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Econ 101 for Open Eyes, by Little Fish
It has been interesting following the various offerings on this blog having to do with economics, physical possession of precious metals (PMs), IRAs, and such. I believe I have some things to add to the conversation that I have not seen mentioned before and that may be of interest to “preppers”.
By way of introduction I consider myself a “survivalist.” I have a degree in Business Economics from a major university. Furthermore, I have been working in the world of banking/finance for the past 30 years. What I am about to offer does not constitute investment or tax advice, rather it’s my view of things from my little corner of the world. I have nothing to sell and no affilition with anyone who does. We may disagree on some terminology or exact numbers, so it is my hope that we can focus on the big picture and what it paints rather than disputed minutia.
How is the economy really doing?
The debt this country now carries, as well as the debt of most civilized countries of the world, not to mention the unfunded liabilities cannot be repaid, ever! Since the near collapse of 2007-2008, the stock market has been fueled (pumped up) by the flow of printed money (Quantitative Easing 1, 2, 3, and 4; operation twist; bail outs; et cetera) rather than by corporate earnings. The money isn’t really even printed any more; it’s electronic.
Allow me to explain how Quantitative Easing (QE) works. We have recently been functioning with both QE 3 and QE 4 running simultaneously to the tune of $85 billion per month. The “tapering” down that has recently occurred represents $10 billion per month. So, between the two we are now at $75 billion per month. The mechanics of that are this: Every month the U.S. Treasury (UST) electronically creates (out of thin air) $85 billion (or $75 billion at the moment) U.S. dollars. They wire this amount to a private entity, known as the Federal Reserve (Fed). The Federal Reserve then uses part of that money to buy U.S. treasuries (back from the U.S. Treasury) and part goes to large banks to buy troubled mortgage-backed securities from them. The Federal Reserve then owns those investments. When the banks “sell” their assets to the Federal Reserve, they take billions of dollars a month in cash that they are supposed to be lending out to stimulate the economy, yet large amounts end up going to buy stocks. Those “inflows” are why the stock market went up for several years in a row.
If you didn’t follow that explanation, let me make it simpler. The U.S. Treasury uses computers to digitally create “money,” then wires it to the Federal Research, who uses that “money” to buy bonds that the UST is selling. Thereby, the UST gets the “money” back for “selling” the bonds all to keep the government afloat. If you or I did that, we would be put in jail in short order and rightly so.
Source: http://www.survivalblog.com/2014/02/econ-101-for-open-eyes-by-little-fish.html
