I think that QE2 is absolutely required at this point. There has not been enough fiscal stimulus in the economy. I agree with Paul Krugman’s assessment that the expansion of government spending is a myth. The burden falls on monetary policy.

The previous round of QE probably was not enough. The banks are currently in the process of de-leveraging and solidifying their balance sheets. Even if the low reserve requirements were lowered, the most likely scenario is that the additional money would be held on the balance sheet and not loaned out. It is most likely that the stimulus effects of the previous round of QE were dampened due to this de-leveraging. In other words, as more money flowed into the banking system, banks used the money to build up their balance sheets rather than making loans. This type of easing would have worked before the crisis, since the banks would have immediately taken the cash and loaned it out.

Tthe Fed is now also purchases Asset-Backed Securities (ABS) in addition to Treasuries. In theory, this enhances the effect of QE, since this takes troubled securities out of the market and puts them on the Fed’s balance sheet. The Fed has a much longer horizon than the banks, so it is possible that they may end up making a profit from these issues. However, as Taibbi points out, QE can buoy the ABS market since the demand will be higher. However, I think that just the expectation of QE has the same effect. Unlike Taibbi, I’m not sure if this is such a bad thing.

The Fed released their minutes today, and the street seems to think that QE2 is on the horizon.

In the past year, over three million Americans have lost their jobs, yet the Democratic Congress continues deficit spending, adding to the bureaucracy, and increasing the national debt on our children and grandchildren.

Most economists would agree that spending is necessary in order to end a recession. Calling to end spending now would put our recovery at risk. Even if you don’t believe in the Keynesian effect, you would still want to get out of a recession with some spending until you saw an increase in inflation. Thankfully, we don’t face inflation as a serious issue yet.

But most Americans do not want to turn over the best medical care system in the world to the federal government

This graphic would seem to indicate that we do not have the best medical care system in the world. Sure, we spend a lot of money, but our results aren’t all that great.

Americans were shocked on Christmas Day to learn of the attempted bombing of a flight to Detroit. This foreign terror suspect was given the same legal rights as a U.S. citizen, and immediately stopped providing critical intelligence.

Bob McDonnell seems to be arguing that the foreign terror suspect should have been stripped of his legal rights and forced to continue providing critical intelligence, perhaps through “enhanced interrogation techniques”. This is similar in nature to the stance that Scott Brown holds:

Brown, in response to a question, told reporters that Umar Farouk Abdulmutallab, 23, the Nigerian accused of trying to blow up a passenger jet en route to Detroit on Christmas Day, should be treated as an enemy combatant, taken to the US detention camp at Guantanamo Bay, Cuba, interrogated “pursuant to our rules of engagement and laws of war,” and not be treated as a civilian criminal suspect. Brown asserted that waterboarding does not constitute torture, but he did not specifically say Abdulmutallab should be subjected to waterboarding. — Link

I am increasingly concerned with the election of public officials who endorse torture.