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- Nov 4, 2010 | 11:12 AM EDT
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9 Reasons Why Quantitative Easing Is Bad For The U.S. Economy
The Federal Reserve is pumping 900 billion dollars into the system and that is going to have a significant impact.
Buckle up and hold on - a new round of quantitative easing is here and things could start getting very ugly in the financial world over the coming months. The truth is that many economists fear that an out of control Federal Reserve is "crossing the Rubicon" by announcing another wave of quantitative easing. Have we now reached a point where the Federal Reserve is simply going to fire up the printing presses and shower massive wads of cash into the financial system whenever the U.S. economy is not growing fast enough? If so, what does the mean for inflation, the stability of the world financial system and the future of the U.S. dollar?
The Fed says that the plan is to purchase $600 billion of U.S. Treasury securities by the middle of 2011. In addition, the Federal Reserve has announced that it will be "reinvesting" an additional $250 billion to $300 billion from the proceeds of its mortgage portfolio in U.S. Treasury securities over the same time period. So that is a total injection of about $900 billion. Perhaps the Fed thought that number would sound a little less ominous than $1 trillion. In any event, the Federal Reserve seems convinced that quantitative easing is going to work this time. So should we believe the Federal Reserve?
The sad truth is that the Federal Reserve is not trying to build an economic recovery on solid financial principles. Rather, what the Federal Reserve envisions is an "economic recovery" based on new debt creation.
So will $900 billion be enough to get the debt spiral cranked up again?
If 1.8 trillion dollars didn't work before, why does the Federal Reserve think that 900 billion dollars is going to work now? This new round of quantitative easing will create more inflation and will cause speculative asset bubbles, but it is not going to fix what is wrong with the economy. The damage is just too vast as Charles Hugh Smith recently explained....
Anyone who believes a meager one or two trillion dollars in pump-priming can overcome $15-$20 trillion in overpriced assets and $10 trillion in uncollectible debt may well be disappointed.
In fact, economists over at Goldman Sachs estimate that it would take a staggering $4 trillion in quantitative easing to get the economy rolling again.
Of course that may eventually be what happens. The Fed may be starting at $900 billion just to get the door open. With these kinds of bureaucrats, once you give them an inch they usually end up taking a mile.
So why should we be concerned about quantitative easing? The following are 9 reasons why quantitative easing is bad for the U.S. economy....
#1 Quantitative Easing Will Damage The Value Of The U.S. Dollar
#2 Inflation Is Going To Hit Already Struggling U.S. Consumers Really Hard
#3 Once An Inflationary Spiral Gets Going It Is Really Hard To Stop
#4 Inflation Is A Hidden Tax On Every American
#5 The Solution To The Housing Bubble Is Not Another Housing Bubble
#6 More Quantitative Easing Threaten
#7 Quantitative Easing Is An Aggressive Move In A World Already On The Verge Of A Currency War
#8 Quantitative Easing Threatens The Status Of The Dollar As The World Reserve Currency
#9 It Is Going To Become More Expensive For The U.S. Government To Borrow Money