These risks should be clear after the recent crisis driven by the bursting of asset price bubbles. The greatest danger will then be to leveraged investors, including individuals who bought these assets with borrowed money and banks that hold long-term securities. Like all bubbles, these exaggerated increases can rapidly reverse when interest rates return to normal levels. He notes that expectation of the policy has already lowered long-term interest rates, depressed the dollar and upped equity and commodity prices – and that these consequences create real risks: Well, Marty Feldstein at Harvard University reckons that it’s “a dangerous gamble with only a small potential upside benefit and substantial risks of creating asset bubbles that could destabilise the global economy”. Wondering what the implications are of QE2 (as in Quantiative Easing mark II, not Her Majesty) in the US – whereby the Fed will buy up long-dated government bonds of maybe up to a trillion dollars or so?
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