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Fallout: The Financial Crisis

Fed’s $600 billion plan is ‘risky business’

Sarah Gardner Nov 9, 2010
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Fallout: The Financial Crisis

Fed’s $600 billion plan is ‘risky business’

Sarah Gardner Nov 9, 2010
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TEXT OF STORY

Kai Ryssdal: We’ll get underway this Tuesday with an observation and a question all rolled into one: A dollar is a dollar is a dollar, right? Where any given dollar bill goes once it gets into circulation doesn’t much matter, ’cause it’s all just money. Fungibility is the technical term, and that’s true as far as it goes. But now that there are $600 billion extra in circulation, thanks to the Federal Reserve’s announcement last week, there are some worries all that cheap money’s going to up in all the wrong places.

Marketplace’s Sarah Gardner reports.


Sarah Gardner: The idea behind that $600 billion infusion is to inspire consumers to spend, banks to lend and corporations to invest — investment that will ideally lead to jobs.

But yesterday, Dallas Fed President Richard Fisher warned that Ben Bernanke’s move was “risky business.” He said all that cheap money could stoke inflation and encourage speculation instead of hiring.

Steven Platt is a futures strategist for Archer Financial Services.

Steven Platt: The Fed cannot really corral these dollars and push them into just the housing market or to support employment in this country.

Instead, Platt says, all that extra cash could flow outside the U.S. or into commodities like gold or silver. And that appears to be happening.

Platt: Silver prices have added a couple bucks. The sugar market has also added a couple dollars and coffee prices have moved from just under $2 to around $2.15 in a matter of a couple days.

Gold and oil prices have shot up too. UBS economist Drew Matus says gasoline has jumped 10 percent since the Fed’s move — not exactly an economy booster. Matus says the Fed is betting that the benefits of cheaper money will outweigh any negative effects from higher commodity prices. But the risk is yet more bubbles.

Drew Matus: And so what a lot of economists, including some people in the Federal Reserve are concerned about, is that they’re simply encouraging excessive risk-taking again and that that’ll effectively lead us down the same path that might have caused the housing bubble to begin with.

All this angst over U.S. monetary policy arrives just in time for this Thursday’s G-20 world economic summit.

I’m Sarah Gardner for Marketplace.

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