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“Current course leads to inflation”

Posted by
December 27, 2010
in Blog

“The Federal Reserve, and the Congress, are both playing a high-stakes game of risk. Essentially, the one is betting that it can spend its way out of our recession and unemployment problems and the other is betting that it can add huge amounts of liquidity — money — to the system and cut it off at just the right time … before it causes a problem.

What are the odds that both gambles will work? Not very good, unfortunately. What will get in the way are two separate obstacles, but both involve the source of economists’ recurrent argument: timing. Federal spending tends to cultivate its own dependencies and, politically, is a lot easier to increase than to decrease. Based on past experience, Congress will continue to spend lavishly long after it makes any sense at all.

On the Federal Reserve side, the information base on which monetary policy is built has never had the accuracy or consistency needed to time policy shifts precisely. But even if the data were more accurate and the Fed’s decisions perfectly timed, it could still find its actions diluted, or even thwarted, by overly energetic Congressional spending.” Read more

“Current course leads to inflation” 
James McCusker 
HeraldNet, December 26, 2010. 

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