The US Federal Reserve announced a plan overnight to spend US$800 billion buying mortgage backed securities and securities behind car loans, credit card debt and student loans. The Federal Reserve wants to restart trade in these wholesale debt markets and get the US economy moving again. This is all part of Federal Reserve Chairman Ben Bernanke's theory detailed in 2002 of essentially dropping cash on the market from a height to reflate an economy threatening to fall into a deflationary spiral. Since then, Bernanke has been known as "Helicopter Ben." This US$800 billion plan is the latest in a long list of injections, bailouts, rescues and facilities designed to restart the global credit markets and bolster economic and market confidence. When does all this become the flogging of a dead horse?
Stephen Hulme's excellent omo.co.nz also shows how the US Federal Reserve is now essentially printing money, while the Reserve Bank of New Zealand has yet to mop up the extra cash it is lending our banks. At some point excessive liquidity injections and money printing could lead to inflation and the devaluation of the US dollar's status as the global reserve currency. Your views?