In this case QE2 does not refer to the ship, but monetary policy.
What’s it all about Alfie? Is it just about the moment we live?
The movie was about a guy that lived only for himself and the consequences be damned. Nobody else mattered.
So…what does that have to do with Quantitative Easing (QE)?
QE is in the headlines these days; most of the world is going “postal” over what the Federal Reserve (Fed) and the Treasury are doing.
First off, what is Quantitative Easing? That means putting more money into circulation. When the Donks’ housing bubble collapsed, the value of housing collapsed. The value of housing had been used to secure loans and those loans were exchanged for money. Since housing had lost value and the related securities were now worthless, it was the same as if money had been lost out of the economy. The Feds wanted to inject money into the financial markets to keep the economy working and to keep interest rates low. That would, hopefully, increase economic activity.
So…round one, known now as QE-I . The Fed bought $1.5 Trillion of mortgage-backed securities and $300 Billion in Treasury Bonds. (The purchase of those mortgage-backed securities saved the big financial companies and ensured that the Donks would continue to get their mega-million campaign donations.)
But… Just where does the Fed get the some $1.8 Trillion to buy all of those securities and T-bills?? From “HE whose MIDDLE NAME cannot be spoken”, HIS stash?
OK Bunkie, listen up-this is important. The Fed has an unlimited supply of money: they just print it. As much as they want, literally trillions. Meanwhile, the Government Treasury department “sells” Treasury Bonds (T-bills) as a means to borrow money. If the Fed “buys'” T-Bills with their newly printed “money”, one piece of paper is exchanged for another piece of paper. All of a sudden the Government has more money to spend! Just like Magic! Anyone can buy T-Bills: you, the Japanese, the Communist Chinese, anyone. In fact, the Communist Chinese and the Japanese are the two largest foreign holders of US debt.
So, the Fed merely printed $1.8 Trillion dollars, hoping that the economy would revive. It may have provided “liquidity” to keep the economy running, after all if you didn’t have enough “money” in circulation, then you would have to “barter”. But it didn’t work to expand the economy, though.
Since it didn’t work the first time, they are going to do the same thing again. They have announced that they are going to print some $600 Billion more dollars. There might be an appearance of growth. All of that new money in circulation will cause the price of assets to increase. Not the “value” but the “price”. Mostly, the “value” of the assets won’t change but the US$ will be worth less so the “price” will go up.
Now you may ask yourself: “Self, why do all of these foreign countries care about what we do?”
Two reasons: 1. The US$ will lose value. Since the US$ is worth less, foreign companies will want more dollars for the same thing. It will appear to us that the “price” has increased even thought he “value” has not. In effect, foreign-made goods will cost more in the US and US-made goods become cheaper in foreign countries. That’s good for the trade balance, but it screws people like you and me.
2. But there is another problem. When you buy something made in China, that US$ ends up in China. You have traded a piece of paper (US$ bills) for something of value, like a lap-top. You now have something of value and they have…..paper. They can put that piece of paper under the mattress, or they can use it. They can buy “stuff” with it, like real estate in Los Angeles or strategic materials like copper. Another common ways to deal with it is to invest it by buying US T-bills. The US has sold trillions of dollars in T-bills to foreign governments.
(The total US Federal debt is over $13 Trillion. Foreign-owned debt is about $4.2 Trillion and the debt owned by Social Security is about 2.5 Trillion. You see Bunkie, a funny thing happened to the Social Security surplus. The government SPENT IT and printed up “T-bills” to replace it. You traded your labor for US$. Then, the government confiscated part of it for Social Security with the promise that they would take care of you when you got old. Now they are going to make the US$ worth less so the value of your Social Security will be worth less. Maybe literally worthless! The bottom line is that they lied.)
For QE2, the Feds are printing another $600 Billion for the Treasury to spend. The effect is that Foreigners have loaned us money with a certain value, i.e. you could exchange that $ for a certain amount of goods or services. Now the Fed and the Treasury are going to turn our money into MONOPOLY MONEY. The US$ denominated assets those people have are going to be worth less. As are your life savings, i.e. they are going to be worth less. No wonder they are pissed. Why aren’t you???
See here for another look at it.
It’s dangerous ground that the Fed, and “HE who’s MIDDLE NAME cannot be spoken” are treading. Those fools are living for the moment and really don’t care what the future may bring. In a flash, the US dollar could collapse and our economy with it. What is going on now is different from all the other times it has been tried. But in every other case, it has been a disaster.
On his recent trip to Asia, every foreign leader treated “I AM the ONE we have been waiting for” as a wilful, foolish and arrogant child.
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We have taken back the House, but it’s not over yet Bunkie. We (we: you and I) have to weed out every liberal in a position of poweer
Steamboat Jack (my evil twin)