As commenbted on by Ambrose Evans-Pritchard in The Telegraph September 20th.(Ambrose Evans-Pritchard has covered world politics and economics for 25 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London)
"Here is a back-of-an-envelope guess by David Greenlaw at Morgan Stanley on what the Fed can expect from a second blitz of bond purchases, or `Shock & Awe’ as he calls it.
If Ben Bernanke does a further $2 trillion (on top of the $1.7 trillion already in the bag) the yield on 10-year US Treasuries will drop 50 basis points to around 2.2pc.
GDP growth will be 0.3pc higher than otherwise in 2011 and 0.4pc higher in 2012.
The unemployment rate will be 0.3pc lower in 2011 and 0.5pc lower in 2012 — (in other words drop from 9.6pc to 9.1pc, ceteris paribus).
That looks like trivial returns for a collosal adventure into the unknown, with risks of dollar flight and mounting Chinese suspicions that the US intends to default on its external debts by debasement."
Amen
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