Pet Cemetary

Check the above link to the article with the following headline quote:

The Federal Reserve's decision Wednesday to buy $300 billion in longer-term Treasury securities has ignited a firestorm, with analysts saying it will either cause a currency crisis or jolt the economy out of the morgue.

In the a) and b) option question printed above I think anyone who has followed this blog will realise what the answer is. Jolt the economy out of the morgue......conjures a imagine of a last minute resusitation and a pulse returning to the nearly deceased. I rather think of as a scene from Pet Cemetary. Initially everything seems OK, then you slowly begin to realise that the dead were best left dead. Helicopter Ben is finally getting a chance to fire up that whirlybird and commence his much anticipated monetary bombardment.

As the article alludes...so that article should state. This will preciptate a currency crisis and US dollar will finally collapse in value leading to a rapid upward correction in US and global interest rates. Real wages will fall as they fail to keep pace with inflation. The debt burden will be purged one way or not from the system.

The US will default, de facto, on its foreign debt causing sheer apoplexy in China. The US will then, unable to borrow externally, be forced to repair its domestic balance sheet and productive capacity. Slowly American savings will begin to rise and the U.S. will progressively return to productive growth....all other things remaining the same. But then again, they never do.