Fed plans to flood the economy again with liquidity to avoid recession – what about inflation?
Fred Day
Dec. 5, 2007

There are indications from the Fed that they will lower their main interest rate next week. They are also signaling that they are looking for additional ways to increase credit to companies and consumers.

Flooding the markets and the economy with liquidity will make gold price go up substantially. The inflation is hidden under the rug now. The economy may be saved for the time being from a nasty recession. But how long can that continue?

It is analogous to treating a cancer patient with painkillers. More liquidity will help for six months but then pain in the economy will be much severe than now.

Borrowing or making environment easy to borrow is not the real solution. Proper fiscal management, restraint, reduction of budget, and trade deficits are required. The long term solution lies in proper fiscal policies that creates incentives to save and not just spend on borrowed money.

Fed plans to flood the economy again with liquidity to avoid recession – what about inflation?
Fred Day
It is analogous to treating a cancer patient with painkillers. More liquidity will help for six months but then pain in the economy will be much severe than now.
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