Will Quantitative Easing By The Federal Reserve Unleash Economic Hell?
Prior to the financial crisis of 2007 and 2008, the Federal Reserve could always count on being able to stimulate the U.S. economy with a quick cut to interest rates. But now with interest rates just barely above zero, the Federal Reserve is searching for other ways to pump life into a U.S. economy that is staggering about like a drunken college student. One of the ways that the Federal Reserve can do this is through something called “quantitative easing”. In essence, what happens is that the Federal Reserve creates money out of thin air and starts buying things like U.S. Treasuries, mortgage-backed securities and corporate debt. But many economic analysts are now warning that further rounds of quantitative easing by the Federal Reserve could end up setting off a series of events that could ultimately unleash economic hell. In fact, there are quite a few high profile commentators who now believe that hyperinflation in the United States is absolutely inevitable.
For those not familiar with quantitative easing, Wikipedia has a pretty good definition….
The term quantitative easing (QE) describes a form of monetary policy used by central banks to increase the supply of money in an economy when the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero. A central bank does this by first crediting its own account with money it has created ex nihilo (“out of nothing”). It then purchases financial assets, including government bonds, mortgage-backed securities and corporate bonds, from banks and other financial institutions in a process referred to as open market operations.
But is it really a good idea for a privately-owned central bank to have the power to create money out of nothing and to do whatever it wants with it outside of U.S. government control?
Of course not, but we dealt with those issues in another article.
What we will concern ourselves with in this article are the negative effects that could be unleashed as the Federal Reserve further abuses this power.
Now keep in mind that disasters don’t usually happen overnight. They usually build over time. When the Federal Reserve begins new rounds of quantitative easing, it will take time for the effects to be felt.
And so far, the new quantitative easing measures that the Federal Reserve has implemented have been relatively mild….