See the remarkable increase in the Fed’s balance sheet as compared with U.S. Bank Reserves. Report in PDF.
Source link: http://archive.mises.org/8838/pushing-on-a-very-long-string/
Pushing on a (very long) string
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So what happens when banks finally start lending again, won’t the fed have to start selling all these assets back, or face massive inflation?
I’m with MichaelB here. Please someone enlighten me. What is the plan here? If banks start lending this, it surely will bring about massive inflation. This can not possibly be the plan of the FED. I know they’re evil and all, but not to the point of destroying the world economy.
@ Sylvain: I think you should put “I know they’re evil and all, but not to the point of destroying the world economy.” between wishful thinking brackets like these . Furthermore, I think that given that these bought up assets are paid by money backed by the printing press, the lending scenario will result in a downfall of the dollar which will have its effects on the world economy but certainly not the destruction of it. Concerning the US economy however, I’m not so sure. Given that, it wouldn’t be in the ‘interest’ of the Fed, but who ever claimed they are able to promote their interest in the first place. These are deranged and clueless megalomaniacs after all.
Sylvain: “If banks start lending this, it surely will bring about massive inflation. This can not possibly be the plan of the FED. I know they’re evil and all, but not to the point of destroying the world economy.”
No, the Fed isn’t evil. It simply follows Keynesian economics. This rescue/bail-out is pure Keynesian economics. Because they refuse to learn real economics, they have no choice but to follow the failed policies of the past. And yes, you’re right. It will lead to higher inflation and unemployment.
see the DOW futures this morning? They locked up after reaching the 550 point max allowed drop.
@Arent: Thanks for some clarifications.
You are correct, “destruction” certainly is an overstatement.
About US vs rest of the world: as far as I understand it, inflation by the FED and the US banks lowers the value of the $ against other currencies. This isn’t so good for companies outside of the US trying to sell to US customers, and that includes a lot of companies. As a consequence central banks around the world are pressured to follow on the FED’s footsteps and inflate as well, to bring back some sort of balance between their currency and the $. Please correct me if I get this wrong. So a massive inflation of the dollar currency will eventually bring about a massive inflation of other currencies as well. FYI, I live in France, and for a while the press just kept saying how the strong Euro is bad for many businesses and how the European Central Bank should lower their interest rate, and that seems to makes sense: these businesses pay their employees in euros while their revenue is in $, and they have to compete with businesses who pay their employees in $ (or other currencies).
@fundamentalist
You’re right the FED itself isn’t evil. And I’m sure they’re trying their best to fix up the mess that they created in the first place. But who/what would you call evil? Have these people never heard of austrian economics? If they have, then surely ‘evil’ is an appropriate term to describe either them or the pressure groups around them. And if they haven’t, is ignorance a valid excuse when knowledge is freely available all around the Internet?
About unemployment: I understand that the misallocations in the market brought about by past inflation leads to the crisis, which is a reallocation of resources to better uses, and that includes employees, hence unemployment during this transition period. But I don’t understand how new inflation leads to unemployment. It should just start new misallocations, or enhance misallocations?
I’m trying to get economics right, so any correction is welcome.
Is this money some sort of deposit corresponding to the bailout? or is this additional to the bailout?
It seems that in any of those two cases the bailout wasn´t necessary at all.
It strikes me that I speak with average Venezuelans about the US financial crisis, and I tell them there will be a bailout financed with inorganic money, and they IMMEDIATELY get the pointr, they add, “yes, it seems the U.S. will have high inflation just as we do”. Perhaps we have been through tough times longer and these kinds of things no longer surprise us.
Page 2 of the report is superfluous.
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