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Tuesday, September 18, 2012


Are we in the "Twilight Zone"?

  As we slump out of the current recession, are we stuck somewhere that anything can happen?
“It could go either way,” said Joachim Fels, chief economist at Morgan Stanley in London, who coined the description in an Aug. 15 report.  "It doesn't take much to tip us into a global recession.”  As the Fed embarks on to QE3 (Quantitative Easing Round 3), which is an unconventional monetary policy set in place to stimulate the national economy by having central banks buy financial assets with newly created money.
  “Central banks have steered us from recession, but on their own they can’t bring us into sustainable recovery,” Ben Bernanke said. “To get out of the twilight zone takes government action.” The Feds decided to purchase $40 billion a month in mortgage debt until the labor market improves.  So with the increase on money supply, how much of inflation will rise as well?  Ben Bernanke is confident about the economy and "modest inflation expectations".  
  Martin Feldstein said that QE2 led to a rise in the stock market, which contributed to increased consumption in the late 2010.  President of the Chicago Fed Charles Evans, supports this policy because Evans expects unemployment to fall around to 7% within the next two years.   Evans said the Fed should be willing to risk a little more inflation in order to help improve the labor market. The Fed should “not be resistant” to policies that lower unemployment closer to its longer-run level “but run the risk of inflation running only a few tenths above our 2 percent goal.”  
  But should the recent events of the past week, impede the work of the Fed.  With an expected increase in inflation and turmoil in the Middle East, the price of oil should rise as well as causing taxes to rise and Interest Rates to fall near zero.  The injection into the economy could cause a growth that is greatly need or a terrible out come that would send us into another recession or worse.  So are we in the "Twilight Zone"?


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