Back before QE2 was announced I predicted that not only would QE2 go through, but that it would be followed by many more rounds of ‘help from uncle Ben’.
In many previous articles I also wrote how damaging QE2 would be – in increasing of debt, higher prices, and a continuation of market instability. All those have come to pass, and now we are looking at QE3 which was passed a few days ago.
A quick catch-up: The US economy is in shambles – regardless of what happened, things would have gotten worse. The two options were to not mess with the money supply anymore, and stop all sorts of government meddling in the markets so that they could stabilize themselves, or to create more money, and maintain the political favors in all market sectors that caused it in order to keep things stable as they could. Of course they went with B – the immediate damage only being a slow incline in food, gas, and energy prices, and the downgrading of US debt that makes no one want to buy it.
The reason why everyone equated QE2 and the continuation of government meddling in the markets with pouring gas on a fire is because that is literally what it is – adding fuel to keep a disaster floating. What we had in 2008 on up was caused by the centralized money makers (the fed) mixed with poor government policies – that was the fuel. Instead of letting it burn itself out (taking no further action), or better yet pouring water on it (tightening interest rates and getting government out of regulating the economy) – we FED it. See what I did there?
So if you thought the 20 cent/gallon of milk, 50 cent/gallon on gas increase (on a good day), and the distortion in the energy markets from government policies was bad enough – just wait to see what’s coming next.
The reason QE2 was put in place is that no one wanted to buy US bonds anymore in enough amounts to allow the US to continue her massive spending spree. The housing bubble was popping, and banks were rapidly preparing going under. Lending was down, unemployment was up, and there was no way for the government to pay the bills on what it promised to do – and it was just an all-around bad day for those who promised that they had all the answers to fix everyone’s problems.
After about a year QE2 finally took hold and prices began to stabilize – coupled with a few political moves and gas and energy prices looked to be in about the same position. Nothing got better but somehow everyone seemed to buy the BS line that a recovery was happening.
Then about 6 months ago the realization hit that the outlook for the future was not as rosy finally sank into the idiots in Washington. QE2 was all burned up, and now the bills are due again. The last line of QE2 caused the US credit rating to go down, an increase in prices, and further empowered the government to keep playing its game of smoke and mirrors. Unemployment has continued to go up (that is if you are going by the 2008 standards as oppose to the current ones which changed the definition of unemployed to make things look better than they were) – and salaries have not increased proportionately to the rise in prices.
You would think that people would have learned. You would think that their memory was at least long enough to think back a year or two and see what was really happening.
So what is going to happen now? Prices will continue to rise far more sharply than they did the last 18-24 months. Regulations will get more strict, government policies will continue to get more invasive, and in 6-8 months (320 billion dollars worth only IF it is not forcibly stopped) the US treasuries will be once again – downgraded. Production will remain low with high demand – and you will see a whole lot of desperate people. Sounds like fun huh?
But that is not the best part.
Each month the FED will be adding a total of $85 billion to its balance sheet – 40 billion in mortgage backed securities – and 45 for buying government bonds (until Dec 2012). As for the allotment of government bonds being purchased, that is only a continuation of a mini-QE that started in July 2012 – for a total of about (give or take) 267 billion. Had they not done this, the government would not be functioning where it is now – it would have been forced to cut back.
So that’s the gist of it. And for the record, Egan-Jones (a well-respected credit rating agency), just downgraded US treasuries – for the second time in 2 years. We now stand at AA-. Great job uncle Ben.