Stills - you make some good points here, and for the people in charge, it is definitely tough being stuck between a rock and a hard place.
The problem right now is that our country is not productive as is evident by our massive trade imbalance. We spend too much money and rely on countries like china and japan to buy our treasuries and then screw them over by devaluing our currency. In order to pay back our debt, we have to issue new debt or print money aka inflation. Many, including our government, define inflation as increase in prices, but this is incorrect. Inflation is actually the increase in money.
What is inflation? Inflation is a tax. More specifically it is a tax on everyone who does not receive the money first. This is because higher prices are the inevitable result from inflation and with stagnant wages and higher prices, your purchasing power decreases. The people who benefit from printing money are those who can spend it first before prices increase.
How does the fed increase the money supply? Money is "injected" into the economy in one of the most fraudulent manners you can imagine. Banks and large corporations buy treasuries from the government and then sell them to the federal reserve at a premium. The federal reserve does not have money. They essentially just type a number into the banks account. So in theory, banks and large corporations have more money to spend which should trickle down into the economy, but unfortunately it doesn't work b/c as I said, the only people who benefit from inflation are those who can spend the money first.
I agree that inflation eases our debt burdens, boosts home prices, and can be stimulatory. However, I don't think this should be the goal. To give you a recent historical example, when the tech bubble burst, what happened? What happened was GW Bush decided that it would be bad for his legacy if there was a recession under his watch, so he calls up alan greenspan and says keep the interest rates low so that consumers can get cheap loans. Then they call up fannie mae and freddie mac and tell them to give homes to everyone who comes through the door. What happened then was a bubble was created from easy credit forcing home prices to artificially go up. I know it is harsh, but I think they should have allowed prices to drop (including homes) in the current recession so that they could be priced correctly in the market and not further propping up of the bubble. During hard times, it does not makes sense to make things more expensive. The "American Dream" used to be that if you work hard enough you can succeed and live a happy life. This somehow got distorted into, if you work hard enough, you can buy a house and own land.
Our country's gdp, job rate, and inflation index are incorrectly represented. Our gdp is a measure of consumption and not productivity. The cpi takes out food and commodity prices which is incredible b/c gas and food are what people rely on. I don't know about you, but 6 dollars for a box of raisin bran (two years ago it used to cost between 3 and 4 dollars) in nyc where I live is pretty frustrating and much higher than the 2% inflation rate that they tell us.
What I believe the fed should be doing is encourage savings by increasing the interest rates. People have enough gadgets and things in this country. We need to be more productive and productivity comes from savings. By decreasing our purchasing power through low interest rates, higher prices, in conjunction with high taxes, savings decreases and therefore investment in businesses decrease. This is my take on what I believe the federal reserve should do. What the government should do, I will save for another day.
My views are much more gloomy but for good reason. I believe that we have only kicked the can down the road in terms of averting a crises and have actually made things much more dangerous and tenuous moving forward. People view deflation as a bad thing, however, it isn't. Deflation allows assets to decrease in price and actually be priced correctly. This gets completely distorted when the fed prints money to prop up failing industries and keeping prices high. No group of people should have as much power as the fed, which is a private bank filled with unelected members. When the fed was created they told the government that they in theory can remove the business cycle. It has not worked yet and will never work. This is what I believe.
Moving forward, what will happen is anyone's guess.
gotta make that money man
AI
