QE is their only card

Faced with a weak economy, central banks in the US, UK, Eurozone, Japan and other countries are engaging in further rounds of “Quantitative Easing” (QE).

This means they buy bonds in financial markets with new money that they just create for the purpose. The effect is to keep interest rates down and to inject cash in the economy.

The logic of the exercise was explained in detail by the US central bank (“the Fed”) when it embarked on such programmes in November 2010: http://www.newyorkfed.org/education/lsap/index.html

And the same logic is invoked again these days.

The Fed says it’s doing this to reduce unemployment by supporting demand for goods and services through more money flowing in the economy and cheaper credit for potential buyers.

Most experts doubt that this will work, pointing out that there is already a vast amount of money in circulation, and that what hampers demand is a general lack of confidence.

In fact new money created by central banks when buying bonds goes straight in the pockets of investors.

The latter use this money to acquire investible assets such as bonds, shares, derivative financial products, property and commodities, which pushes these markets up.

But very little new money actually trickles down into the “real economy”, i.e. purchases of (new) goods and services produced by the workforce.

In other words QE contributes to asset inflation while having hardly any effect on jobs.

The true reason for carrying out QE is not to protect jobs but to keep heavily indebted governments, banks and property owners afloat, thereby preventing massive defaults on debts which might bring down the global financial system.

While central banks in cahoots with governments are playing this big trick, companies keep squeezing their workforce. With the consequence that large sections of the middle classes (from whom comes most of the demand in the economy) are now poorer and feeling vulnerable.

No good news for demand; more weakness in the economy triggering yet more restructuring by companies.

The global economy looks on the brink of a downward spiral, but governments and central banks have no other card up their sleeves than QE.

As said over and over again on this blog, there are no technical “solutions” to the apparent global crisis as long as most people have their minds trapped in the materialist mode of thinking.

But a subtle change is happening beneath the surface, which a minority of intuitive individuals can already perceive.

Fear not, sharpen your intuitive capacity.

Love,

Leo

Copyright © Leo Foresta 2012

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1 Comment (+add yours?)

  1. Ian Cormack
    Sep 19, 2012 @ 20:46:10

    Thanks Leo ..Love the posts …:)

    Reply

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