Federal Reserve Pouring Money Will Increase the Risk of Hyperinflation

by Himfr Tian - Date: 2010-11-17 - Word Count: 858 Share This!

The Fed said in a statement the same day, the securities will remain on the return of funds due for re-investment policy, and on this basis the second quarter of 2011 to buy 600 billion U.S. dollars to further the longer-term U.S. Treasury bonds to buy about 75 billion per month dollars. At the same time, the Commission will routinely view the progress of the securities purchased and the overall size of the asset purchase plan, and when needed to adjust to the new information to maximize reach maximum employment and price stability objectives.

Meanwhile, the Federal Reserve federal funds rate at 0.25% level 0 unchanged, and remain in "a sustained period of time." In response to financial crisis and economic recession, the Fed had in December 2008 to the current federal funds rate to lowest level in history, and to maintain "zero interest rate" level so far.

The resolution was adopted by the Fed vote of 10:1. As always, Kansas City Fed President Thomas - Huo Lige vote against the FOMC monetary policy action. Huo Lige that the higher the risk of acquisition of the interests of more bonds. He is also concerned that continued at a high level of monetary accommodation of the increased risk of future financial imbalance will result in the long term rise in inflation expectations, which have shaken the economy.

Open the QE2 on the grounds that the Federal Reserve, the U.S. economy is currently lower than the performance of the Federal Reserve had expected, and because companies do not want to increase the manpower, which led to high unemployment, and therefore the U.S. economy faces the risk of deflation.

QE2 or the extension of: the need for QEn?

Open the QE2 times, the Fed made in recent years one of the most important decisions. The monetary policy is the U.S. government to stimulate economic growth, address the U.S. unemployment rate up to 9.6% in the last trick - the current situation is almost the new Congress is unlikely to agree to fiscal stimulus.

March 2009, the Fed's first round of quantitative easing (QE1) launched a total of 1.7 trillion U.S. dollars of the "red envelope" so that the momentum was to curb U.S. economic downturn, but the policy QE1 magic will soon be exhausted. QE2 and QE1 in size although not an order of magnitude, but they deal with deflation, low employment, low growth environment are the same.

Philip Marey Rabobank report on Wednesday that, QE2 mainly affected U.S. inflation and exchange rates. Round of quantitative easing on inflation expectations that the Fed sets a target value, thus reducing the risk of deflation. This policy is also to let the dollar weaken further, which will help the U.S. trade balance. Higher inflation expectations may lead to higher inflation in the medium term. As the momentum of the weak U.S. economic recovery will continue until 2011, QE2 is likely to be further extended.

The first is the liberal hero, and the second is a loose scrap wood, the Fed has gloves came out. Federal Reserve seems to have tasted the monetary stimulus and guide market expectations of benefits. Political struggle in the U.S. Congress increasingly complex cases, the introduction of other policies difficult, quantitative easing, the Fed's response to the recession seems to be the only option. If the future of the U.S. economy is not out of the quagmire, the Fed will also introduce QE3, QE4, even QEn it?

Effect has been questioned: increased risk of hyperinflation

However, many economists have questioned, as more and more debt and start saving money for U.S. residents reluctant to spend, how much the Fed can actually boost the economy?

Philip Marey that, QE2 will still be unable to significantly boost U.S. domestic demand: "The problem is not that U.S. interest rates are too high, on the contrary, the U.S. 10-year bonds now yield no less than the lowest point of recession much higher. The weak U.S. economy The reason is that consumers are cutting the debt before the crisis, so they consume more and less. This means that there will be a slow growth of an economy's long-term adjustment process. "He believes that the U.S. government not only did not face this reality, instead, under the pressure of such an unwise move to support the disappointing economic recovery.

Can boost the economic recovery is still unknown, but the biggest problem now is that the Fed could also prevent hyperinflation in the long term. This is why Thomas - Huo Lige on the Fed's decision yesterday to vote on the reasons against.

The Fed's decision means the bank to give up his independence, and have lost the credibility to fight inflation. If the inflation out of control, you may need a "modern version of the Volcker" to significantly raise interest rates to squeeze through inflation. The Fed has resorted to every means to stimulate the U.S. economy, even at the cost to open a "Pandora's box."

As a former chairman of the Federal Reserve, the U.S. economic recovery and Advisory Board Chairman, Volcker in 1979 to 1987 the Fed raised interest rates several times during the presidency of the highest interest rates to 20% was to suppress inflation and triggered a recession.

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