Reply To: How is QE3 supposed to help the economy?


For several reasons, including regime uncertainty, investment has collapsed. This is not unusual in a bust. The reduction in demand for credit helps to suppress interest rates. Banks are sitting on excess reserves because the Fed is paying them interest and the opportunities for investment in the market are bleak.

I think QE3 is another bailout of the holders of MBS. So, I don’t think it will stimulate the economy. The Fed’s pronouncements to the contrary carry no more weight than those it made to justify QE1.