How the Fed lost control of money supply

on Asia Times, by Axel Merk

The world is awash in money. This money has flown into all asset classes, from stocks to bonds, from real estate to commodities. In a world priced for perfection, should we enjoy the boom or prepare for a bust? Let us listen to Wall Street’s adage and “follow the money”.

After the tech bubble burst in 2000, policymakers in the US and Asia set a train in motion they have now lost control over. In an effort to preserve US consumer spending, the Federal Reserve lowered interest rates; the administration of President George W Bush lowered taxes, and Asian policymakers kept their currencies artificially weak to subsidize exports to American consumers.

These policies have led to one of the longest booms in consumer spending ever – US consumer growth has not been negative since the early 1990s. However, it is credit expansion, rather than increased purchasing power, that has fueled the growth. (full text).

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