Will QE2 work?

Will QE2 succeed or fail? Why? It is hard to answer these questions, because there are many highly educated, brilliant minds on both sides of the argument. Studying both side arguments, I will try to answer the question. In my opinion, the QE2 was necessary in order to save the economy from going into deflationary spiral.
One of the risks of QE2 is inflation. I think that would be a good problem to have. If we have a little bit of inflation, hopefully that means the economy is growing again. People are making money. Businesses are expanding. The economy starts overheating a little bit. I would much rather has that problem to deal with than deflation. As I wrote on my Term Paper deflation is worse than little inflation. People stop spending during the Great Depression, because they were uncertain.
Let’s say you had some disease that you were trying to avoid. So you took an extra dose of chemotherapy if you had cancer. You are creating another risk, but you are insuring that you have dealt with the previous problem. Same, QE2 is insurance policy. In the history you can see the biggest mistakes of politicians in Washington. They don’t deal with the problems of future. They try to solve the current problems, leaving future problems to future politicians. The current problem is there is money everywhere, but no one is doing anything. Bernanke is trying to shake people out, so they don’t just sit there forever getting no return on their money. Let’s have a little insurance policy to prevent a deflationary spiral, which happened in Japan. That’s turned into a disaster for the Japanese people. Nobody wants the deflation to happen. We would like to create asset price inflation. We would like the home values move up again. And then the debt write-downs to the banks will be less. There are lots of risks dealing with QE2. But QE2 is worth to try it. After the recent financial crises, people stopped spending. The QE2 was necessary, because there is uncertainty in the economy. Also I would like to write about the politics. Big government, huge spending, tax-cut expirations, the “ObamaCare” (the Healthcare Bill) and some other aspects are the reasons in slowing the economy down. I think the President Obama is failing to stabilize the economy.
When the interest rates are close to zero, we get into liquidity trap. The banks will make loans because who wants to loan at such low rates? If you know rates are going up, you wait to loan money until they do. You don’t want to have money loaned our at 3 or 4 percent interest when you think next year you might get 7 or 8 percent interest. This is exactly right thing to do. The solution is higher interest rates. How you get higher interest rates is inflation. Printing money will eventually create inflation. It is slippery slope. Once you get over the hump, you have the potential for a rapid increase in money supply. Then they’ll have to pull the money back out of the economy to keep it from becoming rampant inflation. The QE2’s $600 billion is cautionary step. They can always do more later if they need to. It will hurt some people, mostly those on fixed-income pensions. But the message is a little bit of inflation cures a lot of recession. And if we’ve ever needed cure, we need it right now.