QE Infinity and Beyond
QE Infinity and Beyond
On Thursday, Ben Bernanke announced that the Fed would buy mortgage backed securities at a rate of $40 billion a month. He also stated that the monetary policy would continue indefinitely until the labor markets improved. In past rounds of stimulus, the Fed has stated how much and for how long they intended to continue quantitative easing maneuvers. By putting the economy on a constant QE drip of $40 billion rather than the large one time purchases, they hope to smooth out the market’s highs and lows associated with previous QE. The targeted effect will be more of a daily methadone clinic rather than a weekend heroin binge.
“We will print to infinity and beyond!”
This new open ended round of asset purchasing eliminates the need for QE 4 as QE3 can go on until doomsday, which may hasten its coming. Gold and Silver shot up as they have been doing since Mario Drahgi’s announcement of unlimited QE on the European front. We now have the 2 largest central banks on the planet committed to printing money until they run out of ink. Fortunately for them, as the money is just created into existence by a key stroke on the computer, they are not actually limited by the amount of ink or paper.
The $40 billion monthly purchases of MBSs together with the additional asset purchases made with the interest payments collected by the Fed will total half a trillion dollars per year. This is new money injected into our economy. This creates inflation as more dollars are available to buy the same amount of goods and services. It is also a disincentive to saving. It encourages people to spend their money now rather than let it sit around and loose its value. If I have $10, I may be able to buy 2 pizzas today or if I wait until next year, I may only be able to buy 1 pizza with the $10.
The Fed also disincentives saving by keeping interest rate low. People see no reason to save when they can not earn interest on their savings. The hope is that you will go out and spend the country back to prosperity. Consumer spending makes up 70% of GDP. Without it, the economy crumbles.
It is a flawed system. One that requires an ever increasing amount of debt. One that requires an ever increasing amount of money to service the debt that has outstripped the previous money supply. I know I sound like a broken record at times, but this is the fundamental reason that you need to prepare. As we print more money, we devalue the dollar. This creates more instability in the bond market as lenders see they are repaid with dollars worth less than the ones they lent out. When no one will buy US bonds, except the Fed, they will be forced to buy all new debt and print money to pay off maturing bonds. This will cause hyperinflation on a super nova level and our monetary system will collapse. When we have no more medium of exchange, we will learn how thin the veneer of society is.
If you are new to the site or just have not gotten around to it yet, please read The Prepper Recon 7 Step Preparedness Plan. Do what you can now to prepare for the coming storm.
Happy Prepping!
This is pure insanity. The problem is that most average Americans have no idea how the Fed works nor do they care to learn. We (us, our children, and their children) will pay for these current failed policies.