Federal Reserve Chairman Ben Bernake is walking a tightrope. Let's hope he doesn't fall off. While on the one hand his move to lower interest rates and buy back government bonds is the right one to stimulate the economy, there is a dark side to this strategy -- the U.S. dollar. Buying back government bonds has the effect of creating a credit on bank balance sheets. In short, it creates money out of thin air.
This is where the danger lies. The problem here is that the Fed is creating money without corresponding federal revenue. This has the effect of devaluing our dollar, even though we have the strongest economy in the world.
The Fed is walking a fine line between its stimulative policies and our declining dollar. We just need to look back to this past spring and summer when our declining dollar caused the biggest spike in commodity prices in recent history.
So like the court jester who entertains the king with his juggling, we have a Fed chairman who is juggling with our economy.
Reader Comments (Page 1 of 1)
12-18-2008 @ 3:38PM
Kent said...
True...it will be juggling act for the Fed on monetary policies forthcoming. Lower interest rates to spur demand while closing out treasury bonds with credit are tricky situations to handle. Financing our deficit relies on foreign and soverign wealth investors from off-shore as well. Lowering or practically zeroing our interest rates will cut us off from this traditional source for funding our deficits. Eventually, interest rates need to rise again to attract foreign FI's. I'm sure that's in the cards for Bernanke downstream.
12-18-2008 @ 3:39PM
MyKisa said...
fed chairmen walk no tightrope, they hold YOUR strings
12-18-2008 @ 4:30PM
Tina said...
Bernanke knows what he is doing. He is puposely trying to devalue the dollar. He could care less about the economic status of this country. It's all about control. The quote goes something like this: "He who controls the money, controls the nation".
12-18-2008 @ 4:52PM
fINELY TUNED AND POLISHED said...
Tina, you are totally off base using your self thoughts and ways, of taking control (or trying) to take control of others .This Bernanke IS HISTORY!! He has no common sense or street cents of how things actually work. He has used an old way of figuring economics and failed dearly.
12-19-2008 @ 3:41AM
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