The Fed Announces Plan to Print Another Half-Trillion Dollars
At one time, one billion dollars was an enormous amount. However, today a Trillion is the new billion. America’s national debt is a reflection of this mindset.
It seems as if the United States Federal Government has completely disregarded fiscal responsibility for reckless spending. The Federal Reserve announced a plan on Wednesday to “boost” America’s economy by literally creating $600 billion dollars out of thin air and giving it to the banking system.
The premise is that this will ‘help’ the economy by expanding immediate cash flow and monetary supply, via Treasury bond purchases. Roughly $75 billion dollars in bonds will be purchased every month for eight months, if Ben Bernanke, Secretary of the Treasury’s plan is carried out.
The Plan
The $600 Billion Dollars will be created without the approval of Congress, or the President. Bernanke will have free reign over whom to bailout and what bonds to purchase. Remember, $600 billion dollars is the equivalent of every single American taxpayer paying almost $6,000 dollars.
The plan is supposed to strengthen the economy, decrease interest rates and relieve the housing market. But it most likely will not work.
The Risks
Experts argue that although the economy may be positively affected for a short period of time, the jobless rate would most likely increase. With 9.6 percent of the workforce already unemployed and with the actual unemployment rate likely much higher, risking a small improvement in the economy for a higher jobless percentage is too perilous a move.
Bloomberg reports that although this could make the dollar stronger, it could also adversely affect hard assets, like gold and oil. Gold is one of the most stable assets in the economy, and a decline in gold would negatively affect the economy as a whole.
The Fed has a long running history of pumping money into the economy by printing more greenbacks. Although this is a “virtual” bailout, it still has the same effect. As so much money is rapidly printed, inflation is also a strong possibility.
The dollar could also be instantly devalued. Bill Gross, manager of the world’s largest mutual fund, estimates that if the Federal Reserve continues on the same path, that over the next few years the dollar could drop 20%. Not only would this diminish the value of the dollar, but the dollar could easily lose its status as the premier world currency.
Direct Effects
When the Fed announced the measure Investors immediately invested in more gold and oil as a precautionary measure, causing them to surge as commodities. Investors flocked to such economically sound assets knowing the dollar’s value would easily be weakened by augmenting the economy so rapidly.
If the Federal Reserve were to pass such a measure, it would increase the Federal Reserve’s debt to almost $3 trillion, nearly four times what it was before the recession. It would also push the US debt to over $14.3 trillion dollars.
When $600 billion dollars is added to the economy so hastily, the economic effects could be disastrous. We could end up with a weak dollar, hyper-inflation, and skyrocketing unemployment. Even Thomas Hoenig, president of the Federal Reserve Bank in Kansas City, calls it “a pact with the devil.”
Worried about inflation? Then read Inflation 101: A Free Course on Inflation, and make sure to tell friends and loved ones about the free inflation course.
-Staff Writer X
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