In this article, Ben Bernanke defends the Fed's easy money policy saying that high levels of unemployment for long periods could cause serious social issues. The Fed said that its quantitative easing policy is necessary since inflation rates are still averaging below the target of 2% and the jobless rates remain high too.
The Fed maintains this position even though many people at home and abroad say that they are doing this deliberately to push down the dollar or that it will cause runaway inflation.
Bernanke said it is more important to find the unemployed jobs because the longer they are out of jobs, the lower is their potential to reenter the labor force because they might lose their skills and employers question their capability. "Bernanke also said the elevated jobless rate makes businesses and households reluctant to spend because they are uncertain of future income."
Currently, people are afraid to spend and therefore, although the Fed is trying to stimulate investment by increasing money supply (driving down interest rates), the velocity of money has slowed down. There is high unused capacity utilization and people are trying to sell their units and that is why we have a sort of deflationary environment. Consumers must start spending (capacity must be utilized through demand being expressed) and only then will the increased money supply have an effect and prices can begin to rise. The decline in demand is also a leading factor for the high rates of unemployment.
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