In economics, as in human nature, there is always a cause and an effect, that which is seen and that which is not seen (until later). The Fed’s massive QE (Quantitative Easing) efforts inevitably lead to devaluation of the US Dollar, what the consumer sees as price inflation. This is just one of the unintended consequences of Fed action.
The extreme liquidity (money supply) the Federal Reserve foisted into our economy almost two decades ago, in 2008, has other negative effects. The Fed and Treasury Department colluded with Congress and President Obama to create in excess of $8 Trillion additional dollars (Quantitative Easing) to flood the economy with liquidity.
Excess (artificial) liquidity, like QE, creates imbalances in the economy (just as insidious as dollar devaluation) because these influences create excess that expose economic cycles to extremes. We saw these excesses in the stock market run up, in commercial real estate investment and in energy exploration.
For every expansion, there is contraction.
Redemptions out of BlackRock and other investment house are a strong indication that we are in a contracting phase. This is inevitable.
Wisdom lies in balance, in a tempered approach, long before the imbalance gets extreme. Or, when the imbalance is identified, wisdom demands action to address the excess. We can take the pain mow or natural forces will take over. Since we are in a contraction phase, we can recognize its inevitability and contract the excess liquidity foisted on us by an errant Federal Reserve 20 years ago.
Jay Davidson is founder and CEO of a commercial bank, a student of the Austrian School of Economics and a dedicated capitalist. There is a direct connection between individual right and responsibility, our Constitution, capitalism, and the intent of our Creator.