Quantitative easing is basically the idea of the Fed Govt printing a whole lot more money, and paying off its debt with it.
Some people think it's a nice, painless way to paying off the National Debt.
Until they find that the $20,000 they had saved up to buy that new car, now buys only $10,000 worth of stuff.
That's how they find out who REALLY paid for the National Debt.
Just theft, as I've said before. Only in a different guise.
They are betting the money wont ever hit the economy...LOL
My big concern is that public debt is like welfare and people on welfare get accustomed to being lazy and doing nothing. These Zombie banks are the same. The gov will keep on buying debt and removing all risk from these Zombie banks. So the lip service that no bank is too big to fail is absurd. They are saying the opposite with monetization.
Ultimately in my mind, the printing of money will leach into the money supply and at some point, there is likely to be a massive inflator. The game Bernanke is playing here is that "public debt" which was once private debt, has value but will not mingle with the money supply M1. In other words, Bernanke is implying that the money the Fed is using to buy debt will never actually touch the Money Supply. It will reside in sort of a vacuum jar of debt.
But this leads to all kinds of perception problems. So back to my model of the poker players where the gov this time is printing money under the table but only using that money to reduce the debt of the bad players. They are not actually giving them the money to squander. They are buying the debt and saying to them, when your car game improves you should be able to pay off your debts. So we will just keep your creditors happy with our guarantees and you keep playing.
What has happened here is that no money has been put into the game. So the gov says it has not increased the money supply on the table so this will not add to inflation.
The big problem with this approach is you create Zombie poker players instead of throwing the bum out of the game and playing without him or letting somebody new come in to play. So the fundamental business structure is lost and we have this oddball gov. monetization inflicting itself on interest rates. This is because the risk has been removed from the game. The Zombie players can play indefinitely. RISK of capital has been removed.
In Sum: The right way to fix debt is to convert it to equity. The wrong way is through the political machine of monetization which removes RISK. Once Risk is removed, you have Zombies that have no business survival instinct. The net result is zero growth.
But there are unforeseen consequences already arising. These include the perception that printing money will lead to inflation. So commodities are spiking and bond yields are flat. And why the money managers are so euphoric over more QE II is simply beyond my comprehension. Stock Markets are houses of equity and Risk. To promote zombie business is like saying our goal in America should be to get 60% of the population on welfare. It makes no sense.
Bernanke in case you have not noticed is something of and egoist. Well so's Obama. So once these guys take a path, they take it to the Hitler conclusion or in this case maybe the Goldman conclusion.
Think about it... who has really thrived during this economic crisis? Small business? Nope. Billionaires, Bankers, Bondholder, and wall street shysters. Everybody else is virtually underwater, and unemployed. So the answer is more QE II, and as you can see from the mechanics of monetization, it will not do anything more than reduce RISK and increase Zombieization. The debt will further sink the taxpayer, push housing down, and do nothing for job creation.
Regards
Doug
