Skip to comments.Here is a way to explain “Quantitative Easing” to liberals
Posted on 11/21/2012 6:57:27 PM PST by Ben Mugged
Here is a way to explain Quantitative Easing to liberals.
You and I sit down to a friendly game of poker. I bring out the chips in different colors and we both buy in by trading real dollars for the chips. As the game progresses you win most of the chips. I reach into the chip box and place a large stack on my side and continue playing. I did not pay for the chips, I just created them out of the blue. You continue to win and you have a large stack of colored chips in front of you. At the end of the game you give me all your chips and I give you all the dollars in the bank. You may have thousands of dollars in face value chips but the real value was established at the beginning of the game. By my adding more chips to the game I diluted the value of each chip and the total worth in dollars remained the same. In effect I stole this value from you by not buying (adding real value) to the chips I added to the game.
The Government practices Quantitative Easing by printing billions of dollars and injecting them into the economy. These dollars have no value other than to dilute the value of the currency currently in circulation. They just stole the equivalent value from the economy.
Or just let the mellow stylings of Curtis Threadneedle do your ‘splainin for you....
It’s so much easier than having to sell bonds to China....
Quantitative Easing is an illegal tax.
By diluting the currency that stolen value ends up in the treasury. This is in effect taxing the holders of dollars with out a bill being voted on by congress or such a bill being signed by the President.
Since this tax also impacts foreign holders of dollars it is also an attack on the sovereign nations and foreign citizens that hold dollars.
WITH the Government printing 40 billion dollars a month, I am having a hard time asking people to sacrifice so we can avoid a fiscal cliff.
Hell they could send out 160,000 quarter million dollar checks to 160 thousand American Citizens every month. But then its much cheaper to give them food stamps, and apparently you can get 13 million signed up in just 4 years.
Glenn Beck explained it this way: There is a pie (yes he likes pie) and it represents all the money in the US.
The gov’t thieves decide to “make” another pie out of thin air by printing up lots of worthless paper currency and putting it out in the real world, thus making the real original pie of real money, worth half what it was before.
Then the thieves in gov’t say hey let’s do that again and bake a second pie of made up money with no value, thus making the previous pies even more worthless.
quantitative easing is an illusion, an illusion of solvency-it’s smoke and mirrors and sleight of hand.
The way I explain it is, what if we were using gold coins as currency, but the government kept melting them down and gold plating steel slugs, then telling us to use it as the same denomination as before. The merchants and banks, wise to this ploy, started demanding more coins to make up for it.
That is a good analogy for QE, as far as it goes.
However to simulate the real economy you have to go further. It isn’t just the Fed that (can) creates money out of thin air. In normal times, most new money creation is actually done by the banks by making oodles of “unfunded” loans through the “magic” of fractional reserves. That’s credit money.
These loans tend to inflate the value of assets - create bubbles. When a situation arises (such as now) where defaults on those loans start to snowball, then the value of most assets also crash.
At that point cash (currency) is king - it becomes way overvalued relative to the value of assets. (you can buy a house for $50K when it used to cost $200K)
At this point the banks are usually at or near insolvency, so they are in no position to make loans, and increase the amount of money in circulation.
The only entity that is capable of making loans is the Fed, through recapitalizing the banks by QE. So, given our current financial framework (fractional banking, fiat money, etc.) the Fed is actually doing the right thing. Without it’s intervention we would be in a much deeper depression. (Again, THAT’S GIVEN OUR CURRENT FINANCIAL FRAMEWORK. Whether or not this framework is good or bad, that’s a separate issue.) So I’m not that keen on piling on Bernanke - he’s got to deal with the framework he’s got, and given that, I don’t think he’s doing a bad job. I do believe though that once things have restabilized, it would be in our interest to revisit the whole framework (the Fed, fractional banking, gold, etc). But that takes political will - something in short supply.
What the fed has done, however has proven to not have worked too well. Most of the QE money that the banks got has ended up back in the Fed as excess reserves. In other words, the banks haven’t lent that money. (At one point I thought a better solution would have been to give the QE money directly to the people that had lost asset value (rather than the banks). But the moral hazard that would have created would have been immense.)
The question then is why aren’t the banks lending? I believe a key contributing factor has been that regulators have gone from one extreme to another. Whereas five or six years ago all you had to do is fog a mirror to get a loan, today you have to walk on water (although there’s been some relaxation lately). So even though you might have a ton of money to lend (and the banks actually do), the rules are such that few people or entities “qualify”.
I believe another factor holding down the demand for loans is the demonization of businesses and success by the Obama administration. Given their war on profits, hostile regulations by the thousands, and unending uncertainties, who in their right mind is going to risk his time and money in such a business climate?
So to make your poker game more like the real economy you have to add a few of these details.
Just call it counterfeiting. That’s easy enough to understand.
A good thing about gold as currency is its density, which outs schemes like that. Kings used to water down the precious metal, along with what we call “coin clipping,” which us exactly what it sounds like. No matter, though. They simply decreed that you accept it at previous value. Isn’t it great how manmade law can trump economic law by fiat?
But the federal government is too big to fail.
I have found that when attempting communication with a liberal I need to use the KISS principle (Keep It Simple Stupid). When they hear a term like “fractional banking” their eyes glaze over.