Mission Control Commentary
Quantitative Easing
Paul J. Cafaro
Nuclear Physicist
Aug 18, 2010
"Quantitative easing" by the Fed, just forces more
paper dollars into the financial system, supposedly to counteract
deflation. This is just outright crazy, first of all, creating
more paper money "does not create more wealth" and
"does not create more savings" only "more fiat
dollars." And fiat money after all is simply a "medium
of exchange," paper does not have intrinsic worth of its
own, more importantly when that paper "medium of exchange"
is devalued "by increasing its supply" the devaluation
effects "are not uniform," because some people get
to use the extra paper money sooner then others before the prices
of things change, so the price rises created by these extra dollars
affect people unequally (because as the price of things begin
to rise income could still be falling for some), these distortions
lead to the destruction of real wealth for the people who don't
get access to the new money right away.
In other words, not only does increasing the paper money supply
fail to expand the economy but it eventually brings about a reduction
in the overall size of the economy because by devaluing the medium
of exchange (by increasing its supply) hurts savers or anyone
on a fixed income or relative fixed salary who must use their
previously saved dollars "that had more value" on goods
that have been marked up because of the increased dollar supply,
so the Fed's "quantitative easing" is not only misguided
from a pragmatic economic perspective, it is ethically and morally
wrong.
Perhaps it can better be explained by a simple example, say we
have some people on an island 1) a diamond producer who hires
workers on a fixed salary to mine the diamonds 2) a gold producer
who hires workers on a fixed salary to mine the gold, and 3)
some bankers who don't work at all (but just lay on the beach
all day drinking mint julep's and spending money buying diamonds
and gold for their bikini-clad girlfriends). Now you may
be asking where do the bankers get all that money to buy that
expensive diamond and gold jewelry for their girlfriends if they
don't work to produce anything of tangible value? Easy, they
just print it up at the central bank and then pass it out to
all the bankers under the guise of some "TARP program"
where the bankers tell the ordinary people they need this money
because they are "too big to fail" at what they are
doing and go to work for a living.
OK, now let's look at the implications of this economic
scenario on this "imaginary island." Say only a fixed
amount of paper dollars exists as a medium of exchange
on the island (only "one million dollars" exists on
the whole island), and say the producers of wealth (the diamond
and gold companies) sell a one carat diamond for $1000 paper
dollars and one ounce of gold for $1000 paper dollars. Also say
the workers at the mines earn $100 dollars a week for their labor,
so the workers can therefore buy a one carat diamond or a one
ounce gold coin by saving all the money they earn over "a
ten week" period. The bankers on the beach don't work to
produce anything so when they need money they simply "print
it up" out of thin air. Say the bankers decide they need
to print up an "extra million dollars" for themselves
to enjoy a better lifestyle... now there is a total of "two
million dollars" on the island, the bankers live lavishly,
buying many diamonds and gold jewelry items for their girlfriends
with the extra money they printed. The producers of wealth (the
diamond and gold companies) seeing "the paper medium of
exchange" double overnight don't want to give their real
diamond and gold wealth away for this extra counterfeit paper
the bankers just printed up "out of thin air," so they
begin to raise their prices to be more in line with the increased
amount of "exchange paper" now circulating on the island.
In order to get things in proper balance a one carat diamond
will now have to sell for $2000 paper dollars and a one ounce
gold coin $2000 dollars in the newly devalued "medium of
exchange." The producers are not making more "real
money" on what they buy and sell, a one carat diamond still
buys a one ounce gold coin, only the "medium of exchange"
being used has increased, so the prices of "real tangible
things" remains the same; it just requires additional paper
money to be traded because the bankers doubled the money supply,
which inflates the prices of things but not their value. The
corporations are effectively selling their products for the same
price, however, they too "can make some extra money"
if they are able to keep the workers salaries at $100 dollars
per week.
The bankers don't care what price they have to pay for the diamonds
and gold they purchase because they benefit by the fact that
they can just print up whatever paper money they need out of
thin air. Similarly the industrialists can get to benefit by
the doubling of the island's paper money supply because
they can raise prices while keeping their workers' salaries
constant, so who gets hurt? You guessed it, the workers at the
mines, the workers find they must now work and save all their
money for "twenty weeks" to buy a one carat diamond
or a one ounce gold coin. These workers are subjected to "a
100 percent increase in the cost" of the diamonds and gold
they buy, this is "real inflation" to them, but the
bankers and corporations conspire to say there is "no inflation."
