Understanding Quantitative Easing

Negative Interest, Negative Gain

(An excerpt from “Politics IOU” by Grandma Thunder The Libertarian Norman McClosky is speaking.)

 

debt on stilts over a rough sea

All is under control although we all know we are still hurting financially: Why is this? Well don’t we have quantitative easing?

Duh?

Do you understand this magic that banks call quantitative easing? There is obfuscation in this arena but I do understand it and I do owe it to you, you the taxpayer, to try to explain it. Let me warn you though, that this is not going to be easy for there is craziness in the banking lore that we have all come to accept. So hang with me as I try to help you to sort it all out.

Banks use quantitative easing to control the supply of money in a country. In the good times, banks suck the extra money out of the economy and in the bad times they pump more money in.

Now do you understand quantitative easing?

Duh!

Once upon a time a little bank used to be able to deposit money in a big Central Bank and get paid an interest in the same way that long, long ago you were able to deposit your surplus earnings in a bank and get rewarded with accumulating interest. That was before banks got things back to front and decided it was good for you to spend your money and bad for you to save, so very good for bankers when we are all in debt, right?

The truth is that it is the old traditional values of hard work, thrift, balancing the budget, and saving that lead to liberty, and it is liberty that leads to happiness. This is the foundation of the American Dream and they are trashing it.  It was sound money and simple, transparent banking that gave us our past prosperity. This is what took us up to being the foremost super power in the world.

This quantitative easing, the idea that you can spend into prosperity is actually a big lie, and it is what is taking us back down again.

So what if they are giving out negative interest in the old world; what does this have to do with you or me? Why should it have any effect on our ability to flourish and prosper? Unfortunately in a world with a global banking system, the whole world bears the cost of quantitative easing whether it happens here or over the seas and far way. With old world banks being charged negative interest rates does this affect you in any way?  You bet it does!

Here is how it works:

You are industrious and you earn more than you spend. You take your surplus and you give it to a bank for safe keeping. What should happen is that your bank should lend your money to the nation’s entrepreneurs, so that businesses can flourish; any bank that rewards production creates prosperity. Thankful entrepreneurs then pay your bank and your bank pays you. For your industry and thrift you should be rewarded; when you put your deposit in a bank; a grateful bank should be there to reward you and to service you.  That’s right they definitely shouldn’t be there to charge you. They owe you for your industry and your thrift, you don’t owe them.

Should Old World banks not also be rewarded when they put their money in the Central Bank? Actually no! The old world banks were putting the money gotten from depositors in a Central bank when they should have been lending to the producers and the innovators in their land. So by charging negative interest rates the Central banks are actually forcing the old world banks to do their job. They are making it more profitable for banks to lend to entrepreneurs. The real problem with the old world is that it has bought into socialism and we all know that socialism sucks the money out of an economy; this has been proven over and over historically.  We don’t have socialism in our world, not yet we don’t, but our country is fast heading in that direction.

What is quantitative easing? This is when banks try to solve economic problems by increasing liquidity; The problem with this is that if you increase the supply of money without increasing productivity THERE IS GOING TO BE INFLATION and everyday prices are going to go up.

What we now have is the problem of a centralized, global economy where if quantitative easing is being done anywhere in the world, the prices all over are GOING TO RISE. Inflation is about to hit on a global scale.

Let me go over this once again and explain how this works. When a central bank creates money out of nothing and turns it into debt and pumps this money into the economy, there is more bad money chasing product than is healthy, and prices are going to rise.  Pricing is set on demand and supply. Lots of money WHETHER IT IS GOOD OR BAD MONEY increases demand and the prices go up.

What of all the cheap goods coming in from the third world, does this not offset the inflation? For now this is a factor for which we can be grateful. The problem is that creating money out of nothing is unnatural and as such these central banks that operate above national lines, are not creating a stable order. Ask yourself the question how is it that tissues and toilet paper made in the old world with all that distance and all the cost of transport can be cheaper than tissues and toilet paper made right here at home? The unnatural order can only be maintained by a gargantuan military presence. Hello!  The sad news is that if you think it through you will see that eventually the force will fail, and we will have that  global economic crisis that negative doomsayers keep warning us about.

