The Fed Acts

Markets have gone wild with the news that the Fed is going to pump new money, not once, but month by month, into the US economy, until it begins to grow convincingly under its own steam. Coming on top of the ECB decision to stand ready to do its own version of QE, this shows that, as indicated several times by this blog, the re-construction of the western economic model will have to be through new money, not more borrowing.

Iceland has achieved an extraordinary turnaround from national bankruptcy by another version of the same method. On the other hand the economies caught in the bind of cut and borrow, Greece, Italy Spain, Portugal, are in difficulty.

In the UK the authorities have used  cuts, cheap borrowing and QE, but so far growth has proved elusive, as has real reduction in government borrowing. This Blog believes the this is because QE is being used to strengthen banks and financial institutions and not to generate real wealth creating economic activity.  The authorities show a curious mix of willingness and hesitancy over QE which indicates how little is understood about the relationship of modern money to economic growth. Let us hope that this understanding grows and with it economic prospects grow as well. All eyes will now be on America.