Monetary intervention into credit markets is much easier to start than to stop. In fact, once started, monetary intervention is nearly impossible to stop. Just ask Fed Chairman, Ben Bernanke.
He’s promised to expand the Fed’s balance sheet by over $1 trillion per year until more people have jobs. Considering the money multiplier effect and the “magic” of fractional reserve banking, at some point, each $1 trillion added to the Fed’s balance sheet could translate into $5 trillion – or more – of money flowing into the economy.
Unless you like paying $10 for a cup of coffee, let’s hope this money never gains real traction in the economy. Given this destructive outcome, why is it that Bernanke’s creating so much prospective money?
Here, in Socratic Method, we’ll answer with a question: What would happen if Bernanke didn’t inflate the money supply?
You see, once the financial system’s become dependent on cheap credit, it cannot be taken away without an economic breakdown occurring. Moreover, ever increasing and more frequent issuances are needed just to sustain the appearance of economic stability. Continue reading
