Written on August 3, 2010
Sunny in Doha and a nice rally yesterday.
The St. Louis Fed started to make some noise about deflation last week. They will soon be back in the business of trying to inflate the economy likely utilizing QUANTITATIVE EASING…again.
Here is how it works…
1. Throw lots of money at the banks.
2. Cross your fingers and pray that someone wants to borrow it and that the banks will actually lend it rather than buy more treasuries.
It is intended to work like this…
Normally, the US Government issues debt in the form of bills, notes and bonds which are bought by Primary Dealers (Commercial Banks)
Quantitative Easing
Central bank buys securities from commercial banks with printed money…Providing banks with excess reserves they should use to lend…intended to ease liquidity pressure…currently banks are using funds to leverage up to buy more Treasuries.
Like this…
Good luck out there,
Leon
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