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‘Everyone believes the Fed's job is to fight inflation, however right now the Fed is in fact doing everything it can to cause inflation. Why?

It part to assist the economy get cranking again. Inflation gives an incentive for people to spend cash rather than saving it, since if they save it, the cash will lose value rapidly.

Inflation also assists solve another problem, though--our debt problem. The more inflation we have, the less our dollars will be worth. Since our debts are based on a specific number of dollars and not a specific value, the less our dollars are worth, the simpler it will be for us to pay off our debts.

(Imagine owing someone 100 Zimbabwe dollars at a time when the currency is collapsing. When you wait a week, the value of the Zimbabwe dollar will have subsided, and you'll be capable to pay off your 100 Zimbabwe-dollar debt with currency that is only worth half as much as it was the week ere).

The Fed can't admit that one reason it wants high inflation is to lessen the real burden of our debt, but you can bet that that's one of its objectives and aims. What's more, says Nobel-winning economist Paul Krugman, inflation must be one of the Fed's objectives and aims. Since that's how we've gotten out from under debt burdens in past."

Fed has been pumping money into the economy after the recession to excite the economy. Why does that create the expectation of higher inflation in the future for investors? How does that affect a country's currency value? Remember the relation with China and US. China is a net investor in US assets and US is the net borrower of capital from China. Will China be happy with Fed's recent monetary policy? Why? Does printing money create sense from the US perspective given its debt situation? Why?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93798

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