More Dollars Than Sense

Still hammering away on my next thread, so I thought I’d ask you about the topic currently doing the rounds over at DT: “Quantitative Easing”, or QE.

Actually, it’s printing money to you and me, but that can be misleading, as physical cash doesn’t always get printed in QE. Instead, the central bank buys back government debt indirectly from private bondholders, using digital money created “out of thin air”. According to the theory, these private bodies then go out and spend the money, stimulating the economy. Monetizing government debt is how many economists describe it. But no matter which way you slice it, the end result is that there are more dollars in circulation. If the currency was sound, (as we’ve discussed previously) the government could only do this by digging up more gold. But as a dollar no longer stands for anything, creating more of them, without also creating any actual new wealth, simply makes all the dollars worth less.

(BTW, a bit rude of those in charge of name tags to refer to Mr. Paul, don’t you think?)

Anyway: this is bad news if you are a saver; if you have cash in the bank, or under your bed. The government has just picked your pocket, to the tune of the percentage by which they have increased the money supply. But it’s great news if you are a debtor—if you owe the bank or anyone else money, particularly on fixed interest. Your president has just started paying off your debt on your behalf. With Other People’s Money. Even if you aren’t a U.S. citizen, but have a dollar-denominated debt, or are on the buy side of a dollar-denominated contract, you get the same benefit. Marvellous! The thrifty being fleeced in favour of the profligate.

Call me cynical, but I’m guessing it’s the second group that Brucker Bummer hopes to win over come November. Hey, it worked back in Sherwood Forest, in merrie olde England. Why not in twenty-first century U.S. of A, right?

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13 Responses to More Dollars Than Sense

  1. Kitler says:

    Not only do we have QE but it is been posted by Lord James of Blackheath that QE was used to print 15 trillion dollars and have it quietly dispersed among the worlds banks illegally not least because no one paid tax on it. It looks suspiciously like theft from the taxpayer on a grand scale.
    It has also been rumored and I can not confirm this that currently a large number of people in the banking industry and prominent CEO’s also politicians are currently being arrested and charged.
    Whether this is even remotely true I can not say.

    I can say. It isn’t. The Fed is guilty of a lot of things, but this isn’t one of them.

    The tip-off is the 750,000 tonnes of gold this bloke is supposed to have. That’s about five times more than all the gold ever mined in history (a 109 foot cube, in fact). Had ‘is Lordship googled the man at the centre of his charges, “Yohannes Riyadi”, he would have got to this bit of information from the Fed.

    It’s a garden-variety Nigerian scam that’s been floating round the net for the last few years. Nothing more – Oz

  2. farmerbraun says:

    OK so I’ve done the right thing in borrowing another million bucks. Then the question is , do I go short or long on the fixed rate interest contract. The longest available is only five years. How long before interest rates start to be raised to quell the next inflationary spiral?

    That one’s above my pay grade FB, but for what it’s worth, seeing as Mr. Bummer can’t be elected a third time, and the core problem is now too big to be kicked 4+ years into the future, the correction will begin well before 2016. When the trolls at the DT start pontificating that silver is “ludicrously over-priced”, you know you’ve got a good thing going – Oz

  3. Ozboy says:

    On that last point, have a look at the Monex 10-year graphs of the four precious metals:





    You could take your million bucks, split it between the four and, provided you could service the interest, in four years you might just have to devalue the portfolio a little bit to own the lot clear. Nice work if you can get it.

  4. Amanda says:

    Hello Ozboy. Well, I’ve had a taste of this ‘thrifty being fleeced in favour of the profligate’ already — just a taste, mind — because my house had to go on the market (for a job relocation that couldn’t wait) just as the housing bubble burst. Now, I did not create or contribute to the conditions of the housing bubble. And what’s more, I owned my house outright with money long saved from hard work. But there was no money to be made on the house after five years of ownership; and when I think of the money we had to put in for repairs and upgrades (none of them luxurious), as an investment it did absolutely nothing for us.

    Anyway, you mention the rudeness of calling Ron Paul ‘Mr’. I find that that is an American thing, to call doctors of philosophy and doctors of medicine ‘Mr’ on many occasions. Academics are routinely addressed as ‘Mr’ by their students and so on. (Just as, coincidentally perhaps, surgeons or specialist consultants have traditionally been called ‘Mr’ and not ‘Dr’ in England.) Part of this has to do with the American antipathy to titles. Even ‘the Reverend’ is not really a title but actually a description, which is why calling someone ‘Reverend King’ is technically wrong: it’s not a title like ‘Mr’. It is instead ‘the Reverend Dr. King’ or whatever. Reverend is properly an adjective. The distinction is important only because America’s constitution of course forbids the holding of titles and heritable honours.

    I think you’ll find, therefore, that no rudeness is meant. All that is implied is that Ron Paul may be entitled to be called ‘Dr’ when he is in a medical establishment, but when he is among his political peers, he is ‘Mr’, like anyone else.

    Thanks for that info, Amanda. As I said, you learn something every day.

    Shame about the house, but it’s one thing you have to have, unless you want to spend a lifetime renting someone else’s place – Oz

  5. Dr. Dave says:


    I’d say you’re pretty much on the mark. QE1 was sold as an effort to stave off deflation which is also very bad for an economy. In reality it was a lap dance for Wall Street. Banks could essentially borrow money interest free and then loan it out and make a profit on it. The net effect in the end is deliberately causing inflation. This, too, is very bad for an economy.

