Peter Schiff
Euro Pacifica Capital
12/10/2010
…If we had a truly independent Federal Reserve (one that was not willing to buy all the excess government debt) these larger deficits would make much more of an immediate and discernable impact on the financial markets and the economy. A glut of government debt should lead to much higher interest rates. Higher government borrowing also tends to divert savings and investment capital that would otherwise flow into the jobs-creating private sector. However, with the Fed engaging in quantitative easing, Ben Bernanke’s “Sixty Minutes” denial notwithstanding, the money needed to buy the additional debt is simply printed. As such, the nasty side effects have been avoided in the short term. Instead we are set up for more inflation and a weaker dollar down the road.
Those who understand the implications of the “inflation tax” have already moved savings and investments out of U.S. dollars,expecting that the value of their savings and investments would diminish as a result of the inflation the Fed creates. In addition, working Americans will see the real values of their paychecks fall, as consumer price increases outpace the gains in after tax incomes.
As a result, this plan will do nothing to help our economy. The benefits of holding taxes low will be more than mitigated by damage done by larger deficits. In fact, despite the Fed’s efforts to artificially suppress interest rates, the fear of larger deficits is already driving rates up. Many on Wall Street have jumped to the erroneous conclusion that rates are rising because this new fiscal stimulus will spur economic growth, which in turn will make further quantitative easing unnecessary. In truth, the only thing this plan will stimulate is larger deficits, meaning the Fed will be forced to do more, not less QE in an effort to restrain rates…
Read the complete article at EuroPac.net
