I'll give President Obama a bit of credit for signaling that he will abandon temporarily one aspect of his crazy economic philosophy, best termed "Obamanomics. " It appears the president will at least allow the George W. Bush tax cuts to remain in place for some additional period of time. That's a smart move for him because everything else both the administration and the Federal Reserve are doing or considering appear to be setting us up for another economic disaster.
First, let's consider what that whacky Federal Reserve is doing. CNBC summarized the Fed's recent move better than I could. They reported: "The Fed plans to print enough money to buy an average of $75 trillion dollars in treasury bonds each month for eight months. ... The bond purchases program is intended to energize the economy by forcing down long-term interest rates. Those lower rates might encourage some consumers to borrow and spend more."
Wow. The presses printing those dollars will be smoking from the rate of speed at which they will be laying down ink on that special paper. Well, at least the folks who print money will have plenty to do.
But the idea that making it cheaper to borrow money when rates are already at all-time lows is just plain nuts. Sure, the banks have plenty of cheap cash they are sitting on. Bully for them. But just go and try to borrow any of it. If you are a start-up company, forget it. If you are a small business that struggles to make payments based on your cash flow, sorry, Charlie. The only companies that could possibly benefit from cheaper dollars are large corporations, and they are continuing to consolidate and cut the fat out of their operations in order to keep their profits strong and their stock values as high as possible.
Most economists are questioning this move, not only because the cost of borrowing money is already dirt cheap, but because this new action creates a real risk of inflation. The CNBC report notes, "Critics warn that rates kept too low for too long could inflate new bubbles in the price of commodities, stocks and other assets. That's what happened before with technology stocks and home prices."
Oh, great! Not only will most folks not be able to get the stingy banks to take a risk by loaning money out to anyone other than those who already have plenty, they will get to watch the prices of what they want to buy rise, as well!
All of this before President Obama gets busy trying to work around the system in order to at least nudge along his economic agenda. He clearly does not understand, nor does he care about, the concept of a truly free capital market system.