Okay quantitative easing. I told you I’m going to tell you about this. The Fed says that they're going to do what’s called quantitative easing. This has been, there’s been this big fight going on inside the fed about whether or not to increase the money supply.

Now when there’s more money than there is goods, say there’s a trillion dollars worth of goods and services running around in the economy, it’s actually much larger than that, but let’s just use the number. Say there’s a trillion dollars worth of goods and services and there’s a trillion dollars in dollars running around the economy, then $1 buys $1 worth of goods and services.

If suddenly there becomes two trillion dollars in the economy, but there’s still only a trillion dollars worth of goods and services, then what happens is that the “price” not the value but the price of everything doubles. That’s called inflation.

The problem and this is why, and the way that the number of dollars in circulation changes is by the fed doing this thing called quantitative easing. Which is a fancy way of saying they buy treasury bills or other debt. In some cases it’s even bank debt. But they buy, they buy debt and what that does is it drives up the number of dollars. Because when they buy it they have to print the money, they don’t actually print it, it’s all electronic. But they create more dollars.

Now the upside of quantitative easing, of what they’re doing, is that it is an immediate stimulus to the economy and that it drives down the value of our dollar which makes our exports cheaper which helps industries in the United States that export things. The downside is that it drives down the value of the dollar which means that imports are going to be more expensive and that over time dollars are going to be worth less. So things that don’t change in value like gold and land and arguably oil and some other commodities are going to go up in price. And like I said, that’s called inflation.

But the environment right now is so deflationary that it looks like, and it looks like the Fed has agreed on this, that they can do QE, they can do this quantitative easing. They can print more money, basically, and it won’t produce an inflationary result. Instead it will simply stimulate the economy. Or if it does produce inflation it’ll be you know half a decade or a decade down the road. And they’ll be able to deal with it then.

Here’s the carry-home on this. I believe, you know the Fed has a mandate. They have two mandates, by law, or by policy or whatever. I mean it was written into their charter that they are supposed to maintain full employment and control inflation. And they’re not doing a particularly good job of the former. And the latter is not an issue. There is no inflation. So this is something that frankly they should have done a year ago. The economy would not be as badly in the tank right now as it is if they had done it a year ago. And I see this as a really good sign.

Three, there’s three open seats on the Fed board right now. President Obama has been trying to get these seats filled. The republicans have been blocking him in the US Senate. They have to be confirmed by the senate. And so there was some question about whether the Fed would go along with this. Because the Fed can make or break an economy. I mean Lyndon Johnson famously brought the president of the Fed, the chairman of the Fed into his office, back in the ‘60s and grabbed him by the throat, slammed him up against the wall, lifted him up, you know Johnson was a huge man, lifted him up to the point where his heels were off the floor and yelled at him about “You are going to lower interest rates!” and you know to his credit or not I don’t know, I don’t frankly recall the details of that time. But the guy said, “No, I’m going to do what I’m going to do.” You know, “My appointment expires after you’re out of office, buddy.”

So in any case, the Fed has decided that they’re going to do this and this is going to be I think good news for the Obama administration because it’s going to increase the number of jobs in export driven sectors in the United States, there’s going to be more jobs for things that we export, manufactured goods. The few remaining ones that we export because our exports are going to become cheaper. Our imports are going to get a little more expensive, so it’s, there’s going to be less demand for imported products which is going to open up opportunities for American manufacturers. And the risk of inflation is pretty negligible. We are still in a crisis. I think, frankly, we’re still in a depressionary mode. Even though officially the recession ended last year. I don’t believe that. And apparently the Fed doesn’t either.

Now this is all the kind of interesting and good news about this, the bad news about this is that President Obama this morning, in addressing the United Nations, said “We have successfully resisted protectionism.” In other words, we’re not going to put tariffs on imported goods to protect domestic manufacturers. In that he is echoing presidents from basically from Nixon forward who started arguing against protectionism.

But it really began in the Reagan administration, arguably in the last year of the Carter administration. But it began in the Reagan administration, went big with George Herbert Walker Bush and went on steroids with Bill Clinton, knocking down tariffs. We went from you know over 25% average tariffs into the United States when Reagan came into office, or when Carter came into office actually, down to 2% right now. 2.2% average import tariffs.

And Obama is still denying that he wants to use tariffs. Instead they’re going to try to use monetary policy. In other words they’re trying to drive down the value of the dollar. This is not a smart or targeted way to do trade policy. It’s, it’s a way, but it’s sort of like going after flies with a shotgun. But at least they’re going after the flies. So good news, bad news. we’ll be right back.

Transcribed by Suzanne Roberts, Portland Psychology Clinic.