The Federal Reserve plans to continue the implementation of “Quantitative Easing 2” under the direction of Chairman Bernanke. Bernanke was recently questioned on Capitol Hill about the direction and need for future QE2 for fear of future inflation. In the spotlight is Senator Paul Ryan (R-WI) who is outspoken in his criticism of the Federal Reserve. Economist James Kwak criticized Senator Ryan on his concept of inflation, the supply of money, and the exchange rate of a currency. An older post by economist James Hamilton on his blog Econbrowser examines a similar notion to that discussed by Ryan by focusing on the equation of exchange as it relates to different types of money (specifically base money versus currency).
These articles all beg the question, “Is inflation becoming a problem in the U.S.?” The Economist recently published a story highlighting the different inflation rates here and in developing countries taking note of rising food and commodity prices here and abroad. You can refer to the Fed’s monetary aggregates at the WSJ website here.
Questions you might answer
- Do you think inflation is a problem today in the U.S.? If so, do you think that QE2 is exacerbating that problem?
- Do the arguments of Kwak and/or Hamilton convince you that QE2 is not directly problematic with regard to inflationary pressures?
- Does QE2 present an increasing problem with regard to the Fed’s exit strategy? Is all of this debate about Fed policy warranted?
- Does the value of our currency present a problem for U.S. citizens? Or does devaluation of our currency possibly lead to an improved outcome for Americans?