Freo2012
Premiership Player
Yep I am fully aware of the difference between fiscal and monetary policy. But you are aware of the relationship (and ownership, which is a side issue but controlled by a couple of banks in the Fed Reserve case) of the Fed reserve, Fed treasury and us govt?
In quantitative easing the Fed res effectively "printed money" to buy crap securities, prop up banks AND buy us govt treasuries (from market and also new from us govt treasury), to keep rates low. Congress also had to significantly increase the approved debt limits to do so. This massively increased the liquidity, reduced interest rates and also gave the govt further fiscal policy capability - the two are sometimes more closely interlinked as in this case. thus the us govt had more fiscal funding ability than it would have otherwise had given the circumstances.
Wow so why don't we just print money this way forever and no economy would have any problems LOL - Zimbabwe anyone - it creates massive inflation and destroys the currency (and the us very VERY heavily relies on its $ currency status and levels for its financial dominance (well, in the past lol)). Whilst it can possibly solve short term problems, often just delaying the problem til when the economy is improving and the reversal required to keep inflation down dampens that recovery. However go too far with it and you end up with very major problems, and if the recovery is not as good as expected you end up with even more problems which is where i believe the us economy is heading.
Another question - where did all that money effectively go at such low rates? It did have the desired effect of limiting the effects of the GFC, bailing out banks/markets, but from what I have read/researched the net effect has seen low rate driven market bubbles in real estate and the stock market yet again so soon after the GFC. A lot of the money ended up through companies which rather than expand or repay debt actually did massive stock buybacks, thus increasing their P/E ratios, even more massively their D/E (gearing) ratios and "super" enabling the stock market bubble without actual total revenue/profit increases (due to less shares). Watch what happens when interest rates rise. Note there has been significant lack of consumer driven money flow (revenues to companies) which is something the us economy very heavily relies. there are very many other issues, employment demographics, structure and levels which all have very real implications on consumer spending and much worse so in the coming future (we are in similar boat with some of the structural problems).
And that is just a couple of reasons why it is so interesting as to how they do the next few years given the "quantitative easing" stopping this money printing process. Rising interest rates and less than expected consumer demand - hmmmmmmm - UH OH (in a f'n BIG way). Some think they are fully in the recovery process now and that economically it won't get a whole lot better than it is now (ie their economic problems result from many structural issues not addressed at all), as the full effect of the quantitative easing takes place (ie they just delayed some of the pain of the GFC to "save" the economy and $), and that deferred pain is going to be suffered massively by reducing whatever economic expansion they should be experiencing now and the next few years. Interest rates, GDP and Inflation are going to be very interesting the next few years.
Then there are the very many other issues. One of those is the start of uncoupling the us$ in international trade - Russia and China are now using their currencies for energy and other trade (as of last month) excluding the us$ and its just the beginning - that has big implications for the us $.
Its funny that when you look back through history dominant economies and in particular the currencies (seen as "reserve currencies), they have a lifespan linked to their growth and others growth (think GB, Spain, France, Portugal etc etc etc) - do some research on it and it is very interesting. I wonder what will be the next major "reserve" currency? Additionally the "limits to growth" theory (we do live in a world of limited resources but increasing population) and the many economic life cycle theories and also the growth of China, India, Brazil and also to a lessor extent Russia, and the energy questions and labor questions. They all paint interesting outcomes and IMO the us$ is headed for very major trouble (and also the us economy) - they've had their days in the sun and times are going to change. Anyone who thought it would go on forever is ignoring all economic theory/reality and the very nature of life - big changes are coming, the BIG question is when they will come - when they come the effects will be very VERY fast.
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