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Will QE2 Hurt More Than It Helps?

Considering the QE2 trade has been one of the largest drivers of the market, the Street is taking a long hard look at a cautions and very public note issued by 23 of the most widely followed market mavens.

In an open letter to Ben Bernanke published by the WSJ they say “the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.”

Usually the Fed doesn’t flinch in the face of criticism, but the people who signed this letter are so influential it led to the following response:

“As the Chairman has said, the Federal Reserve has Congressionally-mandated objectives to help promote both increased employment and price stability. In light of persistently weak job creation and declining inflation, the Federal Open Market Committee’s recent actions reflect those mandates.

Greg Hess of Claremont McKenna college is among the critics of QE2. He tells the desk the purpose of the letter was to embolden dissenters in the Fed to voice their opinions.

He thinks the Fed is overly concerned about deflation and by taking such aggressive measures they’re going to make our economic troubles much worse.

Hess is hardly alone in his opinion. Widely followed bank analyst Dick Bove of Rochdale Securities was also one of the critics who signed that letter.

Bove believes the economic damage generated by QE2 could doom America to a fate similar to the Weimar Republic, which you'll remember disintegrated into Hitler’s chancellorship largely due runaway inflation and a government perceived as grossly inept.

That's some pretty serious commentary but Bove feels the Fed is making a serious mistake. Check out exactly what he told us. Click here to go to Bove: Market Doomed Because Of QE2?





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