Wednesday, 18 March 2009

Quantitative Easing US Style

The Fed plans to inject $1.15 trillion (£808bn) into the US economy in an effort to reflate it's stalling economy.

That is a HUGE amount of money to be pumping into the system, it’s approximately ~10% of GDP!!
What a trillion dollars actually looks like.
Hopefully Bernanke and the other members of the Federal Open Markets Committee (FOMC) know what their doing. These efforts are to ward off the dangers of deflation; however such a surge in the money supply could lead to inflation accelerating inflation in the future, if this excess money is not ‘sucked out’ of the system when markets and the economy begins to recover. Quantitative easing now could be storing up inflation problems in the future. This coupled with higher taxes to pay off deficits that have been allowed to spiral, is not a pretty picture.

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