The End of QE, Yea! Wait What is QE Anyway?

We wonder why this country is in such financial turmoil!  This article illustrates, better than most, that the U.S’s economic woes are not even comprehended by a large portion of the population.  I believe this is by design, because, an informed public would make it monumentally more difficult for the puppet masters in Washington to run this country into the ground.  An uninformed public is what enables politicians to get re-elected.  Their desire is to distort and distract from the truth, and this article is a perfect indication of their success!  People, why are we so apathetic about this, how has it gotten to this point?  Quantitative Easing (QE), wow that sounds so gentle and harmless, isn’t it funny that they don’t call it Dollar destruction, cause that is really what it is!

Quantitative Easing is a term often misunderstood by the general population.  QE, is when the Federal Reserve buys bonds in an effort to keep interest rates down, and prop the economy up.  What is strategically left out of the discussion, is the fact that the fed doesn’t have any money, they simply manipulate the money supply to create it.  They do this in an effort to flood financial institutions with capital, with the grandiose thought that these lending institutions will then lend this capital to spur economic growth.  Problem is, the financial institutions are hanging on to the capital, and investing it.  So, it’s artificial and make-believe, how does that make you feel?  Not so re-assured, huh, especially since the Federal Reserved is not even governed….By Anyone!

this-is-what-it-means-when-people-talk-about-sterilized-qe

Here are 3 Risks associated with this rampant Bond Buying

Increased money supply will cause inflation.

That’s right, there is a fixed amount of goods and services available, so with more money floating around the economy, each dollar has less spending power.  Supply is up, demand is neutral or down, this inflates each dollar in the economy.  The Fed, the Media, and Politicians have done their best to increase the demand side, to fend off inflation, and give us the feeling that we are all ‘richer’.  You know those proclamations that the economy is doing so much better, the housing market is improving, unemployment is dropping, these are all efforts to spur demand, and thus spending!  This will also affect the cost of travel abroad.  The exchange rate in the UK is currently $1.35 for every 1 Euro, so when you travel to the UK, you may have to settle for the small Meat Pie, rather than the American Sized one!

Carpe Diem, Savers, you are no longer welcome!

That is because the markets have, effectively, been rigged in favor of stock owners and corporate bond borrowers.  Low yielding interest rates on CD’s and money markets make living on a fixed income, well impossible.  Oh, and then throw in the increased cost of oil, groceries, healthcare premiums and it seems to have created the perfect economic storm!  The inequality gap continues to grow as the have’s are benefitting from the turbo charged asset prices, and the have-nots’ face immense financial struggles of daily living.

Are we now addicted to QE?

It seems so, Federal Reserve Chairman Ben Bernanke signaled this past June that he would scale back the QE bond purchases to $65 Billion a month, but this was not well received.  The markets were rattled, they were in no way ready for Helicopter Ben’s, treatise!   Interest rates rose, cash was pulled out of emerging markets, and as a result, stock markets around the world dropped precipitously.  Since June, the Fed has decided to hold off on scaling back QE.  It’s concerns are twofold: First, the consensus opinion is that the American economic recovery is still tepid; and second, by tapering QE now, it may trigger a renewed financial volatility undermining growth, job creation and global financial stability.

So, what is your opinion of Quantitative Easing, has it been beneficial for the U.S. Economy?

I had the great pleasure of having my article featured on the latest edition of the Financial Freedom Pages Carnival.  Many thanks, Anton!

 

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6 Comments

  1. I’m not particularly worried about it. Inflation isn’t rampant & I’m open to the government nudging people away from parking money in savings accounts (& to instead put those dollars in the market). And when the market re-adjusts downwards, we’ll be able to buy equities on sale.

    • Jim says:

      That is a good way of looking at it, for sure, equities will be on sale when QE ceases. What will happen to the housing market though?

      • Hopefully it takes another dip and I can buy something on sale! I’m a perpetual optimist when it comes to our markets. If they rise, I have gains. If they dip, I have a buying opportunity. There’s always a silver lining, I guess.

        Only when I’ve stopped earning income (& I’m unable to take advantage of the dips) will I start to get concerned with the ups & downs. For now I’ll enjoy the ride.

  2. From the little bit I know about QE, I’m not a big fan. It just seems like a “stick your head in the sand” form of economics…..

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