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Is There A Fear In Implementing Further Quantitative Easing?

On the one hand, the Federal Reserve extended Operation Twist until the end of 2012 with another $267 Billion commitment. (1) The Eurozone also committed $100 Billion to bail out Spanish banks. (2)(3) The markets seemed to react with a yawn to both events. If the amount of the original Operation Twist was $400 Billion, does this imply that the economy is in better shape than 6 months ago? Is there really evidence to conclude this? What about the rest of the world? India has conceded a slowdown over the last 6 months. (6) China is also in a slowdown and in stimulus mode. (1)(4) The fate of the world's growth rested with these 2 countries not that long ago. (7) The Eurozone is in much worse shape than 6 months prior. The Greek woes have intensified, and runs on banks are occurring which did not happen in the recent past. (2)

Is there an admission that maybe Quantitative Easing is not working? Perhaps the risks of hyperinflation or another bank system blowout are not far away. There is a common statement that reads: "As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate" Ben Bernanke. (5) Haven't financial stresses escalated? (5) Are they looking for a rapid deceleration in the economic growth, or can this be translated as "we don't want to print more money unless something really bad happens"? If they are hesitant to print money, what is the reason? Is it due to the coming US election? Is it because the negative side effects of QE are beginning to become visible, and the central banks are trapped between rock and metal? In Europe, this is already happening as the economies get worse alongside more austerity measures. To boot, bank runs can destabilize the whole thing quickly, which is the last thing central bankers want. This is akin to loans being called in, or the bluff being called in a game of poker. Available options become non-existent, and true value will have to be made apparent to the bank depositors. This will not be very easy to achieve.

Time will tell if these speculations have any merit, but the hesitation is something to note.

Sources:

1) http://af.reuters.com/article/metalsNews/idAFL3E8HL3KX20120621

2) http://www.nytimes.com/2012/05/21/business/global/europes-worst-fear-spain-and-greece-spiral-down-together.html

3) http://www.reuters.com/article/2012/06/11/eurozone-idUSL5E8HB8PR20120611

4) http://www.bloomberg.com/news/2012-06-04/german-stocks-decline-automakers-fall-on-china-slowdown.html

5) http://www.bloomberg.com/news/2012-06-07/bernanke-sees-risks-to-economy-from-europe-to-u-s-budget.html

6) http://www.bloomberg.com/news/2012-06-18/india-unexpectedly-holds-rate-as-surging-prices-curb-cut-scope.html

7)

http://www.bloomberg.com/news/2011-09-06/china-in-time-of-millionaires-frustrates-neighbor-william-pesek.html

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.