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Thursday, November 4, 2010

Fed Will Intentionally Cause Inflation by Printing an Extra $600B

Ben Bernacke and the Federal Reserve are going to print up an extra $600 billion to pump into the economy. They believe that, if the intentionally create inflation, it’ll force those that have money to spend it:

The Federal Reserve escalated its efforts to get the U.S. economic recovery back on track Wednesday, again entering the realm of risky and untested policy in response to the worst downturn in generations.
The plan to pump $600 billion into the financial system is designed to stimulate the economy in large part by lowering mortgage and other interest rates.

It will cause more money to be spent but for all of the wrong reasons. More money will be spent because the dollar will be greatly devalued, and the price of all products will, also, rise, as a result.
This “quantitative easing” will cause more problems than it will solve, if it helps at all”

This looks like a solution for the wrong problem. The problem isn’t a lack of capital for investment. It’s the uncertainty of the economic and especially regulatory environment. Creating a little inflation won’t overcome that; it’s more likely to increase the uncertainty.

In fact, investors and companies will become more apprehensive about making any new investments because they will have no idea how much their investment will actually be worth, after the full effects of this self-inflicted inflation is realized.

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