We’ve all heard the term QE or Quantitative Easing. This is the third iteration of easing, jokingly coined as QE-Infinity. It is the demented idea of the Federal Reserve and in particular chairman Ben Bernanke.
For those unfamiliar with QE3, it is a program wherein the Fed purchases $85 billion of government debt; $45 billion in bonds and $40 billion in mortgage-backed securities. In a nutshell, unlike the other two QEs, which were one-time massive influxes of money into the economy, and did no good, QE3 is a scheme that calls for the feds to spend that $85 billion every month. And that’s been happening month in and month out since September 2012.
Wow, the Federal Reserve must have a lot of money. Well, it doesn’t, and it doesn’t have to. None of this is real. That’s not quite accurate, but it’s close.
The Fed, in fact has no money. What it does have is a printing press. When it needs another $85 billion, it simply cranks up the press. It’s not magic . . . It’s counterfeiting.
This is how it works:
1. The Fed holds a meeting.
2. Those in the room decide how many more dollars they think the world needs.
3. Someone walks over to a computer and adds that many dollars to the banks with a few clicks of the keyboard.
The Fed spent more newly created money in just 15 months than it had created in its entire history up until 2008.
Have you been wondering why your money doesn’t seem to go as far as it used to? It’s not just your imagination; it doesn’t. The more money that’s out there floating around, the less it is worth.
Here is a scenario that may explain what the Fed is doing to our economy. You are a manufacturer of widgets. Everything is going great until your patent runs out. All of a sudden the market is flooded with widgets. Because everyone is now selling widgets it drives the price down due to the glut of product. The market reacts the same no matter what the product is — whether it is widgets or dollars. It’s great for the consumer of widgets, but a glut of dollars simply decreases the buying power of the consumer.
You may have noticed there was a Fed meeting on Wednesday of this week. Okay, maybe you didn’t, but you probably noticed the stock market rocketing up 155 points that morning, then suddenly around 2 PM reversing itself and ending the day down some 87 points. That’s a 242-point swing. Why did it happen? The Fed merely hinted that it might consider tapering off its quantitative easing at some point. In other words, slowing the flow of easy money.
If I’m not mistaken the same thing happened last year and the stock market temporarily freaked out over it.
Everyone knows that Bernanke can’t keep this up forever. The presses will eventually have to stop, or at least slow. Bernanke is probably doing irreparable damage to our economy, but there’s no way to take that fake cash back. It’s driving down the value of the dollar, but it is propping up the stock market.
The Fed as well as the Wall Street “experts” claim that when they do start to taper off the easy money influx, the geniuses at the Fed will do it so slowly and we will hardly notice. Really!
The jittery market swings in triple digits with just a sniff of a possible slowdown at some later date.
So what will really happen when the hose is finally pinched? Look out below!