In the Page 1 Aug. 14 article headlined “The unlikely economy,” it is reported that wholesale prices have dropped–for the seventh month in a row. Yet pronouncements from the Federal Reserve Bank continue to indicate that the directors’ primary concern is on the containment of inflation, even though wages and benefits have not shown any appreciable gains.
If prices are dropping, and wage and benefit growth are constrained, why is the Fed so pre-occupied with inflation? Could it be that the Fed is expecting inflation from another source? Would the Fed, itself, create the inflation they’ve been warning us about?
As I understand it, foreigners have been using the surplus dollars they’ve earned by their trade surpluses to buy U.S. securities. They’ve invested them in various instruments of government debt and in the U.S. stock market. But if the market stalls or drops, and the budget comes into balance, or even close to it, what do foreigners do with the excess dollars they hold? How do those dollars get back into the country?
A while ago, Alan Greenspan made a statement about liquidity. He said that he would make sure there would be plenty of it. How does he do that? By printing money, or what?
