfully slow growth will take a dive into Japanese territory.  In the 1990’s Japan suffered from deflation: their economy did not grow.  It was paralyzed as it suffered through a housing crash, high unemployment, and slashed prices on goods.  The well-heeled citizens horded their yen and no one was buying discounted items.

With the money from QE 2, the Fed will buy securities, sold by investors, mostly commercial banks, in the open market, paying with newly minted government cash.  In theory the sellers then deposit the funds into their banks. The banks turn the deposits to loans to consumers and businesses. Then we spend the money and the money comes back to the bank.  And the money supply multiplies and expands and, in turn, so does the economy.

If successful, the action could kick the housing prices higher with even lower interest rates,(Who knew 4%  was a high interest rate?) lure businesses to go ahead with projects (that is, if the banks will lend to them) and push the stock market higher.  We would go back to our happy place.

If QE2 is too successful, the economy could shift towards the dreaded “I” word or inflation and the cost of everything could sky rocket.

For now a portion of the happy pill has been administered.   Let just hope the cure is not worse than the symptoms.

It is easy to take liberty for granted, when you have never had it taken from you.  Pray for those past and present that let us enjoy our freedom, every, single day.   ~Author unknown

Diane Gerdes