Yesterday the Federal Reserve announced that it was planning on injecting ANOTHER $600,000,000,000 (that's 600 billion dollars!, in case you were wondering) into the American financial system by purchasing Treasury bonds. The stated goal is to drive interest rates lower and encourage borrowing. Call it a top-down method of "stimulating" the economy. And you guessed it, they'll PRINT it!
Investopedia defines Quantitative Easing:
--What Does Quantitative Easing Mean? A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.
--Investopedia explains Quantitative Easing...Central banks tend to use quantitative easing when interest rates have already been lowered to near 0% levels and have failed to produce the desired effect. The major risk of quantitative easing is that although more money is floating around, there is still a fixed amount of goods for sale. This will eventually lead to higher prices or inflation.
YES it will !!! Our problem is NOT high interest rates, they're already near historically low levels. Our financial problems are many and have political origins, like the government-induced home mortgage meltdown, ObamaCare, the looming threat of tax hikes and over-regulation, increased energy taxes via "Cap and Trade" legislation, forced unionization via "Card Check" legislation, and the list goes on. The ability to borrow money isn't nearly as problematic as the menace of abusive governance.
So what's likely to happen when $600,000,000,000 brand spanking new $dollar bills$ are injected into the American economy?
Inflation. And if we're terribly unlucky, hyperinflation. Think Weimar Republic, Germany, circa 1924.
Our economy will be awash with 600 billion more dollars chasing the same goods and services as before this second round of "quantitative easing." The cost of everything you buy is going to increase, maybe even dramatically. The current fight over extending the Bush tax cuts will seem like a silly side show once that $2.65 loaf of bread becomes $9.12, or a pound of hamburger goes fom the current $3.25/lb. to $13.50/lb..
This sort of inflation is the unkindest tax increase of all due to it's size and scope and the dramatic way that it impoverishes us and diminishes our lifestyles.
Think about it!