The nation′s central bank, the Federal Reserve, will continue being the largest purchaser of U.S. Treasury bonds after QE2 ends this month. Ben Bernanke left the door open last week during his press conference for further quantitative easing, which involves the Fed lending money to large banks and institutions for the expressed purpose of purchasing Treasuries which fund the national debt. This will make Barack Obama and Wall Street happy and we will see some positive reaction in the Dow Jones. But the fundamental problems with the economy, such as the condition of Fannie Mae and Freddie Mac, as well as the budget deficits and debt ceiling of the federal government will not be corrected by QE3.

quantitative easing

The plan being floated today is that the Fed will continue buying some $25 Billion dollars worth of Treasury bonds through surrogates for the next twelve months. Concerns about the sluggish U.S. economy, as well as the potential for more trouble from Europe over the debt crisis in Greece are seen as the primary drivers for the third round of quantitative easing. While the Fed is not calling it as such yet, the effect is still the same.

Some say that doing the same thing over and over again and expecting different results is a form of insanity. The first two rounds of quantitative easing were in response to major buyers of U.S. Treasuries, like China and Japan, were opting out. Confidence that the leadership in Washington would reduce federal government spending and practice fiscal responsibility have diminished. One Chinese credit agency declared two weeks ago that the United States as in effect already begun to default on its debts. Obama and Democrats claim that they refuse to burden the Middle Class to pay for the budget deficits, but quantitative easing as resulted in just that, as it has produced inflation, particularly with food and energy costs.

So get ready for QE3 to begin in July. Since the collapse of Lehman Brothers, the country′s central bank, the Federal Reserve under Ben Bernanke, has injected some $2.3 Trillion dollars of quantitative easing into the economy. The Federal government under Barack Obama has pumped an additional $4 Trillion dollars worth of budget deficits as well. Talks to curb the budget deficits and debt ceiling under Joe Biden have failed. The economy is still sluggish, Fannie Mae and Freddie Mac are still sitting on piles of shaky mortgages, major banks still hold trillions of dollars worth of junk on their books. One might start asking if it was such a good idea to let Lehman fold? Or to spend so much to prop up a financial system built of the hot air of fiat currency?