Fringonomics and the concept of free money

Yes you read that right, coming to a bank near you in the immediate future, free money. With the bank rate currently at 1% and the Feds threatening to cut the rate to zero, soon banks can in theory borrow from the Federal Reserve window at no cost whatsoever. These days the figure flying around is $7.5 trillion, (this by the way, is approximately equal to about 45% of the GDP) This is the amount that the Government would have committed to, in one form or another by the time all is said and done. This is where we are today, with the treasury and the feds tap dancing at a frantic pace trying to keep up with the deadly downward spiral of investor asset values and the fantastic deleveraging of the economy. Basically since no one has ever dealt with a problem of this magnitude before, we are now in the realm of a new discipline that I will refer to as “Fringonomics”. Fringe economic instruments of monetary and fiscal control are being implemented without any discernable attempt to measure it’s potential effect on the future capacity of the economy to return to normal once this crisis is averted. To date, despite the best efforts of the government and the reserve banks, we have been in a deflationary circle but common sense tells us that some point all those chickens (referring to the billions being indiscriminately pumped into the system) will come home to roost in the form of uncontrolled inflation. The current deflationary trend is already leading to job cuts and lay offs, so despite the “low low” prices available at Wal-Mart nobody is interested, not when you have so many other competing needs with a diminishing means of meeting these divergent obligations. The geniuses that got us into this mess by trading in highly speculative and in some cases imaginary assets, will in the end be the same ones using all that “free” money and just what do you think they will do when the economy starts to rebound? Yes, they will buy and buy everything; those same “low low” prices for assets and commodities, will cause a buying frenzy. They will flush all that cash into the system and drive up the price of everything from drinking water to online dating. Now you can’t fault Secretary Paulson, he is doing what he has to do to keep the wolf at bay but my question is, since these Harvard MBAs got it so wrong the first time, what gives them the right to have a second crack at it? Interestingly, due to blind acceptance forged from years of unconditional usage most people do not even give a thought to the fact that if your government is in the business of printing money, you as a citizen should be in the business of storing your wealth in something else other than money. If there is only one dollar in the entire US economy and I have it, the minute a second dollar is created I am only worth half as much as I was worth before, so regardless of the outcome of these current experiments, for the average Joe the end result is a net loss. Now don’t even get me started on Nigeria’s deficit budget spending for 2009…….