In November 2010 the Federal Reserve announced that it would buy $600 billion in Treasuries. The purpose was to stimulate the economy.
This policy was dubbed QE2, yet it was actually the third major monetary stimulus since the "Great Recession" began. The first two didn't get the job done.
Did the third?
Well, let's see: Housing prices remain in a downward spiral. Automobile sales have been weak. GDP growth is around just 1.9 percent.
The official unemployment number is still above 9 percent (the unofficial number may be closer to 20 percent). And real wages have been falling (see chart below):
So, by all the measures mentioned above, it appears the QE2 stimulus did not get the job done either.
Fed Chairman Bernanke himself has recently said that the economic recovery has been "frustratingly slow."
Some in the financial media argue that QE2 worked because the Fed has prevented a Japanese-like deflation. But is inflation alive and well? Keep the above chart in mind as you read this excerpt from the July Elliott Wave Financial Forecast:
"...we continue to believe that inflationary expectations will be dashed. Consumers responded to higher gas and grocery bills by paring back purchases of less essential goods. In real terms, spending recently fell 0.1% for a second straight month. 'It was the first back-to-back decline in two years.' This statistic reveals the flaw in the case for inflation, which cannot spiral higher without one very important link -- higher wages. In real terms, wages are in a definite tailspin and this contraction represents a critical change from the prior bull market, when inflation-adjusted wages increased even more steadily than stocks."
Many other tell-tale signs suggest that the huge stimulus injections have failed, and that deflation (not inflation) will be the dominant economic trend in the years ahead. Several such indicators are accelerating in recent weeks.
Read the evidence for yourself, in our latest issues of The Elliott Wave Financial Forecast and The Elliott Wave Theorist.
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