US Fights Recession And Inflation At The Same Time

August 22 00:00 2011

New York, August 22 ( – US economists have recently been divided over whether another round of monetary stimulus is good for the economy and its people. The general economy is ailing with rising unemployment. What’s worse is the fact that prices are rising too! Many Americans will therefore find themselves in a situation where they have no job and no money and the necessities of life have become simply unaffordable. Here is a little analysis of what are the possible repercussions of the US Central Bank i.e. The Fed deciding to provide/not provide the monetary stimulus.

What Happens If the Fed provides monetary stimulus?

Many economists are of the view that Fed should buy out some portion of the Troubled Assets from the market. This will infuse more cash and liquidity in the economy as money paid by the government will circulate creating more jobs and creating employment bringing the situation under control. Proponents of this theory state that this is what worked in 2008 and this is what will work now.

What Happens If the Fed does not provide monetary stimulus?

But this theory gets staunch opposition from another school of thought championed by Republicans. They say that the Government has no money to pay for these bonds. The government itself operates on a budget deficit. They only way it can purchase these assets is by printing more money which will lead to debasement and set loose the economic monster called inflation.

What Should Happen?

To buy or not to buy is a difficult decision for the Fed. Both alternatives have their own negative points and Fed will have to choose amongst the lesser devil