I’ve long been opposed to “injecting liquidity” into the economy, because doing so means that there are more dollars chasing the same amount of goods and services – driving up prices and creating inflation (well, unless you hold down inflation artificially for years on end like Fed Chairman Ben Bernanke has done, delaying and worsening the eventual day of reckoning – but I digress.)

A story that’s flown under the radar recently has been the Fed’s decision – OUR Federal Reserve – to send money to Europe in an attempt to shore up its economy

As my friend Dan Mitchell notes

Different nations are doing their own bailouts. On top of that, the Europeans have set up something called the European Financial Stability Facility, which does bailouts across the continent. And then there’s the International Monetary Fund, doing bailouts on a global basis. (and we’re not even counting the indirect bailouts from the Federal Reserve and European Central Bank

So how is this system working? Well, if you understand the principle of moral hazard, you won’t be surprised to learn that it’s a big flop. Giving bailouts is like trying to cure an alcoholic with more booze

But the problems are much deeper than promoting bad behavior. Bailouts also undermine growth by misallocating capital. And, most ominously, they create even bigger problems down the road. 

Which is now what’s happening. The queen bureaucracy of bailouts, the IMF, may run out of bailout money, and presumably will demand more handouts from member nations – with the United States on the hook for providing the biggest share. 

As Rep. Cathy McMorris-Rodgers said recently, "At a time when the federal government is borrowing $5 billion every day on top of a $14 trillion national debt, we should not be funneling billions of dollars through the IMF to bail out Greece, Portugal, Ireland, and other wealthy European countries. The European Union was set up to be an economic competitor to the United States, and therefore, any bailout funds should come from the E.U., not the U.S. We cannot take the ‘too big to fail’ philosophy to a global level." 

I’d laugh at the absurdity of it all… if it weren’t so tragic.