The Federal Reserve has went into another round of quantitative easing, but outside of some financial news sources, the press seems to be ignoring it. The Wall Street Journal reported on December 6th that the Fed is increasing its balance sheet to $4.07 trillion dollars. That is putting the balance sheet back to the levels the Fed reported it needed to pull the United States out of the credit crisis created by the housing bubble.
As a quick reminder, quantitative easing is when the Federal Reserve creates excess money to stimulate a shrinking economy and avert a recession. Nobody in the mainstream has been reporting a shrinking economy or looming recession. So why the record easing?
The main reason is that the economy is not humming along as reported. As seen a couple of months ago in A Conscious Conservative, the money market system locked up completely in September. The Federal Reserve had to take immediate action to stop interest rates from going above 10%. Another reason is that the Federal Reserve has kept its primary interest rates so low that they have nowhere to go but up. If they cut them 1/2 % as often as they wanted, the interest rates would be negative by now. A third reason is that the stock market is in its longest bull run in history and people are afraid of what is going to happen when it stops. Stock prices have not been justified by company earnings for most stocks for at least ten years now. It is only the free flow of money that is keeping the market afloat.
How does this easing affect inflation? It doesn't if you are free to calculate inflation using the techniques of the Federal Reserve. Prices are actually pretty stable unless you have to buy food, fuel or housing, People who eat, put gas in their vehicles and pay rent have actually seen a substantial increase in prices over the last 10 years. However, according to the Federal Reserve, the decrease in price for an iPhone 6 more than makes up for that.
