Could QE3 Destroy the American Economy?

Due to the recent economic conditions, some

have questioned the need for a QE3. Though the Fed has signaled that it planned to tighten monetary policy at the

, many have speculated that QE3 was inevitable. In March, Atlanta Fed President Dennis Lockhart said that the Federal Reserve may need to

of quantitative easing. Though he admitted that the Fed would have to be “very cautious” in its decision, he said that the Fed would have to consider the option if oil prices remain high. The Federal Reserve undertook QE2 last year

in an effort to boost the struggling U.S. economy. Though the U.S. stock market has

,

have soared as well and

high. M&G's Jim Leaviss

that should the Fed undertake QE3, the dollar could collapse. “The Federal Reserve will not contract its balance sheet anytime soon. The dollar will collapse if we get a third round of quantitative easing, but this is not something that concerns the Fed in the slightest,” he said. Traders believing that QE3 will eventually occur may want to consider an ETF that would play on the dollar weakness that may result. An ETF, such as PowerShares DB Dollar Bearish Index

, may do well in an environment with a weakening dollar. Also, the precious metals—which have been volatile as of late—could do well if the Fed decides to undertake QE3. Traders might consider the SPDR Gold Trust

, which may rally should QE3 occur. The commodity currencies, such as the Canadian dollar and the Australian Dollar, may continue to do well if the Fed chooses to do another round of quantitative easing. An ETF like CurrencyShares Canadian Dollar Trust

may be another option traders may wish to consider.