Wednesday, June 20, 2012

“quantitative easing,” and Operation Twist June 20, 2012

     The twist here is how the Feds are trying to twist our economy into  a terrible mess.  As George Santayana said "Those who cannot learn from history are doomed to repeat it." And our government cannot or will not remember history.  If you do not know today our Federal Reserve decided to stimulate the economy by printing "as much money as needed to revive the crippled banking system" (Edmond L. Andrews)
      As of today the "government has assumed at least $7 trillion in direct and indirect financial obligations in the form of Wall Street bailouts, emergency lending and government guarantees on bank deposits, inter-bank loans and home mortgages." (Andrews ) and they  the "Fed and the Treasury have stepped into finance consumer debt, from car loans and student loans to small business loans. The $200 billion program comes close to being a government bank" ( Andrews)  because they believe that they the government needs to step in to save us. 
The long-term risks are enormous and difficult to estimate. They begin with the danger of a new surge of inflation, at least after the economy comes out of its downturn. But they also include the hazards to taxpayers of taking responsibility for trillions of dollars in assets that may end up plunging in value. And they also raise unanswered questions about how the government will untangle itself from its new obligations, if it can indeed do so. (Andrews)
If the government would look to history to see that printing "as much money as they deem necessary to revive the banking system is seriously flawed and has only resulted in hyperinflation.  Hyperinflation occurs when a country experiences very high and usually accelerating inflation.  Hyperinflation results from a rapid and continuing increase in the supply of money, which occurs when a government prints money or creates credits in bank accounts this creates a vicious cycle.  Right now the Feds feel that they must print more money because banks are not loaning money and they feel that this money will stimulate the economy, however, history will prove that this is definitely not the case.  It will only result in a devaluing of the dollar and create more problems than it solves. 
     Both the Theories of Monetarism and Classical Economics maintain that Hyperinflation is born out of the irresponsibility of the financial authorities to borrow excess money and make payments of all its expenditures. Does this sound like our government today.  Their philosophy is that they can just borrow the money that they need to pay for all the money that they are printing.  At some point we the American people are going to have to pay the piper. 
     Hyperinflation effectively wipes out the purchasing power of private and public savings, distorts the economy in favor of the hoarding of real assets, causes the monetary base, whether specie or hard currency, to flee the country, and makes the afflicted area anathema to investment. This also sounds like America today. 
We can look to the past to see how printing excessive amounts of money has had a deleterious effect on economies such as the; Weimar Republic, Brazil, China and Argentina, even America in the past has succumb to the lure of printing exorbitant amounts of money as a means of easing financial woes with disastrous results. 
     America needs to wake up and learn from the past.  We cannot continue to spend ourselves into oblivion and then print money as if money grows on trees.  We need to become fiscally sound and our current administration does not seem to understand this concept. 

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