STFarmy

So, we've all probably heard that the Fed announced yesterday that they will buy 600 billion of American securities (basically debt as I understand it). It will print more money, and interest rates will be lowered. What are the thoughts on this?

I suck at economics, so I asked my brother-in-law, who works in finance. He stated that this is the Fed's last ditch effort to stimulate the economy by weakening the dollar further, which will lower the price of American goods in the world market, thus increasing demand. Apparently it's never been tried on this scale before, so who knows what will happen. Anyone economic gurus here know what to think (PR, I'm looking at you!)?

Fed to buy $600 billion in bonds in effort to boost economic recovery

patsfan13

Oil over $85, Gold over $1370, Silver up sharply. Dollar being destroyed as government begins monitizing debt.

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PatriotsReign

Most economists don't believe this will help our economy. As a matter of fact, there are more who believe it hurt it more than help it.

THE Problem with our economy is that banks and American citizens continue to struggle with debt. Consumers still aren't spending...that is one of the keys to our economic doldrum. If the dollar LOSES value, it will make it tougher for Americans to save money and/or pay down debt.

There are many inside the Federal Reserve itself who vehemently disagree with this strategy.

My personal opionin on our economic outlook is this;

Our economy collapsed due to being artificially inflated by lax lending standard, artificially low interest rates and a very greedy American consumer and Corporate mindset. In other words, both citizens and businesses alike got far to greedy and our gov't did nothing but provide the platform that enhanced our greediness.

So now our gov't is continuing to use the same thinking that got us into this mess in a foolish attempt to get us out of it.

Here is a FACT: Government can't turn this recession/depression around. It is not possible. There is a natural process that MUST ocurr and the worst thing our gov't can do is get in the way of this process. And the process I'm referring to is "De-leveraging" of both consumer and corporate debt in the financial industry.

This economy can not turn the corner until banks' bad debt (in the form of foreclosed homes) and consumer debt is written down. Then banks can once again begin to lend RESPONSIBLY and consumers disposeable income allows them to spend more.

But the catch to all of this is that consumers will never again spend like they were in the late 90's and early 2000's in our lifetime.

Why?

1. Because home values will never rise they way they did and provide home owners with the equity to finance greedy life-styles.

2. Just like the post-depression era, consumers will now be frugal for generations to come. Americans will never again allow themselves to be put into the financial hole that resulted from the belief that it's ok to spend more than we make.

If people don't agree with me now, they will in 5 years when we're still not out of this mess.

STFarmy

Thanks, PR. My brother-in-law's take was that one of the major problems right now is uncertainty. Since there is so much uncertainty, anyone who has the money is unwilling to invest and spend because they don't know what will happen. They don't know when unemployment will get better, they don't know what will happen with taxes, and they don't know when the overall economic outlook is going to be brighter. So they sit on their resources, not wanting to fritter them away.

Unfortunately, I think we're in for years of economic struggles.

PatriotsReign

And your brother in-law is correct. Uncertainty plays a huge role in both consumer spending and investment. But even before the fed bought the debt, we had a boatload of uncertainty.

And I agree with your last statement whole-heartedly or even regretfully. I think anyone with any common sense will look at the economic situation we're in and realize things aren't going to get better for a long time.

Certainly not in the next 2 years as Obama would like. That isn't going to happen.

Recently, the National Bureau of Economic Research (the same committee that declares when recessions begin & end) made a statement that "there is no chance of a double-dip recession ocurring". In my opinion, that was idiotic and arrogant for them to declare because the fact is, there is a chance we'll experience a "double-dip" recession.

PatriotsReign

Army, here's some pretty good reading on the Fed's quantitative Easing strategy and why it won't work.

Mish's Global Economic Trend Analysis: Three Reasons QEII Will "Backfire"; Pavlov's Dogs and the "No Choice" Argument Yet Again

http://globaleconomicanalysis.blogsp...-uk-japan.html

http://globaleconomicanalysis.blogsp...o-buy-600.html

STFarmy

Very good; thanks, PR! I am so bad with economics, so any extra input I have helps. I'll check this out at lunch.

Anyone else have any thoughts on this? Just curious to see what everyone's take is. I'm pretty surprised more people in general (not just here) aren't talking about it.

PatriotsReign

I think most people don't comment because who the hell knows what "Quantitative Easing" is all about? It's both intimidating and boring to a lot of people.

I think you have a natural curiousity about economics that most find boring. Did you know Economics is often referred to as "the dismal science"?

STFarmy

Ha, no, but that makes sense. I'm only curious to know how things work so that I can be better informed (and prepared). Honestly, I'm usually drawn to the humanities topics that most people find boring. When I was in grad school for history, I focused mainly on political theory and how Americans understood the ancient Greek and Roman forms of government when creating our system. I loved the books that others loathed, because they wanted to study more socially focused things such as slavery, women's history, civil rights, etc. Those things are all important, but I love the history of political theory and ideology. So I guess that does tie into economics.

Real World

I think Father Guido Sarducci covers economics at his 5 minute university, so if you got 5 minutes to spare, you'll learn all you really need to know.

YouTube - Father Guido Sarducci's Five Minute University

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"The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him."
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