Why QE2 Failed: The Money All Went Overseas

Source: Huffington Post: Business
Date: 7/11/11 10:42 AM ET
by: Ellen Brown

On June 30, QE2 ended with a whimper. The Fed's second round of "quantitative easing" involved $600 billion created with a computer keystroke for the purchase of long-term government bonds. But the government never actually got the money, which went straight into the reserve accounts of banks, where it still sits today. Worse, it went into the reserve accounts of foreign banks, on which the Federal Reserve is now paying 0.25-percent interest.

Before QE2 there was QE1, in which the Fed bought $1.25 trillion in mortgage-backed securities from the banks. This money, too, remains in bank reserve accounts collecting interest and dust. The Fed reports that the accumulated excess reserves of depository institutions now total nearly $1.6 trillion.


Interestingly, $1.6 trillion is also the size of the federal deficit -- a deficit so large that some members of Congress are threatening to force a default on the national debt if it isn't corrected soon.
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