The technical term for the move is quantitative easing. You and I may call it what it is -- printing money.
This isn't the first time we've seen quantitative easing recently. The Fed has shoveled trillions of dollars into the system since 2007, and it's worked -- if, that is, your definition of "worked" is successfully propping-up failing banks and corporations caught short of liquid assets.The tactic hasn't, however, spurred economic growth, encouraged hiring or jump-started lending on any level. The Fed has no more buttons to push and now, according to most of the analyses I've seen, it's using quantitative easing to accomplish something that the device can't possibly do.
That's not to say that it won't have an effect.
Because U.S. production of goods and services (the gross domestic product, or GDP) has virtually no prospects for sustainable growth, this round of quantitative easing likely will accelerate the U.S. dollar's fall (or push it to collapse). High inflation -- or even hyperinflation -- will take hold quickly, stunningly so, perhaps overnight.
The stock market likely will soar and, for those fortunate enough to be employed, wages will rise. It'll be a false windfall, however, consumed (and then some) by taxes and higher prices.
Folks who bought gold as a hedge or a shelter...well, good luck with that. The Fed may be able to create money out of thin air and "expand its balance sheet" but individuals are incapable of such financial alchemy. Value is set by the marketplace, by buyers. If there are no buyers, an asset is (in practical terms) worthless.
Americans who actually believed that the TARP and stimulus would save our economy should realize by now that they won't. And anyone celebrating Tuesday's victory by Republicans should wake up and smell the coffee, too -- fiscal conservatives' trickle-around schemes won't get the job done. They never have.
The U.S. economy is fundamentally and perhaps irreparably broken. Every single solution thrown at the problem, whether by the Fed or by our elected representatives, has been little more than political window-dressing designed to persuade us that fixing things would be relatively painless.
The quantitative easing announced this week may be the death rattle of our economy. There's no reason to panic now -- not at this late hour, anyway -- but we'd better get clear about what we need to do.
What resources we have we should conserve. Decisions we make should be grounded in reason, not emotion, and actions we take should be efficient, not excessive. What we buy should prepare us for the squeeze that's coming.
And it is coming, by the way. Now we know that it's coming sooner rather than later.
