The Federal Reserve has loosened all ties to reality. Swallowing Keynesian economic theory whole, it has decided to lower the Fed Funds rate to effectively zero for the foreseeable future. As if that weren't crazy enough — apart from everything else it makes money market accounts almost worthless — it is now going to inflate the money supply like the U.S. was Germany, circa 1922.
The mid-term consequences of all this are obvious to any right-thinking economist. (Forget long-term consequences. Concern for those was discarded long ago.) They are less obvious, but no less true, for anyone who has given the subject some amount of thought and study. To both parties the principles are simple: you can't create wealth by printing money; you can't solve an existing credit crisis by creating a new one.
Thomas Sowell has written another fine article on the related subject of bailouts, titled Postponing Reality. No one could say it better. What even the perspicacious Dr. Sowell doesn't mention, perhaps because it's so obvious, is that a great deal of reality will continue to happen while parts of it are postponed.
Interest-bearing instruments will be worth squat, discouraging savings/investment. Prices will be artificially propped up, distorting the market and harming millions. Worst of all, politicians will be encouraged to believe that their tweaking of the economy is legitimate.
But if years of teaching college have left you with a habit of ignoring any inconvenient facts of history and science, not to mention producing the morals of a dictator, none of that matters. The economy is in crisis. Something must be seen to be done.
Unfortunately for those of us who still live in the real world, there is little hope that these policies will be reversed anytime soon. There is lots of talk of Obama keeping Bernanke on at the Fed. Even if he were replaced, we'd almost certainly get someone very much like him.
Forget trying to hold onto your wallets. Try holding onto your sanity.