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The Federal Reserve and Easy Money
You see it all over the news. What is the dollar's future in the world marketplace? How far will the dollar's value drop?
The
current U.S. monetary policy is precarious. Government spending is at
historic highs and will likely rise even higher. The Fed's loose
monetary policy is pumping historic levels of funds into the
marketplace to finance the spending. In order to pay for new
government mandated programs, higher taxes will most likely be
required, especially with two big name programs: Health Care Reform and
Cap & Trade.
In many ways the dollar is
taking self-inflicted wounds from our own policies. The Fed continues
to pump cash into the system to provide more liquidity for the markets
in an effort to combat the financial crisis and U.S. economic
slowdown. Now what? The problem is the Federal Reserve will be limited
in its ability to maintain this position long-term because inflation
erodes profits. As a result, the Fed will be forced to shift its
monetary policy by tightening up the money supply if it ever hopes to
beat back inflation.
Borrowing and excessive
spending continues to run rampant in Washington. There are no
indications this trend will end or even slow anytime in the near
future. What does this mean for businesses and individuals? The U.S.
economy continues to fail to add jobs and deflationary pressures
persist - fueled primarily by decreasing wages for the American
workforce. Once these forces shift and unemployment eases, inflation
will begin to return. But, how fast? How long is the Fed's current
monetary policy sustainable? Sound off in today's quick poll....
