Is the End Game on the Economy Approaching?
The Federal Reserve, trying to calm turbulent
asset markets, announced Friday that it will pump as much liquidity into the
U.S. financial system as is needed to prevent the ills of ever tightening credit
crunch. In keeping with this goal, the Fed dropped $38 billion of "temporary
reserves" into the system.
The big question remains: how much longer can the
Federal Reserve and the U.S. banking system get away with this? The Fed has been
throwing money into the system for years—100s of billions of dollars. Each
time they do so, they potentially lower the value of the dollar. More dollars in
the system means that the dollar is, at least potentially, worth less. The only
reason that this hasn't show up in inflation rates is that dollars are exported
abroad and only come back to buy overpriced assets and treasury bonds. Does any
serious person believe this process can on indefinitely? At some point, won't
one of these countries—say, China, for instance, whose leaders detest
America—pull out of this system? Why they continue to sell us goods if all
they are getting in return is stocks and bonds whose value is every day be
eroded by easy money policies?
Posted: Fri - August 10, 2007 at 08:54 PM