Heard on the Street
Fed's Danger of Leaks With 'QE'
By Kelly Evans
475 words
18 October 2010
This article explains that the Quantitative Easing can possibly cause an export-led growth, if it can be achieved, and that it is likely to come from more capital-intensive than labor-intensive industries. The only way that the export led growth could start is by devaluing the dollar. This will make it more expensive for us to import and also it also can cause other counties to also devalue their currencies as well.
Another point is that the quantitative easing might not be working. Kelly Evans notes that there is a risk that the money being poured into the market may be finding its way to the "gold trap." This is where the money is parked instead of being spend in other assets that may create activity in the economy.
It is my opinion that this second round of quantitative easing is extremely weak, mainly because it is expected by investors and other countries. Countries are ready and willing to devalue their currencies at will, maybe the only exception is China, and investors are ready to pour their money into gold and other assets that will increase due to quantitative easing. The Fed needs to strike a balance between giving the markets confidence and telling the market what it is going to do.
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