Recent Fed attempts to provide economic stimulus have not been terribly successful. What has been happening, though, is that inflation has been on the rise. Although it is not as drastic as we saw a couple of months ago, the fact of the matter is that our money base has increased due to the fact that the Fed keeps creating money for circulation, and that means inflation. Here is what the Investing Blog points out about the Fed and inflation:
A huge spike in the adjusted monetary base, M1 from now on, is most alarming because of its affects on the economy. Due to the way that the FED and fractional reserve banking works, banks are able to reserve just 10% of deposits and loan the remainder. This forever multiplies money through the many banking branches where inevitably as much as $9 Billion could be created from just $1 Billion. Or in this case $1.5 Trillion could ultimately become $13.5 Trillion. …
[T]he majority of the “money” in that calculation is credit instead of true currency.
This is a scary thing. For the most part, the money that we use is all credit-based. Our entire monetary system is based on people using debt and banks and others lending to us and each other. That’s why our financial policy makers were so concerned about injecting liquidity into the market through increased cash. Because our economy runs on continually circulating debt and credit.
Unfortunately, those efforts haven’t helped much. Maybe instead of focusing on the top and hoping for “trickle down”, the government should try a stimulus of large sums of money to the American people. If the Fed is so bent on giving trillions of dollars away for economic stimulus, the government might as well spread it around where it will do the most good: Give large sums of money to the taxpayers and encourage them to spend it.
What do you think? Should the government give the middle class a bailout?