Predicting the Effects of Expansionary Monetary Policy on an Economy in Recession

The Obama Administration has enacted both of Keyne’s creeds: Expansionary Monetary Policy and Deficit Spending. This article will focus on the former.

Expansionary monetary policy is enacted to lower interest rates in times of deflation. This encourages investment, and ideally improves the economy and brings it out of recession. However, this Keynesian analysis is limited. After the economy recovers due to a particularly large session of EMP, hyperinflation occurs. Hyperinflaiton is inflation to the point where interest rates rise as if deflation were occuring. This is due to the fact that interest rates must necessarily be above that of the inflation rate, or banks face immediate deficits.

This increased interest rate necessarily passes the inflationary burden onto businesses. This pushes them into deficits of their own, and many businesses have to lay off workers in order to restore their profits. This is the harmful effect of hyperinflation, which can occur if enough EMP is enacted at once.

Though hyperinflation is destined to occur to this recession, there are other harmful effects of EMP that happen every time expansionary monetary policy is implemented. Any time interest rates are artificially lowered, more loans are taken out and less money is saved. This often leads to a “boom”, like the one of 2002 to 2006. However, when the market over invests poorly as a result of this policy, the result is always the same: the economy lurches into recession. Savings have been consumed and most people have spent and invested themselves into large loans. The recession then ensues.

What then, occurs when, as we are now, we implement EMP during a recession? Such an event causes a double-dip recession. The economy spends itself even more up to a point, and then the economy collapses in debt again. This has happened more than once since it happened in the Great Depression.

Expansionary monetary policy is necessarily a harmful policy to implement on society in mass quantities at any time. The proper solution is to let the market painfully recover from its government-stimulated overinvestment. Haste makes waste.

Obama avoids blaim for new unemployment

According to the Bureau of Labor Statistics, unemployment has risen to 9.8%, despite Obama’s entire team “working every single day… to accomplish” lower unemployment.

In a speech today, Obama avoided taking blaim or apologizing for the continuously rising unemployment, simply claiming that he’s still working to find new options and giving a little sentiment for those unemployed. Barack Obama attributes the fact that the unemployment rate has  gotten to only 9.8 because of his Keynesian initiatives.

I’m sure that after over eight months in office, the president with all the Congressional majority he needs should have been infinitely capable of saving the economy from the 10 percent figure, which is double what unemployment was just 9 short months ago. The president  needs to be capable of admitting that he made mistakes and that blame must be assessed.

Obama’s great stimulus, originally glorified as quick and effective recovery, is turning out to not be as such. The Real Gross Domestic Product has fallen and there have been no signs of recovery. The Keynesian belief that saving is inherently a flaw in the free market is crumbling, and it is growing evermore evident that the glorified Keynesian deficit spending cannot effectively be managed by government.

Dignity, honor, and respect are generally good qualities in a president, and not admitting failure shows one’s pride, but to not even apologize for a slow recovery seems heartless. If America is to have an honorable president, he shouldn’t be afraid to say he’s sorry.

Obama: A Dedicated Follower of Keynes

Keynes was a macroeconomist from the 1900s. He lived in a time of deflation and recession. He argued that the solution to both problems was to print money and spend it on infrastructure. This would stimulate the economy and put an end to deflation. Sound familiar?

Well, not really. While Keynesian Economics work in the short term with economies in recession due to deflation. However, we aren’t. The world is in recession for inflation and government failure (when the government intervenes in market failure, creating a vaster mess than before).

So, when Obama believes this policy and defends it publically, we must remember that now is not the time, and while ‘yes we can’, we’d better not.