redrumloa said:
How can it not cause hyper-inflation?
Actually, there has been no excessive expansion of the money supply so far although the Federal Funds Rate has never been lower.
Inflation might still happen in the future if the Federal Reserve fails to raise the Federal Funds Rate and sell government bonds as soon as the economy improves. But to be fair, it is far too early to tell whether they will screw this up or not.
I guess that is why the Obama adminstration is pushing for a a coordinated global stimulus package.
In terms of the crisis, Europe (and pretty much every other Western nation) lags between 6 and 12 months behind the US. Even if the Europeans were in favour of additional spending sprees (and they are not), it would not be smart to announce them at this point in time even if Obama's administration might prefer that.
If every western nation is running the money printing press, they cancel each other out? I still don't see it.
Only a small fraction of the money supply are notes (and coins). Most of the money is literally just numbers in a computer network that can appear and disappear within seconds. Today's money supply is more flexible than the mental image of a printing press conveys.
Did you see what happened to the US dollar yesterday? The Federal Reserve plans to buy $1.25 trillion of government bonds and mortgage-backed securities? Obama throws around trillions like a drunk sailor at a whore house.
I find it important to point out that the Federal Reserve is not a branch of the federal government. Bernanke was appointed during the Bush presidency in 2006, and it is entirely reasonable to assume that Bernanke would be doing exactly the same if McCain was in office right now.
Yes, I know. Obama inherited this mess, but he is just making things far, far worse.
Again, I think it is too early to tell whether the current administration's actions have been a failure.
The problem I see is that the Obama adminstration and the Federal Reserve appear to be more or less in denial mode about the true cause of the on-going credit crunch. They still seem to believe that the financial system will magically heal itself if they can just help the banks, lead by the same managers who helped create this crisis, to survive on their own for another few months, maybe a year until the all the bad assets somehow turn into good assets again and housing prices go back up.