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Friday, October 15, 2010

Quantitative Easing 2

Federal Reserve comedians announced plans for more "quantitative easing". "Quantitative easing" means "We're printing more money and giving it to our bankster friends."

Why are they calling this "Quantitative Easing 2"? When did "Quantative Easing 1" end? The Federal Reserve has been printing a boatload of money for the past few years. State comedians are saying "double-dip recession", as if the first one ever ended.

WTF? The Fed Funds Rate is already 0%-0.25%. They can't go lower. Recall that "real interest rate" equals "nominal interest rate" minus "real inflation rate". You can't lower nominal rates below 0%, but you can raise the inflation rate.

One way to raise inflation is via Federal deficit spending. Another way is via increased debt monetization. Normally, the Federal Reserve only purchases short-term Treasury debt. The Federal Reserve may purchase longer-term Treasury debt, flattening the yield curve.

Most banks have leveraged long positions in Treasury debt. When the Federal Reserve buys, bond prices rise. The banksters buy Treasury debt from the government, and then sell it to the Federal Reserve for a profit.

The Federal Reserve can purchase whatever it chooses, paying with newly-printed money. If Ben Bernanke wanted to, he could purchase houses directly, pushing up prices. That would be too obviously corrupt. Instead, the Federal Reserve buys mortgage bonds, either directly or via repurchase agreements. The Federal Reserve values the transaction at the book value, rather than the fair market value, bailing out banks. Knowing that the Federal Reserve would be buying, insiders bought mortgage bonds and then sold them to the Federal Reserve.

The Federal Reserve can lend as much money as it chooses to whoever it chooses, without any public disclosure. Suppose that the Federal Reserve lends Goldman Sachs $1T for a year at 0.5% interest while true inflation is 20.5%. It's like the Federal Reserve gave Goldman Sachs $200B.

When it's a loan instead of a gift, that provides an illusion of legitimacy. When you lend someone money at a negative real interest rate, it's like a gift, because the loan can be repaid with devalued money.

The banksters are hostile to Ron Paul's "audit the Fed" proposal. Bankster lobbyists totally gutted the "banking reform" law. Right now, the banksters can print new money and lend it to themselves at artificially cheap rates. There's zero public disclosure. Technically, TARP was unnecessary. The Federal Reserve could have lend each insolvent bank unlimited money at 0%. However, the banks were so insolvent that it would have failed the "laugh test". The Federal Reserve bureaucrats couldn't do it without consciously realizing it was a massive con. Legally, the could have done it. Banks have received lots of cheap Federal Reserve loans, in addition to TARP.

"Quantitative easing" means "We're printing new money and lending it cheaply to our friends." This isn't free. Everyone else pays the cost via inflation.

State comedians give complicated noble names to evil idea. "Quantitative easing" makes it sound like a good idea. They should call it "quantitative stealing". "Print new money and give it to our friends" is a more accurate name.

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