View Full Version : The "FINAL SOLUTION" in the war on prosperity?

10-07-2010, 05:39 AM
Monetize the debt ... the last resort of governments made of tyrants and scoundrels.

<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">The Federal Reserve spent the past three decades getting inflation low and keeping it there. But as the U.S. economy struggles and flirts with the prospect of deflation, some central bank officials are publicly broaching a controversial idea: lifting inflation above the Fed's informal target.

The rationale is that getting inflation up even temporarily would push "real" interest rates—nominal rates minus inflation—down, encouraging consumers and businesses to save less and to spend or invest more.

Both inside and outside the Fed, though, such an approach is controversial. It could undermine the anti-inflation credibility the Fed won three decades ago by raising interest rates to double-digits to beat back late-1970s price surges. "It's a big mistake," said Allan Meltzer of Carnegie Mellon University, a central bank historian. "Higher inflation is not going to solve our problem. Any gain from that experience would be temporary," adding that the economy would suffer later.

Others warn that pushing inflation higher than the target could create public confusion and risk fueling financial bubbles and market instability. They say Fed policy already is weakening the dollar and as a result prompting a gold and commodity boom. <span style='font-size: 11pt'>"The Fed is treading upon a mine-laden path that has never been tip-toed through in this country,"</span> said Andrew Busch, a currency strategist at BMO Capital Markets.

With the Fed's target for short-term rates already near zero, inflation too low—floating between 1% and 1.5%, below Fed officials' informal target of between 1.5% to 2%—and unemployment, at 9.6%, too high, <span style='font-size: 14pt'>Fed officials are expected to embark on a new round of asset purchases to lower long-term interest rates.</span> ...</div></div>

OH DEAR (http://online.wsj.com/article/SB10001424052748704689804575536391713801732.html?m od=WSJ_hpp_LEFTWhatsNewsCollection)


10-07-2010, 07:50 AM
It seems to me that everything the government does to try and control the economy ends up backfiring.

Here's a radical idea. Why not let the market fix itself? Interest rates determined by competition between lenders. Product and services prices determined by consumer demand and competition. Inflation created by the natural course of events will automatically correct itself when prices outpace demand. We don't need the fed increasing and decreasing the amount of paper circulating throughout the economy. (I suspect they don't have a clue how much actual currency is in circulation anyway)

Government's function in the economy should be limited to monitoring it....not trying to control it!