Quantitative Easing vs Fiscal Consolidation

"Is a puzzlement," said the king.

Take my money ... please.

   Let's start with a few brief definitions, to clear up euphemisms.

   Fiscal consolidation -- austerity, or spending cuts.
   Quantitative easing -- increasing the money supply.

   But consider this: How can one government agency reduce its spending, while another increases the amount of money available? And what's the result?
   Setting aside (sequestering) for the moment the inherent confusion of verbose and contradictory terms, the result of these two clashing policies means higher prices, as one side stops spending even as another pumps more money into the economy. In effect, one offsets the other, and the consequence of inflating the supply of cash available boosts prices.
   Put another way, with more dollars in circulation and the same amount of goods and services available, that means higher prices.
   One would think that in recessionary times, as demand for stuff falls, prices would follow, to induce folks to buy. But if the money supply increases, more dollars chase fewer goods, bidding up prices.
   The clash of fiscal consolidation versus quantitative easing creates a battle where one side says stop spending, and the other says here's more money to spend. So more dollars are available, but fewer are being used.

   However, is that true? Major firms often have first dibs at the finance counter because they deal in larger amounts, so they can borrow at near zero interest rates, pay down corporate debt and reward senior execs with big bonuses for their "great performance."
   Where does that leave the rest of the people, with savings accounts yielding less than 1 percent interest and prices rising at 2 percent? Do the math; they lose money. So that means, spend it now because you can't afford it tomorrow. But that leaves you broke while senior execs stash the cash. Want evidence? Check the New York Times report the other day on executive compensation. It's soaring.

   Looked at another way, there's really not much new here, just new names. Some ninety years ago, as the Gilded Era reached a zenith, America's super-rich enjoyed their "cottages" at Newport and their mansions on country estates, while workers struggled to form unions and get livable wages.
   Those days may be gone, but the habits are still around, with new names.

   But the good news for the day is that the U.S. exported $187 billion in goods and services in May, according to the Commerce Department. Over the past twelve months, exports totaled $2.2 trillion, 41 percent above 2009. The figures were released by the Export-Import Bank, an independent government agency that helps to finance overseas trade.
   So how much of that boost can be attributed to "quantitative easing," the pumping of extra dollars into the economy?

   It is, indeed, a puzzlement.