Global Warming Examiner

What the Fed's Latest Decision Means for Investors

The economy is slow and inflation seems to be under control because bank lending is contracting due to their loan problems. When they have less money to lend, credit in the economy contracts. The Fed is doing everything it can to increase liquidity and get credit expanding again. They can print as much money as they need to fix the banks problems.

It really is a matter of timing. After the banks start expanding loans again, all this liquidity will cause an excessive amount of credit which will fire up inflation. It will be more difficult for the Fed to remove this excess liquidity once it is out in the economy without very high interest rates, reserve requirements. This excess liquidity being pumped into the economy now will be the fuel for future inflation, although it may be slow to show up because banks have not yet started to expand credit. It will eventually show up, by definition just when the bank credit problems look like they are getting better. Good article.