Hopefully It Is What Most Of Us Think It Is

[Corrected version]

Quantitative Easing: Elixir or Poison? It depends from what side of the fence you are looking from. There is a lot of economic principles to traverse – and this space does not allow that opportunity – in order to say with a convincing authority that QE II is poison or elixir. Bottomline … poison if done at such huge magnitude of money supply [e.i. QE I] during the period of rising inflation that would derail the economy; elixir if the more serious problem to face is deflation.

Thus the choice of primary economic measures to take is up to the wisdom of the nation’s monetary and fiscal authorities. Economists could bash each other’s head in a dogfight, and neither side could be declared right or wrong. In the study of Economics, there is an overload of theories in this erudite science that could back up any stand a critic of the state of the economy would take, which would prove the said critic right and the opponent wrong. The opponent also takes the same complement to hold the other at bay.

What I would recommend is for the American public to take note of the present dire economic realities. Prices of real estate, for example, are falling. This threatens deflation. Is currently the threat of inflation more serious than this? Probably not because real estate prices [our reality example] are not yet galloping in such a threatening speed.

The economic cure for deflation is monetary policy, not fiscal policy; although each measure to take has it owns weakness or donut holes in it. It seems to me that the Federal Reserve is adhering closely to the Quantity Theory of Money or the "Fisher Equation" [MV = PT] where if the growth of real income [T] is desired, then this can be achieved without allowing inflation to speed up at a dangerous rate [it can be controlled] or by permitting the quantity of money in the economy to increase proportionately or at least at the same rate as the growth of real income targeted, but not faster.

Of course in the other side of the hill is this problem of "quasi-money" and the "ingenuity of non-bank financial intermediaries in developing and extending forms of credit" that just recently triggered the nation’s financial breakdown. This leads to the Keynesian view of Fiscal Policy being used in controlling the economy rather than Monetary Policy. But in spite of severe criticisms, the Fed is taking the bull by the horn [insists on the viability and necessity of QE II], perhaps proud of the thought that after all the creation of the International Monetary Fund was spurred by Monetary Policy rather than Fiscal Policy that controls aggregate demand, in steering the economy through and out of the damaging pitfalls of Inflation and Deflation.

At a distance, see the picture of this controversy that may be viewed like a puppy chasing a red ribbon tied to its tail?