Wednesday, November 03, 2010

Quantitative Easing

I would advise my Readers to assess this article. These are the major doubts of Economists concerning QE. These have been suggestions that I provide my own reservations to quantitative easing. And here I thought I had been perfectly clear about my misgivings, but I will give it a second Shot across the bows. I would first like to tell my Readers that it is all a matter of Timing. Why do I say this: because it all consists of when the Inflation hits from any financial policy which is introduced.

Markets always respond to expansion of the Money Supply; what is the difficulty is determining When exactly it will impact. Bernanke and the Fed hope that the impact will be immediate, but I doubt that seriously. The markets will integrate the expanded Money Supply, though it will not reflect in higher Pricing until there are shortages in the Markets. Here is the Kicker: Once the Markets have absorbed the expanded Money Supply, they will not give it back! What does this mean to the economy?

The Fed desires the Inflation to be immediate, which will not occur without a Pick-up in Production schedules. There will be no upturn in such Production until there is observable Demand. The Money will simply flow in, and be waiting like a Rattlesnake, with an occasional rattle to let people know that it is still there. The Problem comes when the Fed thinks to reduce their balance sheets, and the time that Inflation will truly appear; in a form and rapidity most undesirable. The Markets will not release such funding, even though they will repay the Fed. They will retain the funds through very rapid rises in Prices. The Fed will not get their desired Inflation until it is undesirable, and much too rapidly for Anyone’s peace of mind. This is the real Threat, and Bernanke is posed to enter the Trap. lgl

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