QE2 is working because it is weakening the dollar and driving stock prices higher, according to Paul Krugman.
Krugman explains that typically, lower interest rates impact the housing market, but because of our deleveraging environment, that’s not happening as expected. Instead, it’s stock prices.
From Krugman’s piece:
If QE really is working through stocks and the dollar, are there further implications? I’m not sure — in a highly indebted society, you might hesitate at policies that would increase private debt further, but if stocks are driving the story, the consumers now spending more aren’t the same people who are in debt trouble — so that’s actually OK. And as for the weaker dollar, if the Chinese and the Brazilians don’t like it, they are free to let their currencies appreciate.
So not to worry about another segment of the economy leveraging up, they have stock prices to protect them.
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