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Wednesday, April 25, 2012

Definition: Reinflate

Reinflate - Re-Inflate: 

1. Term for fed policy  which attempts to fill deflated asset bubbles with easy money. 

2. Term made up by money managers who hope to keep you confident, and fully invested, so that they can keep up with the payments on their Mercedes Bends SL500 each month.   

There are several problems with the above hypothesis:

1. Easy money seldom ends up where it's needed/intended; often causing asset bubbles elsewhere, such as the housing bubble of '08. 

2. Rather than fostering an environment of accountability, easy money policy encourages more risk taking, on the part of investors. "After all, the fed will always just bail us out when we screw-up."

3. An inflate policy keeps cost of living prices high, while at the same time asset prices may be deflating, and wage growth is stagnant, placing an undue burden on the middle-class and the poor.    

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