The Federal Reserve has been taking actions in lieu of overtly printing money or issuing bonds. They have called it quantitative easing. The various rounds of quantitative easing have been labelled QE I, QE II, QE III . . . I'm not sure which QE number we're up to now. It sounds like a new luxury cruise liner to me. Of course, this cruise liner will eventually carry us all off the edge of the earth. When the explorers were sailing off into the unknown in the 1400's a lot of people thought they would eventually sail off the edge, but now the people are convinced that this will never happen. I believe the people are wrong. With the MessAPolitico that we have going on in Washington these days, we are steaming toward the edge, full speed ahead!
So what is quantitative easing? Well the fed issues bonds, but they aren't just sold to regular folks or investors. Instead the fed buys these bonds. So, how do they buy the bonds, you might ask? Where do they get the money? Of course, the money is printed for the purpose of buying those bonds. Wow. Is this one of those shell games like the street people try to get you to play on Times Square in New York? I think it is! This is nothing but a roundabout way of printing money and using it to pay the bills.
The stock market seems to think that we've turned the corner. Since last week it has been rising steadily. If the stock market is right, inflation is on the way. That is one of the evils that results from overspending by the government and paying for it by printing dollars. Eventually, the money supply is going to arrive in the economy. This will happen as orders begin to pick up as consumer confidence grows. Growing consumer confidence will lead to businesses investing in plants and equipment. Maybe business will even hire some workers. The growing demand will drive prices up.
I have no doubt that businesses will see higher costs as a driver for higher prices. However, when inflation starts to kick in, the fed will undoubtedly take actions to curb the inflation. One of those levers they will adjust will be increased interest rates. That will limit economic growth, especially for big ticket items. With all of this government spending and printing, inflation is likely to rise rapidly. I fear that this MessAPolitico will lead to stagflation. When Jimmy Carter was president, we had rapidly rising oil prices that led to high inflation. The fed responded with very high interest rates to curb the inflation. The thing that made the situation interesting was the fact that we had a high inflation rate while the economy was not growing--that is the economy was stagnant. According to economic theory, inflation should come from an economy that is growing too rapidly, but in this case we were in recession.
Does any of this sound familiar? You bet it does. We have rapidly rising energy costs because our government is limiting the supply of energy. They limit oil drilling, oil pipeline building, oil refinery capacity, use of coal to produce electricity, etc. etc. The energy costs are acting as a governor on the economy. Every time the economy tries to grow, the price of gasoline rises $1.00/gallon. That removes enough of the money supply that the economy shrinks back and here we go again.
America, please, please vote for politicians with more than half a brain. I just don't know how long our country can go on with a MessAPolitico this bad. We've got to stop overspending. Paul Ryan is proposing a budget that balances in 10 years. God love him for trying, but that just isn't soon enough. It needs to happen now. If the senate won't go along with a budget that cuts much today, then the house needs to go ahead and propose massive cuts. Make the senate shoot it down. Use every opportunity to point out that the democrats don't want to balance the budget or cut spending. Learn to play politics the way they do--with bare knuckles!
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