Wednesday, May 25, 2011

QE2 Has Created a Massive New Bubble

It's cost $600 billion of your money. And it was supposed to rescue the economy. But has Ben Bernanke's huge financial stimulus package, known as "Quantitative Easing 2," actually worked as planned?

QE2 is being wound down in the next few weeks. Fed Chairman Ben Bernanke has said it has left the economy "moving in the right direction."

But an analysis of the real numbers tells a very different story.

Turns out the program has created maybe 700,000 full-time jobs at a cost of around $850,000 each.

House prices are lower than before QE2 was launched. Economic growth is slower. Inflation is higher.

Yes, it's sparked a massive boom on the stock market. Ordinary investors have started piling back into shares again. And last week we saw the latest example of the return of animal spirits on Wall Street, as stock in new dot-com LinkedIn (LNKD: 94.00, -1.45, -1.52%) skyrocketed on its debut.

But even the stock market boom hasn't been what it appears. An analysis shows that most of the rise in the Standard & Poor's 500 Index under QE2 has simply been a result of the decline in the dollar in which shares are measured.

The truth? QE2 has created a massive new bubble in dollar-based financial assets, from stocks to gold. Meanwhile, it has had zero visible effect on the real economy. (read more)