QE2

This is to those who want to know a little more about QE2.

James Hamilton gives a very detailed and comprehensive description of what he believes QE2 is at here, here, here, here, here, here, here, here, here, and here.

To cut the long story short, Hamilton addressed the following:-

1. why the FED, not the Treasury (in theory, the proposed objective(s) of QE2 can also be achieved through Treasury operation)

2. the mechanism of QE2 (if you are really interested in QE2, you can read Hamilton and Wu's paper here)

3. QE2 is not the one and only one policy tool the FED has

4. the main objective of QE2 is to avoid deflation (ibid)

5. in endorsing QE2, the FED should keep watching commodity prices changes closely

For ordinary people like you and me, 2 and 4 are areas where we "should" pay our limited and scarce efforts on as they have strong implication(s) on portfolio management. In case you still have time after struggling on 2 and 4, you may wish to learn a little more about 3 and/or 5. 1 is for nerds.

A digress: what I think is "missing" in Hamilton's series of posts are

1) a normative fiscal policy recommendation and/or

2) a discussion of the (short/long term) effect of government expenditure under QE2 on the overall economy.