If QE targeted at agency debt is deemed to be unsuccessful the Fed can, under the provisions of Section 13.3.A, determine that "unusual and exigent circumstances" exist, which allow it to accept any form of collateral.

I don't know if this will be required, but it is important for investors to be aware of this and stop thinking about what the limitations on the Fed are. For practical purposes there are none.

Roger Arnold is the chief economist for ALM Advisors, a Pasadena, Calif.-based money management firm specializing in income-generating portfolios. Concurrent with his other business responsibilities, Arnold was a radio talk show host for 15 years. He focuses on behavioral economics and chaos theory, better known as the "butterfly effect." He explains the relationships between political, economic and social systems, and how they are all reflected in the financial markets -- stocks, bonds, commodities, currencies and real estate.

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