If you are an investor, by now you have heard everyone and their grandmother's opinions on quantitative easing or QE. While pundits, economists and politicians have a thousand and one theories as to what exactly this form of monetary policy entails, the fact of the matter is that there are some misconceptions about its economic impact.
Today, we'll review the definition of quantitative easing, what it means for investors and what they can do to avoid losing money due to misguided government intervention.
America's relationship with QE began during 2009, when the U.S. Federal Reserve undertook a large-scale purchase of mortgage-backed securities to stem banking losses on nonperforming loans. One year later, the Fed officially initiated QE2, a $600 billion program that purchased U.S. Treasury bonds. Finally, as of late September of this year, the Fed was back at it with QE3, an initiative which resumed MBS purchases for the foreseeable future.
Nearly $1.2 trillion has been spent boosting the balance sheets of MBS or U.S. Treasury-holding financial institutions. Another $4 trillion has been promised in order to backstop the liabilities of these same banks. At the same time, an enormous amount of assets has been passed on to the taxpayer-funded books of the Fed. Not exactly a picture of economic stability, as one can plainly see.
Some analysts argue that QE has been good for the economy by driving more business into stocks and bonds. However, the risk that a temporary bubble is being created in U.S. financial markets grows, and liberal and conservative economists alike warn that a market correction of between 10 and 30 percent could throw the economy into a tailspin.
This issue may be especially troublesome for soon-to-be retirees who rely on pension accounts to fund their retirement. Those who wish to learn how they can spare their savings from losses due to misguided government intervention in the marketplace should visit GreatWealthStrategies.com to learn more about wealth preservation today.