Bernacke has two choices, neither of which are good.
By Daniel at 8 December, 2009, 12:15 pm
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1. Leave interest rates where they are in hopes that all that super cheap money will spark a move in the economy. This is only going to work if the banks that receive the money actually loan it out. As more of this easy money gets passed around and interest rates remain at or about zero, then commodities will rise and inflation will explode.
2. Raise interest rates in order to curb inflation. This will result in banks lending less and people spending less which will slow or halt any growth in the economy. As the economy slows, more people will lose jobs and spending will slow even further.
The first choice is the lesser of two evils, and this is the choice that Bernacke is taking. The result is an increase in the price of gold and oil. The increase in oil’s price will hurt the economy, but again, the other choice is worse.
The climbing price of gold does not really affect the econmomy as a whole, except that it takes more dollars to invest in it. It will, however, be a happy ride for some.
The dollar drops again today on its slow, steady descent. Gold is only down about 6% from its high, and will probably regain that in less than two months.
Hang on!
- Usnzth
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