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QE (quantitative easing), whether it be QE1 or QE10, is a euphemism. It represents the expansion of the money supply (printing money). An expansion of the money supply is inflation. Rising prices are not inflation, they are an effect of inflation. The disease is printing money (or QE if you want to call a rose by some other name). The Fed is typhoid Mary, creating and spreading this disease which threatens to wipe out the fixed incomes and savings of everyone.
To no one’s surprise the Fed announced QE3 on Thursday. It is undefined in terms of its duration. It may go on until inflation destroys the economy. Ben Bernanke has provided a commitment to provide $40 billion per month for as long as it takes. The latter part of his commitment (“for as long as it takes”) is likely to outlive the $40 billion, which almost assuredly will be raised in the future. Sadly, no amount will be sufficient to re-invigorate the economy. Larger amounts will be needed to keep the federal government liquid.
The American Dream has collected ten quotes in response to the latest Fed action:
“It means we are weakening the dollar. We are trying to liquidate our debt through inflation. The consequence of what the Fed is doing is a lot more than just CPI. It has to do with malinvestment and people doing the wrong things at the wrong time. Believe me, there is plenty of that. The one thing that Bernanke has not achieved and it frustrates him, I can tell—is he gets no economic growth. He doesn’t do anything with the unemployment numbers. I think the country should have panicked over what the Fed is saying that we have lost control and the only thing we have left is massively creating new money out of thin air, which has not worked before, and is not going to work this time.”
“This is a disastrous monetary policy; it’s kamikaze monetary policy”
“This is the nuclear option for them. This is a never-ending weapon that is being fired at the middle class”
“People like me will benefit from this.”
“Quantitative easing—a fancy term for the Federal Reserve buying securities from predefined financial institutions, such as their investments in federal debt or mortgages—is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality formed by crony capitalism. And it is hurting prospects for economic growth down the road by promoting malinvestments in the economy.”
“That’s absolutely nonsense. The Fed is just propping up the banks.”
“I happen to believe that eventually we will have a systemic crisis and everything will collapse. But the question is really between here and then. Will everything collapse with Dow Jones 20,000 or 50,000 or 10 million? Mr. Bernanke is a money printer and, believe me, if Mr. Romney wins the election the next Fed chairman will also be a money printer. And so it will go on. The Europeans will print money. The Chinese will print money. Everybody will print money and the purchasing power of paper money will go down.”
“I think this will end up being a trillion-dollar commitment by the Fed”
“I want to be clear — While I think we can make a meaningful and significant contribution to reducing this problem, we can’t solve it. We don’t have tools that are strong enough to solve the unemployment problem”
“[T]he FED’s QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the US economy and, by extension, credit quality. Issuing additional currency and depressing interest rates via the purchasing of MBS does little to raise the real GDP of the US, but does reduce the value of the dollar (because of the increase in money supply), and in turn increase the cost of commodities (see the recent rise in the prices of energy, gold, and other commodities). The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers thereby reducing consumer purchasing power. Hence, in our opinion QE3 will be detrimental to credit quality for the US….”
No one, including Ben Bernanke, truly believes that this latest policy action will revive an economy plagued by unsustainable debt levels, the mis-allocation of resources, mis-pricing and governmental disincentives. The best that can be said about such an action is that it might defer an economic collapse while ensuring a more painful outcome when it inevitably occurs.
- Government’s inability to continue to pay its bills.
- Massive money printing to pay bills which ultimately results in high (perhaps hyper) inflation and a currency collapse.
Either scenario produces an economic and societal collapse. The shape of such an event is virtually unimaginable. I do not feel competent to describe how conditions would deteriorate and to what level. The following article by Matt Bracken does not pull any punches in sugarcoating what might happen. Let him explain how such an event could start and what it could look like. No American should want this event to unfold, but all should be aware of the potential that lies ahead.
Here is Mr. Bracken’s take (warning, just the read is terrifying):
In response to recent articles in mainstream military journals discussing the use of the U.S. Army to quell insurrections on American soil, I offer an alternate vision of the future. Instead of a small town in the South as the flash point, picture instead a score of U.S. cities in the thrall of riots greater than those experienced in Los Angeles in 1965 (Watts), multiple cities in 1968 (MLK assassination), and Los Angeles again in 1992 (Rodney King). New Yorkers can imagine the 1977 blackout looting or the 1991 Crown Heights disturbance. In fact, the proximate spark of the next round of major riots in America could be any from a long list cribbed from our history.
We have seen them all before, and we shall see them all again as history rhymes along regardless of the century or the generation of humankind nominally in control of events. But the next time we are visited by widespread, large-scale urban riots, a dangerous new escalation may be triggered by a new vulnerability: It’s estimated that the average American home has less than two weeks of food on hand. In poor minority areas, it may be much less. What if a cascading economic crisis, even a temporary one, leads to millions of EBT (electronic benefit transfer) cards flashing nothing but zeroes? Or if the government’s refusal to reimburse them causes supermarket chains to stop accepting them for payment? The government can order the supermarkets to honor the cards, but history’s verdict is clear: If suppliers are paid only with worthless scrip or blinking digits, the food will stop.
STEP ONE: FLASH MOB LOOTING (Continue Reading)