"Escape Velocity"

Pimco coined the now popular phrase "new normal". However, their phrase I like the most, and which is most pertinent to today is "escape velocity."

The idea is this - the US economy is growing at slightly less than 2% currently. Our annual deficit is bigger and our overall debt very concerning. One school of thought says, now that you have growth, you should tax and/or reduce spending to reduce the debt. However, this is a very dangerous approach to take to an extreme b/c you risk the somewhat fragile 2% growth turning into 0% growth by hindering economic incentive and investment.

The 2nd school of thought says that in order to reduce debt, we must have a truly vibrant and profitable economy -- one that grows at 4% or more. If that occurs, then we will be creating jobs, profitability, income, revenue - and at that point in time the economy can (literally) afford to be taxed in order to reduce our debt.

The problem = the longer we wait for that 4% growth economy, the larger our debt grows.

Escape velocity is the idea of spurring the economy very quickly to that 4% growth level and leaving behind these times of 2% growth while debt continues and continues to grow.

So today's move by the Fed to announce $600 billion in quantitative easing (really $900 billion b/c they are also continuing a current program whereby there are spending 250-300 billion in treasury purchases) is an all-out gamble on the 2nd school of thought... the markets should love this for the short term (6 months?) as well as for the long term, if it works.

Potential outcomes/consequences of the move?
(1) Inflation in emerging markets
(2) Debasing the value of the dollar
(3) Stagflation (below average growth in an environment of inflation)
(4) Rising asset prices, esp. commodities
(5) Lost or gained credibility for the Fed (based on if it works or not)

Failure to achieve "escape velocity," however.... might feel like landing on wet cement.