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http://www.forbes.com/home/opinions/...1bernanke.html
Before becoming Fed head, Ben Bernanke wrote papers about "excess" savings worldwide: People aren't spending and investing enough, and that's why global financial systems are awash in cash. Alas, those excess savings are a euphemism for excess money creation by central banks, particularly the Federal Reserve.
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Before year's end the Fed will probably raise short-term interest rates again. But, as the 1970s and early 1980s agonizingly demonstrated, increasing the nominal cost of money does not necessarily undo the debauching of the dollar. Mopping up excess greenies, which the Fed could do by selling some of the government bonds it holds in its portfolio, will cure the disease--quickly, too. Otherwise, major defaults from excess debts may destructively extinguish some of the excess money.
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Before year's end the Fed will probably raise short-term interest rates again. But, as the 1970s and early 1980s agonizingly demonstrated, increasing the nominal cost of money does not necessarily undo the debauching of the dollar. Mopping up excess greenies, which the Fed could do by selling some of the government bonds it holds in its portfolio, will cure the disease--quickly, too. Otherwise, major defaults from excess debts may destructively extinguish some of the excess money.