I have been trying to understand how this new stimulus - Fed Chairman Ben Bernanke's plan to put $40 billion a month into circulation - is going to work. My husband and I have been reading articles regarding this plan - and if you read 5 articles, you get 5 different interpretations on what it is all about.
This is how I understand what will happen with this new stimulus:
The Federal government is going to purchase from the banks MBS's (mortgage backed securities), formerly called toxic assets, that are corroding the bottom line of the major banks. This stimulus action is expected to enable the banks to provide loans to businesses and individuals. Somehow the money is created out "of thin air" and given to the banks for these worthless assets.
This plan works only if you believe that erasing the 5 on a $5 bill and replacing it with a 6 really puts more money in your pocket. This $40 billion a month that will go into circulation will not come without costs to its citizens. If you are now paying $3 for an item, I believe it will cost you $4 next year. This plan will have a negative effect on your purchasing power.
No comments:
Post a Comment