In a measure to stimulate the economy, the Federal Reserve has launched the second round of its policy commonly known as the QE2. The small businesses won’t get much benefit by this move while it might be a thrust for the big businesses. In fairness to Bernanke and crew, it is being believed that QE won’t have an impact on small business sector. The best case scenario, however, is an improvement in economic performance in presence of the widening gap between big and small businesses.
What the Fed does is it prints money in digital form, under the new QE policy. It then uses this money for buying assets from banks that are now left out with more money for increased lending. Bernanke and company believe that QE2 policy will inevitably stimulate the economy as the bond interest rates shall be lowered. This is where the argument is, that if FED works to create demand for bonds then their prices obviously increase and their yields fall. The low interest rate on bonds makes it feasible for companies to issue more debt. It won’t be wrong to say that they take advantage of the situation with the cheap money to expand operations. It is also true that as QE2 increases the money flow, inflation occurs, and hence the dollar value plunges in comparison to other currencies. Henceforth, the exports get stimulated, with the lowering of the dollar value and foreign customers gain an advantage.
Small Business Administration findings reveal that small companies are responsible for producing half of private sector non-agricultural gross domestic product and an export amounting to just 31 percent. This means that devaluation of the dollar and an export stimulus will have little effect on small companies. Generation of value within the country thus becomes the domain of small businesses.
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to