The Federal Reserve, along with the Obama Administration, are seemingly ecstatic with the idea of reintroducing us to the Carter Administration.
Global stock markets surged and the U.S. dollar fell against major currencies following a Federal Reserve decision to pump $600 billion into circulation to push interest rates lower. It is a move intended to accelerate the U.S. economic recovery, and while investors appear to be applauding the move, monetary officials in Europe and elsewhere are not.
The economic ignorance of the press is startling. Stock markets aren't surging because investors are happy about dumping more money into the economy. Rather, the surge in the stock markets are cause by two major factors: American investors are glad to see that there will now be some balance in the Federal government that may slow down the march toward economic fascism, and investors are shedding cash and placing their money into securities and commodities, where they expect to make a handsome profit once inflation comes.
It's basic economics: When a government simply prints huge amounts of money without some kind of offsetting economic factor to back it up, inflation is the inevitable result.
"Inflation" as we understand it is just the effect of the law of supply and demand in the monetary system. Essentially, money is a stand-in for resources, making it a pseudo resource itself. When you jack up the supply without increasing demand (that is, without an equivalent increase in offsetting physical resources), it is impossible to avoid inflation.
One can see this again and again in history. In the Wiermar Republic of Germany, the war debts and reparations were so great, that government simply printed Deutschmarks (or Marks) to pay its bills. The results was skyrocketing inflation requiring people to carry Marks in carts or wheelbarrows to buy groceries, directly contributing to the rise of the NAZI regime. In Argentina, massive unsupported spending following World War II was one factor that helped stimie what had been an increasingly economically independent Argentina and lead to massive inflation.
The Federal Reserve's announcement on Wednesday sparked rallies in global stock markets, sent prices for commodities like oil and copper sharply higher, and caused the dollar to fall relative to major world currencies.
In an interview with The Wall Street Journal newspaper, France's Finance Minister Christine Lagarde warned that the Fed's move would put unwelcome upward pressure on the Euro. German Economy Minister Rainer Bruederle suggested that quantitative easing will produce inflation, not economic growth.
Essentially, the increases in the DOW and other markets isn't investors showing their approval of the plan: It is, rather, the signal that investors recognize the dollar is being systematically weakened. There are no more resources today than there were yesterday (at least, not appreciably so). The economy hasn't suddenly spiked a 5% increase in GDP. No major financial deals or mergers have been announced. All hat has happened is that there are more dollars chasing the same number of stocks, the same amount of resources. So the owners of those stocks and resources now demand a higher premium.
Former U.S. Assistant Treasury Secretary Richard Clarida said that with short-term interest rates already at historic lows, taking action to ratchet down long-term rates is the Federal Reserve's only option to stimulate the economy.
"Essentially, the Fed cannot cut interest rates," said Clarida. "They are at zero [percent] at the short end. So if they are going to ease [monetary] policy, they have to do it through these quantitative measures." Clarida spoke on Bloomberg Television.
Note that the dollar has fallen against foreign currencies since the announcement. While the Fed claims it is attempting to limit inflation, in fact it has only contributed to it. The United States doesn't produce all the resources and goods it needs. Some of them have to come from other countries. These foreign goods will now cost more. While a short-term benefit for US exports, in the long term the inflationary pressure will be irresistable.
The only way to take control of America's debt is to stop spending. There is no more money unless we print it or tax it away from those who've earned it, and that behavior is economically stupid.
Essentially, the Federal Reserve has, under the guise of "stimulus", sentenced the United States to stagflation and temporarily excused the mistakes of the Democrat-controlled Congress and the Obama Administration. This isn't sound economic policy, it's short-term cover for the Democrats to take credit for increases in voter's retirement plans and punt the more drastic effects of the stagnant economy and wasteful government spending into the next election cycle, where the President can use poor economic performance and rising inflation as a bludgeon against what will surely be called an "ineffective, do-nothing Congress".
The media won't report it. They'll go along with the cover story out of loyalty to their "Progressive" agenda or ignorance and they'll blame the Republicans in the House of Representatives for failing the American People after the Tidal Wave of 2010. The Democrats will then say, "You put them in charge, and they failed you. Now vote for us!" And the economically illiterate will listen and many will fall for it.
It's disgusting. People will be hurt by this. The real value of our wealth and prosperity will be deminished by this. Americans will face economic hardships due to inflation and rising interest rates. But hey, all's fair in politics.