There have been two significant events this week. First, the election results are in. It turned out about as well as a libertarian could hope for, at least realistically in today's world. The Republicans will have a majority in the House and the Democrats maintain a slim majority in the Senate. It is being seen as, not a win by Republicans, but as a repudiation of the Democrats. A majority of people don't like Obamacare, along with all of the big spending, and that is why the Democrats lost so badly.
I was disappointed to see that leftist California voted down an amendment to legalize marijuana. Here is a state that is electing socialists all over the place and yet they can't get a majority to vote on legalizing a drug that is one of the least harmful of illegal drugs. It makes you wonder what hope there is. It just means that libertarians have to work harder to educate others on individual freedom and how it is beneficial to nearly everyone.
The second important topic is the Federal Reserve. An announcement came out today that the Fed will likely purchase long-term government bonds. It will do this for the next 8 months, buying $75 billion per month. This totals $600 billion. It will also continue to rollover money collected from expiring bonds. The Fed did include language that it would monitor the economy and make adjustments when necessary.
This announcement is about what the market had already priced in to this point. The stock market did not make any really dramatic moves for an announcement this big. The dollar fell, but not dramatically. It will be more interesting to see how the market reacts over the next couple of days.
We'll continue to monitor this whole thing and there will be many more posts on this topic. We will have to keep an eye on excess reserves, to see what the banks do with this money. Will it sit as excess reserves, similar to what happened with the last major increase in the monetary base two years ago? Will the banks lend this newly created money out and spark high price inflation? This is a significant amount of money being created out of thin air and it will only make things worse. We will just have to see how it takes form.