OVERVIEW ~ November 8 through 12 ~ The Dow Jones Industrial Average (DJIA), 11444.08 dropped steadily from Monday’s opening (November. 8), except for a meager 0.1% retrenchment on Wednesday, to end the week at 11192.58. Worried by rising concerns about the sovereign debt in the weaker European Union countries, most notably Ireland, the euro declined against the dollar. The 10-year Treasury note’s yield, meanwhile, began the week at 2.538%, and the yield wandered higher each day, ending the week at 2.754%.
FOCUS ~ Who can know where QE2 will go? Admittedly, the markets were strongly affected by increasing concerns about European debt, resulting in a lower exchange rate for the euro and weakened foreign stock exchanges. But the most striking story this past week came from the many unsympathetic responses to the second Quantitative Easing plan (QE2) (the $600 billion staged purchases of long-term Treasury securities by the Fed).
“It doesn’t add up,” complained Germany’s Finance Minister, Wolfgang Schäuble, “when the Americans accuse the Chinese of currency manipulations and then, with the help of their central bank’s printing presses, artificially lower the value of the dollar.” Similar critiques emerged from Russia, China and Brazil. Not coincidentally, all of these nations are very sensitive to any apparent American attempts to increase exports by decreasing the dollar’s exchange rate.
Alan S. Blinder, former Vice Chairman of the Federal Reserve, rushed to the defense of the Federal Reserve. QE2, he declared, is “not a shot in the dark, not a radical departure from conventional monetary policy, and certainly not a form of currency manipulation.”
The most unexpected assessment, perhaps, came from Kevin M. Warsh, a member of the Federal Reserve’s Board of Governors and a close associate of Fed Chairman Ben Bernanke. In a Wall Street Journal op-ed piece published Monday (November. 8), he asserted that America as a whole and, specifically, the Fed and Treasury, should be concentrating on the country’s long-term economic growth, rather than erecting short-term programs that provide a push for a sector of the economy, then expire, leaving a trail of confusion about the economy’s actual health because the stimulus program distorted demand and sales so badly.
By the end of Wednesday, it was clear that many leaders and investors weren’t greeting QE2 enthusiastically. Treasury yields were rising instead of falling, and more investors were selling than were buying.