It become official this past week, QE III is going to happen. For those of you wondering, QE III stands for quantitative easing. In other words, the federal government is going to increase spending in hopes of jump starting the stagnant economy. This marks the third time such an action has taken place.

So what exactly are they going to do? The answer is found in the bond world. No, not James Bond, but U.S. Treasury Bonds, the little pieces of paper the government sells to help raise money.  This time the government will crank up the magic money machine and print more green paper. With that paper they will buy up Treasuries or mortgages from private banks and in theory pump money into the system. Does it work? The answer might be in the second part of the name III.

This marks the third time QE has been tried and of course reviews vary, but it can be argued, if QE worked they would not have been a II and III.  There are a number of problems in the theory. First interest rates are so extremely low the risk to benefits for a lender is out of balance.  Why would a bank take a risk on a loan when the return is so low? The answer is most won't, they will just sit on the money or invest in other areas. Second as more money floods the system, the value of the dollar is at risk of dropping, in one word, inflation. That is a major problem.

Regardless of the debate QE III is coming and only time will tell what the outcome will be.