Free Capitalist Network - Community Archive
Mises Community Archive
An online community for fans of Austrian economics and libertarianism, featuring forums, user blogs, and more.

QE2

rated by 0 users
Not Answered This post has 0 verified answers | 7 Replies | 3 Followers

Top 500 Contributor
138 Posts
Points 3,600
CaptainMurphy posted on Fri, Oct 29 2010 11:00 PM

What makes QE2 different from normal open market operations?  Is it just a matter of size/scope?

  • | Post Points: 50

All Replies

Top 100 Contributor
Male
871 Posts
Points 15,025
chloe732 replied on Fri, Oct 29 2010 11:49 PM

.

"The market is a process." - Ludwig von Mises, as related by Israel Kirzner.   "Capital formation is a beautiful thing" - Chloe732.

  • | Post Points: 5
Top 500 Contributor
Male
199 Posts
Points 3,930

It means the Fed board of governors is going to treat themselves to a cruise around the world on this. Apparently in will stimulate the economy.

A criticism that can be brought against everything ought not to be brought against anything.
  • | Post Points: 20
Not Ranked
Male
7 Posts
Points 80

I'm under the impression that QE2 could be the trigger point for eventual hyperinflation of the USD. The problem I'm having is explaining it in terms other than my background (I studied history in college). My basic thought is that QE2 is going to inject too much liquidity into the market and inflation will spiral out of control before The Fed even knows what happened. People still seem to think that said hyperinflation can be controlled by 'price controls' and other nonsense. Am I wrong and if so, where am I wrong and how the frell do I explain it?

  • | Post Points: 20
Top 500 Contributor
340 Posts
Points 6,230

I'm under the impression that QE2 could be the trigger point for eventual hyperinflation of the USD. The problem I'm having is explaining it in terms other than my background (I studied history in college). My basic thought is that QE2 is going to inject too much liquidity into the market and inflation will spiral out of control before The Fed even knows what happened. People still seem to think that said hyperinflation can be controlled by 'price controls' and other nonsense. Am I wrong and if so, where am I wrong and how the frell do I explain it?

First of all, price controls can do nothing to combat inflation.  Inflation is the devaluation of the currency unit.  If the government bans a certain type of good from being traded above a certain arbitrary price level, and that level is lower than the market price, no one will be willing to sell it because they would be losing out in the transaction.  Instead they will sell it at the true market price on the black market (plus a greater premium since black markets are illegal and riskier.)

As far as I know about inflation becoming hyperinflation, it can't really be predicted because it has a lot to do with consumer psychology.  Duing uncertain economic times, the government creates money and people tend to save it by adding to their cash balances rather than spending it.  This conceals the true extent of the inflation because the prices of goods do not rise concominantly with the increase in the money supply.  However, at some point this hoarding psychology must end when people realize that they're actually worse off holding cash because its value is being inflated away.  When this happens they dishoard, and purchase real goods simply because they consider them to be a better store of their value than cash, which is declining in value.  This flood of previously-hoarded cash bids up the prices rapidly, and the pace of price increases actually can surpass the rate monetary expansion.  AFAIK, there is no way to determine precisely when such a psychological tipping point will occur.

  • | Post Points: 20
Top 50 Contributor
Male
1,687 Posts
Points 22,990

It is just another attempt to hide the what the Federal Reserve is doing which is creating inflation.

  • | Post Points: 5
Not Ranked
5 Posts
Points 145

So price controls are out as a realistic means to rein in hyperinflation.  The Fed often makes vague hints about various tools or options to control inflation if need be.  I understand that the Federal Reserve has no interest in controlling inflation because a weakening dollar enriches the first person who holds it (the Fed) and impoverishes each subsequent holder, but what are these options the speak of? 

Secondly, if the Fed can create fiat money and inflation simply by adding some zeroes to the accounts of banks, what keeps it from going in and erasing those zeroes?

  • | Post Points: 20
Top 150 Contributor
Male
753 Posts
Points 18,750

Anyone hear Glen Beck today speaking about QE2 and inflation? He was making kind of a Ron Paul type of case against infaltion as a tax. I was impressed with the message and i really don't like the guy.  I wonder how Rothbard would want allign politically with the Tea Party Movement and what purpose he would seek to gain from them? He was alwasy one of big picture strategy

Read until you have something to write...Write until you have nothing to write...when you have nothing to write, read...read until you have something to write...Jeremiah 

  • | Post Points: 5
Page 1 of 1 (8 items) | RSS