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November 24, 2008

More money

The government has tried all sort of tactics to contain the fallout from the financial crisis challenging the country. There's now another tool at work. What is it?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, it's the good old-fashioned printing press. Now, many people probably thought that the government has already been printing more money in order to stimulate the economy. Actually, it hasn't. The treasury has actually been borrowing money, and the Federal Reserve has been trading assets they have in their portfolio for bank assets. Now the printing of money is actually under the control of the Federal Reserve, and up to this point, they've been very careful to limit the size of the increase in money because they've been fearful of sparking higher inflation. And of course earlier this year, inflation was very much an issue. Now inflation looks like a non-issue. In fact, house prices, as most people know, are falling. Oil prices, gas prices are falling. So this is putting downward pressure on the overall inflation rate, therefore, the Federal Reserve feels it has the leeway to simply crank up that printing press and print more money. Now many economists, you may be surprised to know, are actually applauding this because this is a classic weapon that Federal Reserves in the past have used to fight a recession."

Posted by Dave at November 24, 2008 08:00 AM