Bernanke's Dilemma: $4 Trillion in Quantitative Easing

Ben Bernanke is in a real fix. His quantitative easing (QE) program is designed to boost stock prices, lower bond yields, and weaken the dollar.

But the market has already priced all that in, so when he announces the start of the program on November 3, there's a good chance that things will either stay the same or head in the opposite direction. That's bad for Bernanke. Just imagine if the dollar strengthens just as the Fed chairman begins buying-up Treasuries to push the dollar down. He'll look pretty foolish. But that could happen because the dollar has already slipped nearly 7% since August and is overdue for a rebound.

So, what should he do? Should he go ahead and launch his program anyway knowing it could backfire and further damage his credibility or scrap the whole deal and move on to Plan B?

The truth is, he has no choice. If he doesn't follow through now, investors will accuse him of "withdrawing liquidity" and send the market into a nosedive. So, he has to go forward and let the chips fall where they may. If QE2 turns out to be a bust, so be it.'

Read more...