If you are like me, phrases like “quantitative easing”, “monetizing the debt” and “inflationary policies” make my eyes glass over. I don’t have a degree in economics. I want to trust smarter, or at least more economically educated, people than I to handle those policies and strategies. But one thing I have learned over the last few years is that we common folk have to be at least marginally aware of what is going on in Washington and with our economic policies, because they can and do affect us.
I am not going to try to explain what the Fed’s announcement yesterday that they will print $600 billion dollars (and $200 bil. more later) to buy our debt from ourselves means to you. I will let the bigger brains at CNBC do that here.
I am concerned though that adding all this Monopoly money to our money supply will inevitably lead to inflation. In fact, it already has. This is the second time the Fed has done “quantitative easing”, which as far as I can tell is a fancy word for pumping money into the economy.
Here is a picture that shows US money supply in graph form:
So I’m not a revered economist like John Maynard Keynes, but it seems to me that when you print more money, the money we have is worth less. They call that “inflation”. It’s like a hidden tax, because we pay more for basics like milk and tires and all the things that are not manufactured in the US or whose components aren’t manufactured in the US (re: almost everything). Our dollar is devalued. It is worth less than before. This is being done on purpose right now in an attempt to jump-start the economy. Do most Americans understand that is happening? They will notice soon.
I don’t know if the strategy will work. Like I said, there are smart people making these decisions. But as the CNBC article says it is a big gamble. We will immediately begin paying more, or, as George Soros called it, experience “a managed decline of the dollar”. He should know because “Soros has often drawn criticism for speculating heavily on the collapse of fragile currencies”.
I know this is tedious to study and to try to understand. I am only getting started and I don’t want to do it either. However, this stuff matters. We have to try to get educated and pay attention because no one is infallible and the checks and balances of our democratic republic include the American people.
Here is the gist as I currently understand it:
1. The government intentionally inflates (devalues) the dollar by buying up our own bonds (debt) with printed money
2. We pay more for goods, foods, and products that we import because our dollar is worth less against foreign currencies
3. The powers that be hope that the influx of cash and liquidity is like a shock to the heart of the economy, creates growth and revives the economy, and therefore revenue
4. If they are right, we pull ourselves up into a strong recovery
5. If they are wrong… You almost don’t want to know. Trust me. It’s bad. China and Japan stop buying our debt, our dollar crashes… It has happened before to other countries. So we know what to expect and it’s a world of hurt.
The good news: if we can crank this economy up and get American business growing again, we can make it through this. I don’t know if I believe in the omniscience of the Fed, but I do believe in the power of the American people and American free enterprise.
If your eyes have not glassed over yet, take a look at the following talking heads on CNBC. It is hard to get through, but if you do, you will learn some things that I think are worth paying attention to (IMF acting as a global central bank?!). As always, I welcome discussion. In this particular case I am praying that someone shows me where I am getting it wrong.