Nov 122010

Greg Ip in The Washington Post in November 2012 reported on misconceptions about current Federal Reserve Policies.

  • The Federal Reserve will create high inflation by creating the new Quantitative Easing policy and printing $600 billion.
    • The “money can lead to inflation only if banks lend it and consumers and businesses spend it.”  Currently, banks have not been lending and individuals and businesses have not been spending.
  • The Federal Reserve will devalue the dollar.
    • “If the Fed had an explicit policy of devaluing the dollar, it would sell dollars on the open market, buying foreign currencies in return. However, the Fed does this only with the Treasury’s consent, and it hasn’t done so since 2000.”
    • When the value of the dollar decreases, it helps increases U.S. exports.
  • The Federal Reserve is trying to help wasteful government spending.
    • “Hyperinflation in countries such as Zimbabwe or Weimar Germany occurred when private investors wouldn’t lend to the government, so the government printed money to finance its spending.”  Currently, there are plenty of private investors for U.S. treasuries.
  • The Federal Reserve is not susceptible to politics.
    • Presidents and Congress “can privately and publicly browbeat the chairman, withhold his reappointment, appoint compliant governors or amend the Federal Reserve Act.”
  • Ben Bernanke, the current Federal Reserve chairman, “knows what he’s doing.”
    • The “Federal Reserve’s history is littered with mistakes, from those that led to the Great Depression in the 1930s to those that brought on stagflation in the 1970s.”

To read the entire article, click on Five myths about the Federal Reserve.

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