The Federal Reserve announced on Thursday they would begin buying up 40 billion dollars per month of mortgage backed securities to help strengthen the U.S. economy. Known as Quantative Easing 3 (QE3), the Fed’s plan raises questions and concerns from many economists as the stock market rallied. That Thursday, the DOW closed up over 200 points.
In my opinion, any sane person should question QE3. The “printing” of money to manipulate the market has to have some of you opening your eyes. Please note that money is not actually printed these days. Paper dollars and metal coins are too material, time, and labor intensive (they cost too much). Since most financial transactions are now electronic in this digital age, more zeros are simply entered into the computers to pump up the funding accounts (quick, easy, and free). These accounts are then used to purchase the shares containing mortgage backed securities from the open market.
Overall, this will have several effects. It will drive up the price of real estate based stocks and help grow a market bubble. The Fed’s idea is they want to keep the housing market stable (buy up the risky mortgage backed securities=stable housing market) AND pump up the stock market (the only bullet left in their gun). Overall, this is another way to open the door wider, into full market manipulation (not that they would ever let us know). After all, a booming stock market means political stabilization and growing economy, right?
Well, the Dow at 13400 right now, sure seems fishy. How could that be possible in this economy? You guessed it… not likely without some help… a lot of help. The question is, how long will the rally last, after the real investors see the full picture and pull out?
Just remember back to the 2008 economic collapse… how fast things spiraled down with the housing bubble. Well, the stock market is digital… it runs much faster than missed mortgage payments and foreclosures.