    Yet inflation is a pretty handy tool for governments deep in debt. They can print money, inflate the currency and pay down real debt with imaginary wealth. There is no way to sugar coat it, it is governmental theft. But unlike most governmental theft it does not primarily target the productive private sector. It makes everyone poorer from the wealthiest to the poorest of the poor.

  6. Kitler says:

    Ozboy in the video even Lord James acknowledges that the amount of gold claimed is ridiculous and an impossible amount as is the wealth of the Indonesian business man supposedly trillions of dollars. He claims that as blatant fraud or pretend collateral that could not possibly exist and the Indonesian gentleman is not worth anything like that amount or was actually involved at all.
    How he claims to have original evidence of money laundering through the banks I don’t have a clue.

  7. Kitler says:

    Also he claims to have researched the matter fully before he decided to make a fool of himself before the House of Lords.

  8. farmerbraun says:

    The question for me , is whether interest rates on debt will go down further before they begin to rise, assuming of course that at some point it will be decided that the coming inflation must be killed with punitive interest rates. In 1987/1988 interest reached 25-30%.
    The problem seems to be that we are in totally uncharted waters, unless somewhere there is a plan and the whole system is being manipulated by a few powerful interests.
    The scale of the mess is unprecedented:

  9. farmerbraun says:

    Have a look at this:

    Re interest rates, once again, outside my brief. But it’s a mathematical certainty that any short-term decreases will be dwarfed by subsequent increases: you can’t lower them beyond zero per cent, but the sky’s the limit in the opposite direction – Oz

  10. Kitler says:

    “you can’t lower them beyond zero per cent, but the sky’s the limit in the opposite direction – Oz”
    Actually they already effectively are you hit close to 1 or 2% you are really in negative territory loan wise, don’t ask me how they work that one out but apparently that’s the case.

    I’ll take your word for it. They’re at historically pretty low levels at the moment – Oz

  11. Kitler says:

    Ozboy well as you know what happens it’s going to be rates in the teens if not higher when the inflation they have sparked really kicks off. The younguns are going to go into shock when it happens.

  12. izen says:

    The money supply is an arbitrary and largely imaginary construct with little relation to real value or material goods.
    The argument that QE somehow reduces the value of ‘the pound in you pocket’ – or the dollar in your wallet, is a fallacy rooted in the erroneous belief that there is a fixed one-to-one relationship between money and material goods as there is in a household budget. For nation-states the link between total monetary value in circulation and actual GDP, or resources is much less clear-cut, and dependent on multiple factors, not just a simple money-resource exchange rate.
    Interest rates after all have a similar effect to quantitative easing in increasing the money supply without any apparent increase in the actual physical ‘goods’ produced or available.
    Banks and financial organisations have created far more money by removing leverage limits than any government quantitative easing. There is also the matter of how that QE is distributed, investment in infrastructure, the classic Keynesian approach is just as much an artificial injection of currency into the economy as granting it as debt relief to banks.

    Predicting interest rates is out of my pay scale too FB, but that doesn’t stop me…-grin-
    There are factors like how the NZ government is approaching the depression. If it’s pursuing a strict austerity program with cuts in public spending then it will have to keep interest rates low to enable private investment to generate any growth.
    It may benefit from local RIM and SE Asia economies that trickle down some growth which would enable the government to raise interest rates sooner.

    But past history, the long depression of 1887 and the great depression of the 1930s indicate that interest rates drop to less than 4% for around a decade at least. However much a nation may want to increase interest rates to suppress inflation or defend the value of its currency, if it does so with a weak private economy it deepens and perpetuates the recession by inhibiting private borrowing and making its exports uncompetitive.
    High interest rates are a historical blip in the long term record, used to inhibit the inflationary bubble of the 1980s. That is not the pattern of economic market behaviour at present. –

    Of course all this comes with the caveat that economies are chaotic and exhibit non-Gaussian variations, so like earthquakes and floods the disaster is always bigger than simple random chance may predict. Market volatility is variable in a way that increases risk.
    However, I came across an old bookmark that I had used in the past to reach Liberty Gibbert and a specific thread within it that linked to this old post.
    I think this gives some credibility to my predictive skills!! Note the date -Grin-

    izen says:
    July 2, 2011 at 8:32 pm
    This is perhaps what makes Greece interesting in a way that Ireland, Portugal and Spain are not. Greece has a history of public protest that overthrows governments – and an army that stages coup d’etat.
    Although I suspect that before that point some means of persuading all the private money business that hold the Greek Debts to write them down by calling it something different will be found. The financial players having engineered the easy raising of debt for their own profit are unlikely to call in a ‘Greed penalty’ I suppose. -g-

    {Wordpress just made me log in for the first time in an age, sorry if this has caused a double post}

    No double post at this end… I went back and found the post you’re referring to, and added the link if anyone’s interested in following it up.

    I’d also take issue with “Banks and financial organisations have created far more money by removing leverage limits than any government quantitative easing”; it’s true that removing leverage limits has created far more debt, which is the structural issue at the root of the current crisis – as well as making possible the various forms of derivatives (leveraged sometimes at 100 to 1, and described by Warren Buffett as “financial weapons of mass destruction”), CDSs and re-hypothecation, and seeing the export of a lot of the financial industry from the USA to the City of London. More debt, yes. But not more money: money that will survive the next crash, anyway – Oz

  13. Ozboy says:

    Next longer thread may be a few days off still, but a hot issue at the moment may be more appropriate in any case:

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