yeah - a lot of cross-currents -- hardly know where to begin....

 

Contrary Investor are warning that QE2 will distort LEI's -- 50% of which are made up of S&P prices, FF/10yr treasury spread, and M2.  They also warn that M2 expansion itself will have to be monitored -- since it can expand for either of two reasons:

 

the good reason: lending begins

 

the bad reason: Banks have only $247 bn of treasuries on their books (Fed FoF Q2), which means that a lot of the ed buying is going to come from non-bank entities: read Pimco, retail selling their bond funds (if they have half a brain), etc.... -- and that much of that money may then be parked in CD's and the like, thus expanding *artificially* M2.

 

Flooding the world with dollars won't do the US much good without a demand to put those dollars to work -- which will require fiscal stimulus. And THAT, clearly -- now especially -- will not be forthcoming.  So in a sense, Bernanke choose to go with a pre-election strategy in a post-election world.