Tuesday, February 12, 2013

Quantitative Easing for the Rest of Us

I noticed an interesting article reporting about a British Economist named Adair Turner who wrote a lengthy paper advocating that "Quantitative Easing" programs go directly to citizens rather than to banks.   What happens now is that the federal reserve creates money from thin air and uses that money to buy "securities" from favored banks, many of which are of dubious market value, but many of which are previously issued U.S. bonds.

The idea is that the banks will loan this money out to private individuals and businesses and stimulate the economy, but that is not happening.   The banks are just hoarding the money, or using them to buy other government bonds, which they sell back to the government at a slightly higher price the next time the government buys their own securities.   The money stays in a closed loop between banks and the government, making the former a bit more money on each cycle.   This bit is taken from the population as a whole, who is effectively excluded from the loop.

This explains why all of the money creation has not resulted in as much inflation as one would think- the money volume is immense, but its velocity, that is its rate of circulation through the economy, is almost zero.   This tends to depress asset prices in the general economy further even while the money stocks of the banks piles up unto heaven.   At some point, when their stacks are high enough, and asset prices have been starved low enough, the banks can swoop in via a coordinated fashion and basically buy up all real assets of the nation.  Soon after that money enters the economy there will be massive inflation, but by then the banks won't care- they turned their currency into hard assets at precisely the right time because they coordinated the whole thing.

Turner suggests the money be distributed directly to the population.  The author notes that if the $85 million a month being used to prop up the banks was instead given directly to members of the population of the United States, then a family of four would get a check of over $1,000 each month.   You are right to be astounded by that figure, because it demonstrates how much the present "Quantitative Easing" is therefore looting from that average family of four each month.

If someone stole $1,000 each month from your family you would make stopping them the #1 issue that you expected your government officials to take on.  Well, they are stealing that amount, through surreptitiousness means, and virtually every adult person I know has voted for more than one politician who approves of this policy.    This is the net effect of what the banks are doing, but they have done it so slyly that 99% of the population has no idea of the magnitude of this ongoing theft.   They only know that things are bad.  They don't know why.   This is a big part of why.

I don't endorse the idea of spreading the loot out.   I'd rather end the looting, but better that it is spread out than what we have now.   I look forward to the day when the majority of my fellow citizens understand why they are getting poorer each year, and refuse to cast a vote for any politician who refuses to address the issue of stopping the government-supported theft that is quantitative easing.


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