We have also seen FED officials started making noises about the neccesity of significant QE3.
The purpose of these QEs, ostensibly, is to help the economy, but this is really a red herring. The main purpose of QE is to help the banks, to prevent the banks from Lehman like collapses. Operationally, QEs are aimed at lowering the interest rates so as to lower the funding cost of the US treasury. With US public debt at USD$15.01 trillion and growing, the US can not afford to let interest rates rise, for that will crash the US government finance.
We know the outstanding amount of financial derivatives is over USD$600 trillion, and over 80% of these are interest rate related derivatives. The US interest rates have been declining since the Paul Vocker years (1970s), and interest rate derivatives started explosive growth in the mid 90s when Robert Rubin was the treasury secretary*. The effect of these interest rate derivatives has been the continued supression of US government bond yield.
Raising interest rates? the consequence will be unbearable to the system. And as the japanese experience has shown, once a central bank monetary policy gets to ZIRP (zero interest rate policy), there is basically no way out. The US Federal Reserve is pretty much trapped.
The grand experiment of easy money policies over the past few decades will end, and end very badly.
*Reference: Gold and Interest Rates: More than Joined at the Hip, Ron Kirby: http://news.goldseek.com/GoldSeek/1314194400.php
