Over the next few days, we will be posting a multiple part series examining quantitative easing in the United States, beginning with its historical beginnings all the way through the possibility and implications surrounding QE3. The series begins below with an introduction of the topic:
In the early fall of 2007, the American economy was thriving, with housing prices, company profits and stock market indexes reaching historically high levels. Though the dot com bubble crash of the early 2000’s had occurred less than a decade before, the booming economy had now pushed the Dow Jones Industrial Average to nearly twice its level at the bottom of the 2002 crash, peaking at nearly 14,200 on October 11, 2007. This elevated level of economic prosperity was short-lived, however, as the housing bubble which had fueled the economic rise soon crashed as subprime mortgages default rates began to soar. The stock market began to fall, crashing a year later in October of 2008 and falling to just over 6,600 by March of 2009. The collapse of 2007 has left the global economy in a continued state of both economic depression and uncertainty. The underlying causes of this meltdown are a combination of failures of both complex financial instruments and regulatory bodies, as well as a misrepresentation of overall institutional risk and overextended credit. In their Levin-Coburn Report, the United States Senate concluded that “the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street”. The subsequent collapse of Lehman Brothers, a financial services firm which at the time of its bankruptcy held $613 billion worth of debt, further exacerbated the problem and sent shockwaves through the already fragile global economy. In response, governments across the world adopted a variety of fiscal and monetary policies to try and limit the damage and reinvigorate the international marketplace. In the United States, Congress implemented fiscal policies such as the American Recovery and Reinvestment Act of 2009 to lower unemployment that plagued the economy through a series of “shovel ready” projects, similar to those of the New Deal during the Great Depression. Simultaneously, the Federal Reserve began a series of unconventional monetary policies to try and inject liquidity into the marketplace. These policies, inspired largely by the Bank of Japan’s actions in the early 2000’s, were a series of “quantitative easing” measures designed to jumpstart economic lending and investment.
To date, the Fed has implemented two major quantitative easing programs, commonly referred to as “QE1” and QE2,” as vehicles for this recovery. While these programs have “contributed to the reduction in systemic tail risks following the bankruptcy of Lehman Brothers,” the overall success of their implementation remains ambiguous as “financial conditions remain tight” and bank lending channels remain “strained”. As the economic recovery remains slow and dragging, speeches by leading Fed officials seem to indicate another round of quantitative easing, or “QE3,” may be on the way. Amongst leading economists, the relative success of such a program remains uncertain and contentious, with critics pointing that the country may be “reaching a point of ‘diminishing returns’ with its asset-purchasing programs”. Given the lack of definitive empirical evidence to support either side’s claims, as well as the exceedingly polarized political environment within the county, it appears that a program such as QE3 will do little more than increase the uncertainty within the markets that continues to hamper lending and investment level, making such a program ultimately ill-advised.
 “Google Finance: Dow Jones Industrial Average.” Google. Web. 9 Nov. 2011.
 Levin, Carl, and Tom Coburn. “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse.” United States Senate. 13 Apr. 2011. Web. 3 Nov. 2011.
 Mamudi, Sam. “Lehman Folds with Record $613 Billion Debt – MarketWatch.” MarketWatch. 15 Sept. 2008. Web. 6 Nov. 2011.
 Press Release. “The Recovery Act.” Recovery.gov – Tracking the Money. 17 Feb. 2009. Web. 9 Nov. 2011.
 Klyuev, Vladimir, Phil De Imus, and Krishna Srinivasan. “Unconventional Choices for Unconventional Times: Credit and Quantitative Easing in Advanced Economies.” IMF. International Monetary Fund, 4 Nov. 2009. Web. 7 Nov. 2011.
 Washington, Jason Lange. “Federal Reserve Might Not Undertake QE3, And It Might Not Help If They Do.” Breaking News and Opinion on The Huffington Post. The Huffington Post, 13 Aug. 2011. Web. 9 Nov. 2011.