Fed has been pumping money into the economy after the

Reference no: EM13619326

"Everyone thinks the Fed's job is to fight inflation, but right now the Fed is actually doing everything it can to cause inflation.Why?

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

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

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

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

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

Reference no: EM13619326

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