Will your bank follow the example of the Central Banks in the Old World and start charging you when you deposit money with them, is this likely?

Unfortunately it is very likely.  Most of a bank’s deposits come from an exploding public sector. What the politicians want is for them to spend not to save. So yes it is very likely that banks could follow the lead of the Old World Central Banks and begin to “charge negative interest” on savings; all approved by your happy politicians who want you to spend and not to save.

Of course our New World Banks won’t call it negative interest, it is all going to be reflected in higher bank charges.  Actually this is happening already. Banks specialize in floating fees and interest rates, another way they fool you. Go check your last bank statement and you will see the increased charges, a little here and a little there.  You will find it all in the small print that nobody ever has the time to read.

Once upon a time banks paid you to put money in their bank, and now you are paying them, a little bit her and little bit there and lots of little bits that you never have the time to notice! What I am sure you do know, though, is that they are not paying you to put money in their bank, right?

So let’s take a good, new look at the global quantitative easing as demonstrated by the old world banks:

We have a bad situation in the rotten banking sector of the old world. They have made some pretty bad loans over there and their finances have been mismanaged for over a century. And what is our unregulated Federal Reserve doing to protect us from this Old World Banking Crisis? They have cut their own currency swap rates to prop up the Old World Central banks, those banks who without your FED support could not charge negative interest rates. That is right it is YOUR FEDERAL RESERVE that is compensating the old world banks for their losses on negative interest. Without being propped up by our Federal Reserve  the Central Banks in the old world would not dare to relinquish their source of revenue from the old world banks.

So here we have them at it once again: Who is going to be paying for this? I have to tell you, sadly, it will be you and I and of course our children and maybe even our children’s children.

 

Kid on Pot with newspaper

In summary:

Your FED is creating money out of nothing and turning it into debt, so that at some time in the future you and/or your children will have to bear the cost of this negative interest, and all in order to prop up a banking sector in the old world that has many corrupt and inefficient banks that should be left to fail. The collateral the FED is using as it creates new money through bonds to lend out, believe it or not, IS YOUR TAXPAYER MONEY.

Did they ask you whether you wanted to bail out the Old World Banks? Did they ask you whether you agree to having every dollar that you earn or spend become worth less? Did they ask you whether you wanted to prop up socialism in the old world; did they ask you whether you wanted to invite socialism into our free land?

No sirree!

The Federal Reserve operates above even the Federal Political System. It is a global banking Big Brother. Our founders warned us about BIG, BAD Government. Actually they warned us about BIG, BAD Banking also. Our complex banking sector has it rigged so that banks and investment firms are able to keep the profits during the good times. Yet when things get rough, bank losses are being socialized through inflationary bailouts which now have no national boundaries or protective measures. What does this mean to you and your family? It actually means you are going to have to pay for the Federal Reserve’s decision to bolster the Old World banks.  The loss is going to be passed on to you via global inflation.

Not many people are able to think this through and connect the rising prices on gasoline, milk, eggs, and clothing and other basic costs to the dishonest policy of Quantitative Easing.

Banks and corporations that manage our money badly should be allowed to fail. Then the good and honest banks can rise up and we will all be rewarded with a better system, a transparent system.  This is yet another banking scam and it is you and I that are going to be the losers.

Fiat money is causing this crisis and a flood of more make-believe money is not the answer. We don’t need any more quantitative easing and we don’t need any more  bank bail-outs but most of all we don’t need to be left paying for the quantitative easing of the Central Banks of the old world.

What we need is transparency and real monetary reform. When other countries mismanage their finances we need to be able to put protective controls in place, strong gates that keep us out of their mess.  What we really need is sound money.

Quote for the Week

There cannot be stable money within an environment dominated by ideologies hostile to the preservation of economic freedom

Ludwig von Mises