Quantitative Easing

I wonder how many Americans even know what QE is, let alone know that its now underway.  

An economist might say that QE is a vehicle whereby a central bank which is unable to further reduce the overnight interest rates (if they’re already at 0% for example) can nevertheless act to supress interest rates thus stimulating borrowing, spending and, ipso facto, a national economy.  Someone who prefers plain English might prefer to call it “printing money.”

Of course “printing money” is a terribly old-fashioned concept.  Our central economic planners are no longer handicapped by such nuisances as having to operate a printing press.  These days they can just make an electronic entry and like magic, “expand the balance sheet.” 

And while I’m tossing out euphemisms, the funny thing about the one called “Quantitative Easing” is that the dismal failure of the Japanese use of it has made it necessary for Mr. Bernanke to coin a new one.  He prefers to call it “credit easing.”  Its all the same thing of course–it just means that the Federal Reserve will create new money out of thin air, and use it buy assets from American banks, in this case mortgage-backed securities and long term bonds.  Ultimately the Fed can use this money creation mechanism to buy up any type of asset, and Mr. Bernanke-san is on record saying that he favors using it to buy corporate stocks and bonds as well.  My prediction (you heard it here first) is that the Fed will eventually be using QE money creation to buy up the oversupply in the housing market too–a little creative expansion of the balance sheet, designed to do us all good.

In the last 30 days the Fed created a trillion dollars out of thin air and injected it into the banking system.  That is more money than the total amount that the Fed has put in circulation in the first 95 years of its wretched existence combined.  It is the thermonuclear option of central bankers, and never before done in the United States of America. 

Yet 99% of Americans aren’t even aware that it happened, even though the effect of it was to instantly diminish the value of all their money and everything they own whose value is denominated in dollars. 

Words like “counterfeiting” and “theft” come to mind. 

This is the new world we live in.  Get used to it.

Love Wins