QE2 Is Not Only a Mistake, "It's Criminal," Says Vitaliy Katsenelson
Posted Dec 09, 2010 12:07pm EST by Peter Gorenstein
The Treasury market is rebounding Thursday. Yields have fallen from a six-month high, reached Wednesday, but are still up from where they were earlier in the week. Yields on the 10-year are trading at 3.23% today.
This is not what the Federal Reserve had in mind when the central bank announced the plan to purchase $600 billion in Treasury bonds -- a move that was hoped would lower rates and stimulate the U.S. economy.
Of course, there are many critics of the Fed who say the second round of quantitative easing is wrong and even harmful. "The failure of QE2 doesn't worry me. It's the success that worries me," says Vitaliy Katsenelson of Investment Management Associates.
"I think it's criminal," he tells Aaron in the accompanying clip. "They're forcing people that should not be taking risk to take risk." The fear is the Fed is repeating its past mistakes -- helping to build an asset bubble that will eventually burst with grave consequences.
Even if the Fed is successful in keeping down rates, Katsenelson doesn't believe it will have any positive economic effect. On the contrary, he says it will lead to a period of "stagflation" as the Fed simply monetizes the debt, lowering the value of the dollar and failing to create economic growth.
This story is far from over. The Fed meets Dec. 14 to discuss a potential plan to extend Treasury purchases, something Bernanke already hinted at in his recent "60 Minutes" interview.
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