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In his New York Times article Give jobs a chance Paul Krugman petitions the Fed to not taper its bond purchases Americas central banks are in a tight spot On September 18 2013 the Federal Reserve was said to have decided whether they would begin to reduce the eighty-five billion dollar a month bond purchasing program known as quantitative easingQE it uses to support the economy Krugman states that if bond purchases were reduced to soon it could be extremely detrimental to the economy but on the other side if it were to hold off longer and then too learn that full employment was closer than thought there may be a little inflation but nothing serious Unfortunately Krugman gives little attention to weather printing this cheap money can sustain the US economy and perhaps markets only seem to be propped up leaving some to think the Fed must end QE or face a recession The effect QE has in viewpoint of Mr Krugman is of a supplemental tool to help the economy recover Surely this is the viewpoint of the Fed as well both fail to see the inaccuracy of their outlook The program works by purchasing various assets mostly bonds but also other securities which raises asset prices making the long term yield low and thus drives up the price of other assets in a sort of cascade effect The Federal Reserves large scale purchases of Treasury securities may provide a moderate boost to economic growth and inflation but it appears the US markets are only up because of this stimulus like its high on steroids This is supported by the apparent lack of consumer confidence which can be examined by looking at the high unemployment percentage Paul Krugman in his article assumes that QE is beneficial on The further the Fed continues with QE the harder it is going to be to reverse However for several reasons one of which
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