Quantitative Easing Explained

So, after adding two trillion dollars in quantitative easing into the economy,  Chairman of the Federal Reserve Bank Ben Bernanke decided that wasn’t enough and is adding another 600 billion dollars. And for what?

To bring down interest rates? Interest rates are already at historic lows. So the answer is to decrease the value of the dollar and bring back inflation.

Why? To bring up the value of the stock market. What does that have to do with the Fed? Absolutely nothing. It’s not in their purview, at least not according to their charter. But these are unusual times.

Here is a video explaining what the Fed’s quantitative easing really is… (This video has 2000 comments on YouTube!)

Well, that explains it!

What does this mean for you and your business? It’s not good.

We had a credit bubble. Too much credit allowed people to buy too many things. Now we have too much of everything. Too many houses. Too many stores. Too many products chasing too few dollars. That leads to deflation, which the Fed is trying to fight by causing inflation to counteract it.

Who’s going to win out? Well, I’m no economist but I think it’s going to be a long time before we work out all the excess credit and the government and the Fed are not helping by trying to prop up the old prices of housing and other goods, just like Japan has been doing for the past 20 years to no avail.

Keynesian economics has proved to be a failure. The Austrian school of economics says let the market fall, find a bottom, then rebuild without government interference. The 700 billion dollar TARP plus the 900 brillion dollar “stimulus” from the government and the 2.6 trillion stimulus from the Fed are not helping, they’re prolonging the misery.

We could have gotten where we are for free…