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QE2 Failed to Boost US Spending

The Federal Reserve’s quantitative easing policy failed to meet the “ultimate objective” of boosting employment and economic growth, said Mohamed El-Erian, chief executive officer at Pacific Investment Management Co.

While the bond-purchase program pushed investors into higher-yielding assets such as stocks, the “transmission mechanism” to lower unemployment by driving more money into the economy didn’t work, El-Erian of Pimco, the world’s biggest manager of bond funds, said in a radio interview on “Bloomberg Surveillance” with Tom Keene.

“If success is defined in terms of the ultimate objective, which is pushing up valuation in order for people to spend more on goods and services and therefore get the economy to grow and unemployment to come down rapidly, then the answer is no,” El- Erian said from Newport Beach, California.

The U.S. central bank began the second round of asset purchases, known as QE2, in November after buying $1.7 trillion in securities through last year, increasing the amount of money in circulation to prevent deflation. The central bank’s $600 billion in purchases of Treasuries are due to end this month.

From the BLS


Nonfarm payroll employment changed little (+54,000) in May, and the unemployment
rate was essentially unchanged at 9.1 percent, the U.S. Bureau of Labor Statistics
reported today. Job gains continued in professional and business services, health
care, and mining. Employment levels in other major private-sector industries were
little changed, and local government employment continued to decline.

From Calculated Risk:


With the employment numbers we just say from the Bureau of Labor Statistics, it is apparent that QE2 was a fiasco.
We must not underestimate the Federal Reserve's resolve to again try something that has not worked in the past. Big Ben Bernanke's reputation is at stake.
He will fire up QE3 - probably this autumn, once more poor results become apparent, and Wall Street starts to suffer.
While the impact of QE3 will be broad, specifics may be difficult to determine at this point, though I anticipate it will be very supportive of higher gold prices.