Friday, March 20, 2009

Warning: Danger Ahead

The Federal Reserve quietly slipped $1,200,000,000,000 into the economy this week. The only trouble, it was just printed money, not increased wealth. That move, officially known as Quantitative Easing is sort of like a college student drinking a triple latte to keep going after an all night party. It appears to solve the problem for awhile, but eventually the lack of sleep catches up and there is an inevitable crash, even in strong, healthy 18 year olds.

Printing money seems to help the economy because it does stimulate spending in many quarters at first. However, it will eventually backfire because the currency in devalued and inflation becomes a problem. Within hours of this change in US monetary policy, the price of gold shot up to $960 an ounce, indicating a loss of confidence in the dollar. Let us hope that we can muddle through the current economic problems without trying that again.

No comments: