10.31.2010 0

Too Hot Not to Note: Quantitative Easing is Economic Suicide

  • On: 11/05/2010 08:54:18
  • In: Monetary Policy
  • ALG Editor’s Note: In the following featured column from RealClearMarkets.com, Jeff Nielson reveals the fraud behind Treasury auctions of the U.S. national debt:

    Quantitative Easing is Economic Suicide

    By Jeff Nielson

    The question being asked all across the world of business news is: Will QE2 be successful? Because this policy is literally economic suicide, the question becomes: Will the Federal Reserve be successful in the assisted economic suicide of the U.S. government? I find this an utterly appalling question — which highlights the intellectual bankruptcy of government policymakers and the bankers who goad them onward.

    Quantitative easing is nothing more than a euphemism for printing money out of thin air. Its one-and-only purpose is to destroy the currency being printed. It is pure dilution and absolutely no different than a corporation vowing to improve its fiscal performance simply by printing a lot of new shares.

    We can illustrate the inherently evil nature of this monetary abomination by working through the “mechanics” of this policy. First, the explicit goal of QE2 is to increase inflation. By now, all readers should be familiar enough about “inflation” to know that it is literally nothing more than the speed with which our currencies are being destroyed.

    In the case of the Federal Reserve, we understand all too well how “successful” it has been in creating inflation. Since it was invented in 1913, the Federal Reserve has been directly responsible for the U.S. dollar losing 97% of its value (i.e. inflation has raised prices by more than 20 times what they were in 1913) — despite the official mandate of the Federal Reserve for “price stability” (i.e. protecting the dollar). Now, Ben Bernanke is vowing to “succeed” in destroying the remaining 3% of value of the world’s reserve currency.

    Here is how printing money accomplishes Bernanke’s “goal.” First of all, as with any kind of dilution, printing new dollars makes all of the “old” dollars worthless. So, right there, the Federal Reserve is already 100% guaranteed of “success. In fact, the Federal Reserve has already been “very successful” in creating inflation — in the real world.

    Visit Shadowstats.com, operated by respected U.S. economist John Williams, and you will hear that U.S. inflation has been in the range of 8.5% – 9.5% all this year. Williams performs his calculations using the exact same methodology used by the U.S. government a generation ago, before the U.S. government intentionally incorporated various statistical lies into this measurement.

    Understand the enormous “rewards” which a government receives for lying, by grossly under-stating the rate of inflation. Payouts on $100’s of billions of U.S. government benefits per year are indexed to the rate of “official” inflation. By grossly understating inflation (and cheating all of the recipients of those benefits), the U.S. government can get an instant, multibillion dollar windfall from that one lie, alone (every year).

    Secondly, every quarterly and annual GDP report must be “deflated” by the real rate of inflation. The raw data must be stripped of all inflation, in order to accurately represent real, economic growth. By grossly understating the rate of inflation, the government falsely inflates the rate of GDP “growth” by several percentage points — et voila we have a “U.S. economic recovery.”

    Immediately, we see Bernanke exposed for the charlatan that he is. He claims there is U.S. “economic growth,” when all that “growth” actually represents is an illusion of doctored numbers. He claims the Federal Reserve has “failed” to create enough inflation (i.e. to destroy the U.S. dollar fast enough), when in fact the real data shows that Bernanke has been doing a wonderful job of destroying the dollar.

    However, the ultimate “indictment” of “QE2” as failed policy comes from the fact that “QE1” never ended. Of all the fraudulent shams perpetrated by the U.S. government and the Federal Reserve, none of them are as obvious as the U.S. government’s manipulation of the market for U.S. Treasuries.

    Here are the facts. Previously, the U.S. government was able to find (real) buyers for its Treasuries, due to the need of other governments to recirculate/reinvest the money from their trade surpluses and fiscal surpluses. Thanks to the Wall Street-engineered “Crash of ’08,” the vast majority of those surpluses have disappeared.

