As we've seen, some are predicting the USD will retain its strength. Surprise, so far that's been correct.
Most people (me included) believe it won't last. But it appears Bernanke's bet is that a global economic crash can be averted long enough to restore functionality, at which time many currently-troubled assets can be sold off. True, at greatly devalued prices.
So far, there hasn't been a run on the dollar. It appears that other global players recognize that's not in their self-interest. Meanwhile, governments are end-running CBs, to restore credit, while underwriting commerce and industry with a taxpayer-signed blank check for assets whose value is uncertain, right now.
Bernanke has acknowledged Friedman's contributions, and Friedman was clear: the effects of all that injected money will be inflationary. Bernanke knows it. Presumably when inflation begins to bite, interest rates will be jacked up and anti-inflationary policy will rule again - probably resulting in stagflation.
Will it work? Dunno. Will it solve the problems inherent with fiat money? No. Will it make anything "better"? No.
It may buy time, and avoid a global meltdown. The alternative? Let 'er all crash and burn.
Is that what the world wanted: crash and burn?
It appears Bernanke has the cautious support of global USD holders. Nobody's saying he was right, only that he picked the lesser evil.
Jim |
