QE1, QE2, QE3……………..QEn.


” There’s no disaster that can’t become a blessing, and no blessing that can’t become a disaster.”  Richard Bach, author of Jonathan Livingston Seagull.

I have never failed to notice one common thread in most Hollywood disaster movies. Of a precursor to the main event whose significance is lost to all except the protagonist. And how, when the latter tries to convince the authorities about the impending cataclysm, he is ridiculed. Till it is too late.

So in Independence Day, when David Levinson discovers a signal within a signal which is counting down to the Doomsday attack of the aliens, most of Mankind prefers to think of the event as the path to Deliverance. And in Day after Tomorrow, when the paleoclimatologist Jack Hall presents clinching evidence on global warming at a United Nations conference, diplomats are unconvinced. Interestingly the audience, sitting on the seat edge comprehends the emerging situation with the main guy and one tends to leave the theatre wondering at the woodenness and ‘stuck in the groove’ mindset of the powers that be in the movie.

As I sat reading a piece on the global economic situation the other day, one aspect caught my attention.  Of how more and more Governments are raising funds against bonds. Enter the central bank ( Fed in the US, RBI in India) which buys back these bonds and credits the commercial banks through a single entry and hey presto! money has been created out of thin air. The much touted QE1 and QE2 in the US were such “money printing” initiatives. The banks sit on piles of cash which they would like to lend out. And the more such money sloshes about in the economy, the more it chases physical assets like real estate, gold etc. And before we know it, we are inside a bubble, a dangerous territory to be in.

I remain amazed at how nonchalantly the world has passed over the above real life disaster in the making. How Governments, like opium addicts, continue to indulge in QE3, QE4………. up to QEn, by which time we are sure to be overwhelmed by hyperinflation. And how the interest payments on the borrowings are becoming unbearable and sending whole economies into a vicious tailspin. What a huge problem China, with its three trillion dollar reserve in US treasury, is facing due to a looming bond crisis. Or how an aging population in developed economies are finding their pension systems increasingly under threat. As people watch in horror their life savings getting eroded to near nothing.

Keynes in his 1919 essay on Inflation quoted Lenin, the Communism ideologue, as saying, “The best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens……………………………. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.” 

So like David Levinson and Jack Hall of our movies, did Lenin have the prescience of what would happen a hundred years later? Was he the one man who foresaw the self destruct capability of Capitalism nurtured economic forces gone wild?

In Learning…….                                                               Shakti Ghosal

Acknowledgement:  Keynes on Inflation. Excerpts from ‘The Economic Consequences of the Peace’ by John Maynard Keynes, 1919. http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_inflation.html

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22 thoughts on “QE1, QE2, QE3……………..QEn.

    • Hi Sharmistha,

      First and foremost, I need to acknowledge you for taking the time out to visit and comment on my various posts.

      You may be right when you say that many actions by the Governments might have aspects of personal greed attached. Apart from this element of greed, it could also be the lack of conviction and courage to embark in a new direction. Such actions would require more energy, effort to circumvent resisitance. It is much easier and “safer” to follow the same beaten track.

      I guess this is the difference between true leaders and pretenders.

      Cheers and thank you for being here.

      Shakti

      • I too feel the same way, its always easier to close eyes and pretend that the problem doesnot exists, than taking the initiative of solving it.

        i should be the one thanking you for taking some time out to read my silly scribblings.

  1. Shakti,
    I think you had an earlier post on our group about the European Debt Bomb. I printed that one out.
    I think I would disagree with you on whether the QE leads to inflation. Not in the US, which originated Quantitative Easing. If I remember correctly, during that distressed period, the fear was more about deflation. With unemployment so high in the US, inflation was never in the horizon. Deflation would have led to an ugly financial maelstrom. QE(n)/US = Stifling debt yes, Inflation not really.

    In India though, I can see and sense the inflation, every time I go back for a visit. I think your thesis is probably is more apt there.

