Monetary Easing and the Ugly Consequence

Pinnacle Digest writes: In this article, Axel Merk breaks down exactly how the Fed has manufactured this rally and the side effects that may come in the future from all this monetary easing.

Because money velocity hasn’t significantly increased since the Fed began easing (Money velocity is a measure of what the economy does with the cash injection from the Fed. If banks don’t lend the injected Fed capital, then money velocity remains low), many economists argue that the QE’s will have minimal negative consequence. Axel Merk argues that theory in a very well thought out article. He explains that although the monetary easing may not have too much negative consequence at the moment, that could all change very quickly. If this plan of the Fed’s does end up working, and the money it has printed makes its way into the economy, inflation could hit in a big way.

Merk breaks down why the US economy has yet to gain anything other than lackluster growth despite all the money printing that has gone on. He explains the significant deflationary forces at work that are dragging the economy down.

No one but consumers are to blame for the slow growth. As the housing bubble grew in the 2000’s, so did leverage. Consumers were using their homes as ATM’s. Now that people are trying to de-leverage some of their excessive living in the 2000s, constant deflationary pressure remains on the market (for all goods and equities).

This is a must read article from Axel Merk - a very respected Fund Manager. Click here to read.