This is an attempt, from which many more will come, to break down seemingly complicated financial matters into plain English, to make financial freedom more accessible to those who have been told are “dumb money”.
What is Quantitative Easing?
QE, as it is affectionately referred to, is the process in which a Central Bank (The Federal Reserve) buys a ridiculous amount of assets. These assets include Government and Corporate Bonds, Stocks, Mortgage-Backed Securities (remember 2008?), and really any long-term Treasury bonds. Basically, the Fed buys all the fixed-income assets, which just means assets where the amount you receive is set in stone for investing, and they hold this on their balance sheet.
Because it’s garbage.
QE comes into play the moment the economy is on the brink of disaster, like with the Great Recession. When the Fed buys all of these assets, they infuse the system with an absurd and fabricated amount of money. When they buy these bonds from banks or the government, those entities then have a massive cash infusion allowing them to lend money to people, or each other, for virtually nothing. Why are they buying all of these fixed-income assets specifically? As I mentioned above, they are garbage.
Go ahead try to think of a single person that you have ever met in your life, who in the face of an impending economic disaster, they looked you square in the face and said, “We should go buy some bonds”.
When the Fed steps in to buy all of these bonds, the prices rise giving even more liquidity to the institutions selling these assets, but not because people actually want them. In fact, after this happens, the rate-of-return on a bond walks off a cliff.
Once this liquidity is in the hands of these institutions…loans for everyone! What’s an interest rate? Who cares!!! People borrow money left and right because the rates on everything has dropped so low because the Fed has absorbed all of the bad assets no one actually wants to invest in because they see economic downturns.
The economy is heading towards a cliff, so what do you do? High-risk, high-reward assets. Stocks, that’s what the answer has been, but that’s beginning to change. The opposite of bonds, these have no fixed returns (ignoring dividends), and you can make or lose a crazy amount of money. The Fed pumps the economy full of green, and it all gets thrown into the stock market, where the rich get richer, and those new to investing are taken advantage of by Market Makers and Hedge Funds. But now they can say the economy is in great shape because the DOW Jones is at a record high!
You Haven’t Explained How it Happens?
I’m working on it. So, the economy starts heading towards a cliff because of a fast-spreading disease and the government says you have to stay inside. Most businesses are being shut down meaning money isn’t circulating the way we need it to in order to keep a healthy economy. The Fed steps in and says they are going to buy all the garbage no one wants when the shit hits the fan in order to provide liquidity to institutions and make borrowing easier.
But wait, there’s more! People can’t pay their bills, airlines are shut down and no one is traveling, non-essential businesses got the boot from the Federal government, how do we make these people spend money they don’t have on things they can’t pay for?
The Federal Reserve steps in, once more to be the “hero”. Buy more bonds, flood the government with so much cash that they can send out checks to everyone as a “stimulus” and we will stimulate the economy.
Where Does the Federal Reserve Get The Money To Buy All Of These Assets?
IT’S FAKE. There’s a little button that the Federal Reserve clicks to “print” money. Here’s a video where they explain they have an unlimited amount of potential for creating money whenever they want, this is real.
At will, the Federal Reserve simply creates money and buys all the shit no one wants to pump up borrowing and lending so more people invest in stocks, which is how they measure a “healthy economy”.
In reality, less than 50% of people in America invest or even have money to invest, so they don’t see a dime of it. Then, simple supply and demand will tell you when there is too much of something, it becomes worthless. If the system is flooded with money, which we were this past year and a half, the dollar loses value, or as they like to call it “inflation”. Speaking of inflation>>>
This picture represents the increase in the money supply, each month since last June, and these numbers are denominated in BILLIONS. What about before June?
As you can see, this bar has been steadily increasing for some time, meaning that every day you didn’t invest your dollars, they lost a little bit of value as time passed. Then Coronavirus came in 2020 and sent that supply “to the moon”.
Now your dollars become more and more worthless by the day because when the Fed turns that printer on again, and they will, they are legally stealing money from you by devaluing the money you worked for, and they are stealing the time you spent to work for that money.
How Do We Stop It?
I’m not a financial advisor and this is not financial advice, but it seems to be the only answer is to opt-out of the legacy financial system by investing in a non-inflationary currency that cannot be manipulated or increased by anyone on the planet.
Does One Exist?
Oh, and we haven’t even talked about when the Fed wants that money back.