Among all the chaos in the Middle East, the Feds are once again doing something in an attempt to pick up the lagging economy. They are printing more money. Just how this is supposed to solve everyone’s economic situation is still unclear. But this is the third time they have done it.
It sounds good to have more money. But in reality, it isn’t more money, it is just more paper. See, there is absolutely nothing to back up this influx of new currency except more debt. Putting more money into an otherwise flooded system isn’t really a good thing. It just causes another problem, inflation.
Recession is very bad, but the flip side of that coin is rampant inflation, and in some ways that can be much worse. The main reason is that it has a tremendous effect on prices. Whereas in a recession, the push on prices is downward for the simple fact that consumers aren’t spending as much. But with inflation, the push on prices is straight up.
There is such a thing as having both a recession and inflation in one economy. The 1970s British economy proved that as their Prime Minister coined the term “stagflation.” “Stagflation” hurts both the working and non-working parties. Although one could argue that the non-working parties are getting a double whammy of no jobs plus higher prices. That is exactly where the U.S. economy is heading now.
In fact, you probably have already seen prices increases in just your groceries. They are quite obvious at the pump despite the fact that the U.S. has plenty of reserves on hand. You are also likely going to see them in your energy bills despite any cost saving measures you might have implemented. Part of this fault actually lies with President Obama and his “energy” plan, and not so much the Middle East.
The Feds’ emergency inflation control plan is to increase interest rates. With interest rates on such things as mortgages at a low, there certainly is plenty of room for interest rate increases. Unfortunately, the Feds just seem entirely fixated on one problem, the recession, instead of both. They are afraid that if they make these increases people will stop borrowing money. Of course, this is failing to recognize the very real problem. Only a very few people actually qualify for these low interest loans. Pretty much everyone’s credit is already shot due to the tanking economy and reliance on credit cards. Add in the stricter requirements of the banks and almost no money is moving.
What the lower interest rates are really doing is hurting those who are looking into the safer investments such as CD’s and bonds. With almost no payback, the incentive to dump money back into investing is practically zero. People would rather take their chances on an iffy stock market rather than stock money that isn’t earning anything. Of course, this also hurts retirees who thought they were buying smart but instead are seeing almost no increase.
But perhaps, the biggest cost is to come in the very near future. Tax increases are looming along with another recession. There is also this upward push on prices, a lot of it due to the Feds just printing more paper. When the time does come to raise those interest rates, they aren’t going to be able to do it fast enough to stop damaging inflation. While the recession is a concern, the promise of future inflation is a problem to worry about more because your dollar will buy much less in the future than it does now. With lower wages, there is no way Americans can afford an inflationary future.