What If The Fed Stopped Quantitative Easing?


Here are some thoughts that occurred to me.  Can you economic experts out there tell me what is wrong with this thinking?

The Fed has been using Quanitative Easing monetary policy of pumping liquidity into the market place by buying bonds and keeping interest rates low.  This has had no affect on getting the economy moving again.  It only seems to be propping up stock prices until very few stocks are good values.

This behavior coincides with Keynesian economic theory, which explains that when demand for goods falls off, no amount of liquidity in the economy can get investors to want to invest money in making more goods for which there is no demand.

In this situation, they liken monetary easing like trying to push on a string.  So imagine the Fed is like a fisher rolling line of the fishing reel and having it just pile up on the beach.   When a fish strikes, that person is going to have to reel in like crazy to get rid of the slack before any pull can be exerted on the fish at the end of the line.

So what would happen if the fisher started to wind back the useless slack that is lying on the beach?  In the case of the Fed, would this merely take excess liquidity out of places like the stock market, and make it easier for the Fed to exert control, when and if the economy recovers?

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