Quantitative Easing (QE2) Explained

[JG55]

[leroy]

This is great!! Sadly, the little varmits are exactly right. Everyone should take the time

to watch this carefully.

Thanks for posting it!

Leroy

[LagerHead]

"Is this an episode of The Twilight Zone?"

"No"

"Are you sure?"

"Pretty sure."

It would be funny if it weren't so scary.

[Guest KimberChick]

Yeap. The fleecing of America continues...

[Oh Shoot]

Ya know, individuals buy back their own debt all the time.

It's called "paying your bills".

But we can't print money to "quantitatively ease" them.

That's called "counterfeiting".

Since the US Government can't "counterfeit" its own fiat scrip, I'd think that at the least, "malfeasance" and "fraud" should fit.

- OS

[MacGyver]

Ya know, individuals buy back their own debt all the time.

It's called "paying your bills".

But we can't print money to "quantitatively ease" them.

That's called "counterfeiting".

Since the US Government can't "counterfeit" its own fiat scrip, I'd think that at the least, "malfeasance" and "fraud" should fit.

- OS

It's funny that you use the word "counterfeiting". I was thinking about this over the weekend.

The real danger with counterfeiting is not devaluing the currency through the fraudulent additions - it would take massive sums to do that kind of damage (and $600 Billion would be a massive sum if a malicious actor got it into the system). The real danger with counterfeiting, and the reason the Secret Service is so serious about combatting it, is the risk of people losing their faith in the government's ability to protect the monetary supply.

If you don't trust the currency is genuine, then you're also not going to trust anything the government is going to do to try and rectify the situation, and thus you lose your faith in the government itself. Black markets emerge, massive volatility swings undermine markets, massive inflation occurs, and pretty soon you are on the quick road to civil war.

I think a lot of what we saw last week was the world essentially accusing us of counterfeiting. Sure, that money is still backed by the full power of the Federal Government, but suddenly has less value in the world markets. And, all those governments that are complaining really need Americans to keep buying their junk. But, at some point, it's going to catch up with us.

[Mark@Sea]

Hyperinflation in the Weimar Republic

Many of the dramatic and unusual economic behaviors now associated with hyperinflation were first documented systematically in Germany: order-of-magnitude increases in prices and interest rates, redenomination of the currency, consumer flight from cash to hard assets, and the rapid expansion of industries that produced those assets.

John Maynard Keynes described the situation in The Economic Consequences of the Peace:

"The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance."

[Guest 6.8 AR]

Keynes's observation of the Weimar Republic was right. Unfortunately, his other ideas are killing us.

That was a good video. Covered a bunch. Scary

[Guest Lester Weevils]

It is science versus engineering. Economics really is a science, though it is a complicated enough subject that progress is a long haul. Kinda like psychology. Psychology is a science, but the subject matter is beastly complicated compared to physics.

Economists who make it to the PhD level have to be pretty good mathematicians.

Keynes' discoveries in economics are still valid. Multiplier effect and such. Those things really do exist. Just as Smith's earlier "invisible hand" is still valid.

Invisible hand - Wikipedia, the free encyclopedia

Multiplier (economics) - Wikipedia, the free encyclopedia

But Keynes' engineering ideas based on the science are seriously limited and flawed.

For instance, we theoretically understand how practical fusion power generators ought to work. But the practical engineering has been "ten years away" for the last 60 years.

I don't think we should try to engineer macro economics until we know enough about it to have good confidence of doing more good than harm. Until then, it is kinda like a monkey trying to operate a nuclear reactor. Ain't gonna end well.

Edited November 16, 2010 by Lester Weevils

[leroy]

Lester:________________

I really like this great observation. I believe you've hit the nail on the head here:

...I don't think we should try to engineer macro economics until we know enough about it to have good confidence of doing more good than harm. Until then, it is kinda like a monkey trying to operate a nuclear reactor. Ain't gonna end well. ...

Keep up the good work brother!!

Leroy

[Guest 6.8 AR]

It would be simple enough to have them pay their bills, like we do ours. Primarily, quit running

up those bills. Counterfeiting is just the right term even when the government or FED sanctions

it. And it is a criminal act.

Really, you should never trust the government. It's just an entity that have people running it.

The people, once elected, see opportunity for power and want some. The only way they can

get their share of power is by growing government. Eventually that government will collapse

of it's own weight, if not held in check. I think that's exactly what's happening, intentionally,

right now.

Just about anyone can be corrupted. Congress is proof. That doesn't mean there are only bad

people in government, just too many with their own interests in mind. It's all in how people are

elected to office and how gullible us "little people" are.

Enter the FED. What have they gotten right, except for themselves? Have they ever really

benefitted the American economy? They have it all wrong. It is the American individual that

built this country. I think they are destroying it. When they are dealt with properly, the American

individual will build it back again.

That video is a great example of cronyism and too much power unchecked.

[byrnemm]

from my understanding, QE2 is of two purposes.

1) to extend the recovery from the recession by encouraging lending, raise securities prices, and increase employment.

2) put America on the offense in a global currency war.

As to purpose one... yes, it will probably do these things by bringing in a rush of liquidity. However, it will probably see marginal benefits that most people think aren't worth the risk. The situation is thus: the recovery is cooling off and QE2 might stem further losses and even prevent a double dip.

But purpose 2 I find much more interesting. Right now all emerging markets want to depreciate their currency, and with the USD being the global reserve currency, we're basically getting the shaft from everyone, especially China.

QE2's rush of liquidity will inevitably flow into those emerging markets. Emerging markets are in deadly danger of huge inflation and massive asset bubbles and the that capital will could them to appreciate their currencies or suffer the consequences. China is in a better position than other emerging markets to ward off the liquidity inflow, but the message is clear.

Here's a good article from Reuters: China: QE2 exposes global monetary flaws | Reuters

"We can understand the Fed's QE2 policy, from the angle that it wants to revive the U.S. economy and increase employment. But the problem is the dollar is the global reserve currency," "...It may not be the right choice for the global economy, though it is a good option for the U.S. economy," he said.

- Zhou Xiaochuan, head of the People's Bank of China

from the article:

In the near term, economists have warned that large-scale monetary easing in the United States could push a wave of liquidity into global markets that will threaten fast-growing developing economies with speculative inflows and asset bubbles.

[Guest Lester Weevils]

Bernanke seems confident that he can suck back in the excess liquidity after all those extra dollars have done their good deeds. But I keep asking people for historical references where this maneuver was done successfully, and so far no one has given a historical example where it worked thataway and everything turned out wonderful. Perhaps there are such examples, dunno.

Because it has never been done doesn't mean it can't be done, but there are many obvious historical examples where such shennanigans failed spectacularly.

The most common gripe is from any feller who happens to have some dollars. Regardless whether it is China with mountains of dollars, or old gramps with some dollars buried out in the back yard in a coffee can. Though Bernanke and such deny that QE will dilute the value of those dollars folks have, it is difficult to convince anyone of that argument. Either the Chinese or gramps would say, "I worked hard for those dollars, and the Fed Reserve doesn't have to do any work at all to flood the economy with dollars just by pushing a button."

IF QE actually spurs the economy, it will most likely be "on the backs" of all those people who happen to own a few dollars. If it devalues the dollars people already have, maybe it will cause some unemployed feller to get a job. Or maybe not. But it is difficult to convince many people that it won't cost people part of the value of their life savings in order to achieve that noble goal.

If it works, Bernanke gets a feather in his cap for saving the economy, and maybe gramps will have to spend $25 just to buy a hamburger with his hard-earned savings.

Edited December 17, 2010 by Lester Weevils