Printing More Money to Save the Country

The U.S. Federal Reserve is preparing to stimulate the economy by printing money. Despite taking on a great risk which, according to the New York Times, could dilute the value of the dollar, the Obama administration and Fed Chairman Ben Bernake are ready to resort to this desperate measure. So far, neither a $700 billion bank bailout nor the Fed lowering interest rates to a historical low of 0.25 percent has worked.

Banks are afraid to offer credit, entrepreneurs are reluctant to make investments, more and more companies are facing bankruptcy and hundreds of thousands of Americans have lost their jobs since the Wall Street stock market crash in September 2008. And so, with the huge amount of money pumped into the economy – along with possibly eliminating interest for short-term loans – the Fed wants to soften the effects of the recession.

By giving the economy “cheap money” the Fed wants to see companies develop new business plans and average Americans start spending money again, especially as the latest economic forecasts are not very encouraging. The International Monetary Fund anticipates that the U.S. economy will shrink by 2.8 percent in 2009. They also predict U.S. unemployment could reach 9 percent in 2010 and a lack of consumption might make prices go down continuously until the U.S. economy faces a deflation similar to Japan in 1990.

The impossible becomes possible – Americans stop consuming

In a deflationist scenario, plummeting prices, which are already affecting those paying loans worth more than the actual value of the mortgaged house, could expand to goods. Without the Treasury’s aid, U.S. banks would have risked bankruptcy, since they wouldn’t have had anything to cover the money lost on bad loans. However, whether they still haven’t got enough capital or they are unreasonably afraid of offering credit, financial institutions are no longer allowing money to get out into the economy.

The bright side is that the $1.8 billion in currency that the Fed has printed since 2008 hasn’t yet affected U.S. inflation because it is considered “inactive” money. Whether the money is sitting in vaults or being saved by fearful people, the new bills are not circulating. Americans may pay their bills and buy food, but they are spending less on cars, vacations and luxury goods.

But the danger of inflation can’t be dodged forever, especially since it is expected that Fed will print over $3 trillion of currency by the end of 2010. The dollar has already begun to lose its value compared to the euro and the Japanese yen.

Rage Against AIG Still Unquenched

While the Fed is preparing the economy for the money feeding, the Treasury is busy with the “tidy reorganization” of AIG, of which it owns 80 percent of capital. Taxpayers are still unhappy, which was clearly proven through the popularity of yet another satirical show on Comedy Central, during which the host, Stephen Colbert, pulled out a pitchfork and goaded the audience: “Let’s go get AIG! The government can’t stop them, but we can!”

Democratic congressmen have no intention of giving up on their idea of levying a 91 percent tax on bonuses, compared to the current tax of 25 percent on benefits for CEOs of companies worth more than $1 million. This stirs up discontent not only in AIG, but also in other banks that received capital from the Treasury.