    At the same time, the U.S. government is cranking out much more “supply” than at any other time in the history of the United States. Thus, we are told by the U.S. government (and the Federal Reserve) that there are more “buyers” for U.S. Treasuries than at any time in history — despite the fact those buyers have no money. But that is literally less than half of this farce.

    Not only are we being told that buyers-with-no-money are purchasing more Treasuries than at any other time in history, we’re also told that these buyers are joyfully paying the highest prices in history (by a large margin) for these debt instruments. However this still doesn’t capture the absurdity of this scenario.

    Buyers-with-no-money are (supposedly) buying far more Treasuries than at any time in history, at the highest prices (by far) — while publicly, all of these “buyers” are expressing severe doubts about the creditworthiness of the U.S. (i.e. its ability to ever make good on this $trillions in new bond debt). Would any sane individual buy the greatest quantity of anything (at the highest prices in history), while publicly expressing severe doubts about the value/quality of that good?

    Don’t answer that question yet. Since “quantitative easing” must (and does) destroy the value of a currency, for every 1% the dollar loses in value, all of those $trillions in U.S. Treasuries (which are denominated in U.S. dollars) lose the same amount of their own value.

    Thus, with U.S. bond-prices at their highest level in history (and at their maximum, theoretical price), it is 100% inevitable that those prices can only fall. This means that buyers-with-no-money are supposedly buying the most “supply” of Treasuries in history, at the highest prices in history – while being 100% certain of losing money on those Treasuries due to their inevitable fall in price and the loss of value of the U.S. dollar. Clearly, there are few buyers for U.S. Treasuries. Instead, “The Three Amigos” of debt (the U.S., UK and Japan) are playing the bond-market equivalent of musical chairs. The UK “buys” U.S. Treasuries, Japan buys UK debt, and the U.S. government buys Japanese bonds — and all with the “quantitative easing” funny-money they are printing out of thin air. Then all three governments pretend their bond-auctions are “covered.”

    This brings us to the final element of this charade: U.S. bond market “auctions.” At the same time that the U.S. government reported the “economic miracle” of buyers-with-no-money buying more of something they don’t want (at the highest prices), just so they can lose money, the U.S. government removed all “transparency” from these bond-auctions. Even bond traders with decades of experience report that they have no idea of who is actually buying these bonds. This is like an amateur magician who is so clumsy in performing his magic that he needs to turn out the lights while executing his tricks so that the audience doesn’t immediately spot the ineptitude of his fraud.

    Why has the Federal Reserve been so adamant about fraudulently concealing its actions in the U.S. bond-market, and the quantitative easing that makes that fraud possible? First, in printing up money, but not acknowledging it, the Federal Reserve is literally counterfeiting trillions of dollars of U.S. currency.

    Should that fact be discovered, not only would the U.S. dollar immediately collapse in value (even more than the Fed wants it to), but asset prices for all U.S. debt (and all U.S. banker-paper) would immediately collapse.

    Since a fall in bond prices is exactly the same thing as an increase in bond interest rates, discovery of the Fed’s counterfeiting would cause U.S. interest rates to skyrocket, squashing all remaining life out of the U.S. economy, and bankrupting the U.S. government (through much, much higher interest payments on its $trillions in debt) in a matter of months.

    With the obvious fact that the U.S. government never stopped its quantitative easing, this brings us to the current scenario. The entire reason why the Fed is “announcing” something which it is already doing is because even doctored U.S. government statistics can’t hide the fact that the U.S. economy is once again collapsing.

    Obviously, quantitative easing is not, does not, and cannot “fix” any of the U.S. economy’s problems, which (ironically) have all been caused by too much new debt, and new money-printing. So why is the Fed “coming out of the closet” (even just temporarily)?

    Simply, with the intensifying weakness of the U.S. economy, the Federal Reserve (and the U.S. government) feel an intense need to be seen to be “doing something” (even something it was already doing) — and neither the U.S. government nor the Fed have any other ideas.

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