    I do think that the philosophy of QE by any government is akin to a bunch of kids with their fingers in a leaking dam in the hope that they can assuage the angry seas of financial catastrophe till the tide recedes. I do think that QE did this primary job in the US. Now the dominoes need to be delinked and bonuses to the financial chefs(yes that is not a typo) need to be curtailed. Maybe I am being petty.

    Will QE work for the EU? Unfortunately there it seems more like having to pay for liquor to curb the Financial Deficit Disorder of a wayward avuncular senator. Unfortunately that tipsy senator is driving a truck on the wrong side of the highway.

    Thought provoking as always, my friend.

    Tathagata

    • Hi Tathagata,

      Great to see your comment. I need to acknowledge your argument that evidence has not indicated that ” money printing” led to inflation in the US. My post is based on fundamental principles whose veracity can never be proven ( or disproven) either by taking a snap shot view or even in the short-term. And believe you me, we are yet in the early days. Systemic strains can sometimes get clouded by certain extraneous influences. I am no expert but I believe that QE generated additional liquidity in the US has got largely contained within the banking system and really did not seep into the consumer base on a wide scale. But sooner or later that is bound to happen and I suspect we have yet to see the endgame. Be it in the US or other parts of the world. What time frame I am speaking of, you ask. Could be a few years to a few decades.As I see it, the core issue is not really the excess liquidity sloshing around which to me is but a symptom but the increasing propensity of large parts of the world needing to live beyond their means.

      I would thus prefer to reserve my comment and adopt a viglant mindset. Having said this, I do hope the situation gets sorted out and excess liquidity is sucked out before irretrivable damage occurs.

      Cheers

      Shakti

      • Shakti,

        Coming to think about it, your thesis about the excess liquidity was actually true before the QE’s. The unwarranted and indefensible lending of cash, mortgage loans regardless of credit history has actually already caused the irretrievable damage. QE was the lifeboat for the elite financial institutions. The ones who are really sunk are the common folk who can no longer afford their mortgages.

        Baki kuch baccha to ‘deflation’ maar gayi..

        Tathagata

      • Hi Tathagata,

        You are right. I guess the fundamentals always work except that they may manifest at some other point in the curve. Contrary to the very simplified version I have tried to portray ( to drive home the essence of the issue), real life economics and financial linkages in the world are far too complex. And that I guess is the reason for significantly contrarian results that we sometimes come across. But I believe we need to always look at the trends from first principles; that way we will not go astray.

        Cheers

        Shakti

  2. Don’t know how many are doing this now. But what if every country did the same…print money and all the rest? Is that the real doomsday, rather than nuclear annihilation, that awaits us?

    • Thanks for your comment. Well, from what one reads, the ” money printing” has now shifted across the atlantic to Europe.

      As regards what awaits us, it is the destiny we choose.I for one remain in a space of positivity, believe as I do in the intrinsic goodness and initiative of Mankind.

      Cheers

      Shakti

  3. Shakti, I do not know this man, but I’ve been reading his investigations for more than two years. He does not pass on information to his readers without evidence from sources he can and cannot name.

    He provides clarity and insight into the inner workings of the world’s financial situation – and how it happened. I would prefer that he be more succinct, but I hope that is his only fault…:

    http://divinecosmos.com/start-here/davids-blog/1023-financial-tyranny?

    • Hi SD,

      Thanks for your visit. No , I had not heard of David Wilcock earlier so I need to acknowledge you for leading me to his site. Well, what I read seemed to indicate a propensity to sensationalism and doomsday prophesying. He mentions about some sources in ” in high circles” who cannt be named etc. Its what I call an excitable writing style and may indicate a personality who likes to see shadows. We need to accept such diversity in tjhe world….

      I had in fact written a post on doomsayers at :

      https://esgeemusings.com/2011/12/01/21st-december-2012/

      Cheers

      Shakti

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