FED Official Says Stimulus More Likely

William Dudley, the president of the Federal Reserve bank of NY, said economic growth has been disapointing and worries that if the economy doesn't strengthen then widespread deflation will occur. 

The Fed is considering buying more government debt to force down rates on mortgages and other loans to entice Americans to spend more. Doing so would bolster the economy.

The problem with this line of thinking is that we already have rates extremely low and it has not "enticed" Americans so far, so why now?  This should be good for Gold/Silver and will be destructive to the US dollar.  The fact that they feel economic stimulus is needed shows that the economies health is not as good as the main media says. 

Some Fed officials have clashed over how much help would come from buying more government debt, the Fed's next likely step.

It looks like QE2 is not off the table and seems more likely, further devaluating the US dollar and bolstering Gold/Silver, as confidence in fiat currencies wane. 

Despite the divisions, many economists predict the Fed will move ahead and buy more government securities — perhaps as soon as its next meeting on Nov. 2-3. The Fed is weighing that option because its traditional interest-rate lever to help the economy is already at a record low near zero and can't be cut further. 

This is why QE2 is much more likley, the Fed Funds Rate is already at 0.15% and really going to 0.0% isn't going to do much as money is essentially free already, but nobody wants it.  The problem is that we have to spend endlessly for our economy to survive, but we have hit a brick wall of debt.

A $500 billion purchase of securities would provide about as much stimulus as a half-point to three-quarters point cut in the Fed's main interest-rate lever 

Half a trillion dollars in securities purchases, will this become the new norm to continue getting a half-point cut of stimulus and how much is enough?

He argued that lower rates would help bolster the values of homes and stocks, which would support Americans' wealth and could make them feel better about spending more.

Mortgage failures are excellerating currenlty because homeowners are already in mortgages they can''t afford. Short sales and foreclosures will continue to affect home prices unless all homeowner's principle were dropped enabling them to refinance with the lower rate (mortgages at risk of default or in default are currently underwater).  How is increased QE and reduced interest rates going to make Americans more wealthy as it decreases the value of the US dollar makeing Americans poorer as their cheaper dollar buys fewer goods unless deflation follows (but isn't that what they say they are fighting here).   The stock market may go up in the short term (depending on how much money continues to flow out of Mutual funds and ETF's).  With American families and small businesses reducing tolerance for taking on more debt this doesn't seem like it will really benefit the country.  [ Read more ... ]