The U.S. Federal Reserve, which serves as the U.S. central bank and therefore the top authority on the U.S. dollar, announced Nov. 3 that it would engage in quantitative easing (QE). When economies fall into recession, governments use a mixture of policies in efforts to stimulate a recovery. The most obvious method is lowering taxes or interest rates to stimulate business and consumer spending, or expanding government spending in an effort to generate momentum. The Bush and Obama administrations have used all of these methods to combat the recession that began in 2008. The concerns as 2010 winds to a close, however, are not only that these methods have been insufficient but also that everything these conventional methods can achieve has already been achieved. Enter QE. QE is expanding the money supply — in essence printing money — and using that money to purchase items that investors are avoiding for whatever reason. This forces money into the system and — in theory at least — lowers the cost of credit throughout the economy. It also allows the central bank to target specific portions of the economy where it thinks the most good can be done. QE is generally shunned by central banks, as unduly increasing the money supply tends to be inflationary, and nothing eats away at purchasing power (and with it political support) like inflation. The United States has not engaged in large-scale QE since it combated the Great Depression. (click here to enlarge image) STRATFOR does not see the current round of QE as large-scale. The Fed stated its intention to engage in $600 billion worth of QE between now and the end of the second quarter of 2011, or about $75 billion a month. That might sound like a lot, but the total U.S. money supply is $8.7 trillion. So this expansion of the money supply comes out to about 0.86 percent a month, compared to the average monthly expansion of 0.55 percent over the course of the past half century. Put simply, 0.86 percent is well within the range of "normal" operations and so is very unlikely to have an appreciable impact on inflation levels. This leaves STRATFOR weighting two potential — and not mutually exclusive — implications of the Fed's decision. First, this could be the Fed reassuring all concerned that the American economy is, in fact, all right. After all, inflation is well within the safe range, consumer spending has already returned to its pre-recession peak, and recent reports indicate unexpected strength in construction — typically among the last private sectors to recover from recessionary periods. A small QE move could be nothing more than encouraging everyone to consider that the Fed still has options left. Second, the Fed — in league with the White House — is attempting to shape discussions at the upcoming G-20 summit on Nov. 11 in Seoul. The dominant issue of that meeting is currency policy, and the Obama administration is attempting to convince states not to engage in egregious currency manipulation. Right now, most of the world's major industrial powers — and most notably Japan and China — are attempting to keep their currencies as weak as possible to capture as big a slice of the world's export demand as possible. This is a game that the Fed can play very well should it choose to. Recall that QE increases the volume of currency in circulation, which has the net effect of decreasing the value of any particular currency unit. Put simply, an unrestrained QE effort can quite effectively drive the value of the currency down. The dollar is the world's dominant trade and reserve currency — accounting for roughly 42 percent of all transactions and some two-thirds of all reserves. The Fed probably thinks that U.S. trade partners can tell the difference between a 0.86 percent expansion and a race to the bottom. And for those who cannot, a little QE is likely for show — a way of asking the other countries if they are sure they want that sort of fight.