THE BLOG
11/04/2010 04:56 pm ET | Updated May 25, 2011

QE2 Geneates Instant Wealth Creation

It's magic. That rush of money creation. What a relief to have "animal spirits" back for a visit. No more dismal uncertainty.

Just when you were losing faith in Ben Bernanke, he pulls a $600 billion rabbit out of his pocket. Down goes the dollar and the Treasury bond. Up goes gold, oil, stocks and interest rates.

How much wealth creation? Global markets are up $1.7 trillion just in anticipation of QE2. Wondrous! And it doesn't include gold -- up $41 an ounce this morning. Such fun!

The cost to the system -- a measly $600 billion injection of funds by the Fed. The goal: bring asset values above their intrinsic levels to induce a positive effect on wealth and create personal spending that will help restore economic growth which will create jobs. $600 billion drives up the stock market to new highs, leads to higher household wealth, stimulates consumers to spend, which means business has to hire more workers.

"Monetary policy works for the most part by influencing the prices and yields of financial assets, which in turn affect economic decisions and thus the evolution of the economy," Bernanke the Magician, wrote in the American Economic Review in May 2004.

There is an investment play on the downing of the dollar. Some experts believe that the decline of the dollar will drive up the price of gold on a 1-to-1 ration. So, another 20 percent decline in the dollar could mean a 20 percent spike in the price of gold or a gold price of $1,620 an ounce. I'd take that eagerly depending on the length of time it will take for the dollar to fall by 20 percent. Or, I'd find a gold, precious metals, oil, metals, agriculture fund to get me participation in all the asset classes that will be part of the overall wealth creation.