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Wednesday, May 22, 2013
QE3Posted Wednesday, September 19, 2012, at 8:14 AM
Do you hear that?
What could it be?
Oh yeah, it's the sound of printing presses at the Federal Reserve firing up to make $40 billion of new month every single month "until the economy recovers."
The money printing will continue for who knows how long.
The Chairman of the Federal Reserve, Ben Bernanke, has announced to stimulate the economy; the Fed must revive its strategy of qualitative easing (QE for short).
Considering the fact that QE1a, QE1b, QE2, and "Operation Twist," have failed to work, as Bullwinkle J. Moose, magicians hat in hand, would say, "This time for sure!"
If it was such a good idea, why doesn't every country do it all the time?
Just to put things in perspective, the number 40 billion looks like 40,000,000,000.
If we were to print one dollar every second for 40 billion seconds, it would take 1,270 years.
"Well, what does all this mean to me?"
At the fundamental level, since the dollar is not really backed by anything, the value of the dollar is determined by adding together the total value of all assets in the U.S. divided by the number of dollars in existence.
The more dollars in existence, the less each dollar is worth.
"So what. Why does that matter?"
First, it means higher gasoline prices.
The amount of available oil in the world has not changed.
The owners of the oil want to get full value for it when they sell.
To do that, they need to charge more dollars for the oil.
If you remember the Clinton years (and three-fourths of the Bush years), gasoline was in the upper one dollar to $2 per gallon.
Then, the price rapidly rose to the upper $3s to $4 per gallon.
That was because we doubled the number of dollars in existence from $800 billion to $1.6 trillion to "cure the recession," boost employment and save the country's biggest banks from their bad lending practices.
Unless the printing is stopped, in 20 months, gas will cost $6 per gallon.
But gasoline is not the only thing that will go up.
Precious and industrial metals will also go up.
Grocery products are commodities, like metals, and they will also be one of the first things to go up.
Everything imported into the United States will go up.
How many of us remember "experts" claiming that people in the United States don't save enough?
Most people aren't stupid.
Even the economically ignorant can understand that if you get 1-3 percent interest in your savings, it's not worth it.
Potential savers may not "know" that an inflation rate of 3-5 percent annually means you lose money when you save, but they know that prices are always creeping up and they don't make any money on their savings.
If there is a disincentive to save, where can new businesses find startup capital?
Inflation impoverishes a nation.
The cost of raw materials for manufacturing is always the first thing to go up in price.
The last thing to go up is always wages.
The elderly lose the value of their savings and their pensions lose purchasing power.
Tell me, when has the Social Security COLA, cost of living adjustment, ever matched the increased cost of goods and services?
I don't know if the Romans were the first to debase their money, but I know that every nation since has.
Every government from Rome onward, sooner or later, has spent more than it had.
It doesn't matter if the spending was on wars, social programs, or free bread and circuses.
Eventually, every nation has resorted to using debased currency to pay its bills.
South Africa and Switzerland resisted the temptation longer than most.
The Romans started mixing other metals into their gold and silver coins.
Eventually, the gold and silver were replaced all together with non-precious metals.
Shortly after the invention of the printing press, nations started issuing paper money replacements.
Without exception, every one of those currencies ended in collapse.
Frequently, collapse of a nation.
Culturally, the United States is one of the world's youngest nations.
However, other than England, no nation's government is older.
History is brim full of examples of how this monetary experiment ends.
No one wants to be an alarmist.
But as Einstein said, insanity is defined as doing the same thing over and over expecting to get a different result.
As Paul Ryan said, this is the most predictable slow motion economic train wreck in history.
I fear that no good can come from this.
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