They "fix" the consumer price index to exclude diamonds
and gold from their CPI calculations, in that way, the bankers
(who control the island's government) and industrialists
have an excuse not to pay the workers the proper amount of paper
dollars for their labor, the workers don't get any COLA salary
increase and retired workers don't get any Social Security increase.
In this way, the banksters and big corporations defraud the working
and retired workers, which is unethical and morally wrong.
When the workers begin to complain about "rising prices"
the bankers tell them that they should instead fear "falling
prices." They say "to have falling prices" is
bad for the economy, this is pure banker deception, just look
at the US economy from the mid 1870's through to the mid 1890's...
the US economy "grew more" during this 20-year period
"of falling prices" and relentless "price deflation"
than it did during any 20-year period in US history. The fact
is, people will step up and buy more if the price is cheap "boosting
the economy," and they will hold off on purchases if the
price is too high "contracting the economy." The bankers,
by creating inflation and raising prices, are in effect "contracting
the economy," they "fear falling prices" because
it will actually result in boosting the economy and "helping
the working man." Instead they "twist things"
and create a falsehood, they "alarm the populace" by
saying falling prices are a bad thing and thus, scaring the people
about deflation, provide "justification" for them to
print even more paper money "for themselves." This
then leads to more inflation and even higher prices for the poor
workers on fixed salaries and "contracts the economy"
even more. See the picture, as the bankers squeeze and contract
the economy by printing more paper money out-of-thin-air they
are able to "squeeze wealth out of ordinary people"
and keep it for themselves.
Fast forward... the Fed at its last meeting stated they are "less
optimistic" about the US economy (well with all the trillions
of new dollars they just created this is an obvious result),
the common people don't have the money to purchase higher priced
items as their pay raises were squashed and COLAs reduced to
zero, but the greedy Fed bankers know exactly what they are doing,
they have now abandoned any pretense of being ready to implement
an "exit strategy" and not flood the economy with more
paper money, instead the Fed stated it will buy sufficient new
government debt securities to prevent the money supply from contracting,
thus the bankers clearly have no intention to pull back from
their ultra-easy monetary stance of the past two years... they
are printing money hand-over-fist "out of thin air"
to stuff their own pockets to the breaking point.
Workers should expect the next step in the banksters'
plans to be the announcement by the Fed that "due to a further
deterioration in the pace of economic recovery" it will
be required that the bankers "expand the money supply even
further" by ramping up the rate at which they purchase government
debt securities. Expanding the money supply in this way is only
going to "hurt workers" who will see no increase in
their pay while the cost of the things they want to buy increases
(contracting the economy). Retirees will really be out of luck,
workers unions may squeeze out some minor pay adjustments for
their still-working members but it's going to be very difficult
for any union to achieve much headway because the corporations
just keep moving the high paying jobs out of the country, the
consequence of which has resulted in the US economy achieving
"zero growth" in private-sector employment over the
past 10 years. The Fed's sharp increases in the rate of money-supply
growth will only "exasperate inflation for the working people
and further contract the economy" while the bankers and
corporations make out like bandits by opening the monetary floodgates.
With US economic data currently weak and likely to get weaker
over the next few months as workers are not spending (either
because they were fired or obtained no salary increase), it won't
take much for the bankers to move to the next step in their plan
"to create another deflation scare" in the very near
future, in fact many articles are now appearing in the "banker
controlled mainstream press" about "the supposed risks
of deflation" (but deflation actually makes things cheaper
for the working man and will revive the economy).
But the Fed is preparing to "trick us again" by their
"deflation scare tactics." When they are ready, they
will begin another surge in the rate of monetary inflation that
only benefits them and the big corporations, and this will set
the stage for the stock market's next intermediate-term advance
toward a 14,000 Dow as corporations will be showing higher "nominal
income gains" in inflated dollar terms, and gold will make
its next multi-hundred-dollar price move just to stay even in
"real tangible value" terms.
Cheerleader Sarah Palin (the bankers choice as head of
the Tea Party) will probably say: "print-baby-print,"
to hell with the ordinary workers, what is good for the big corporations
and good for the bankers is the only thing that is important,
these people have no regrets sending all us workers over the
"bridge to nowhere" in the same way "thieving
pirates of old" made their captives "walk the plank."
###
Aug 15, 2010
Paul J. Cafaro
Nuclear Physicist
email: pcafaro11758@yahoo.com
Mr. Cafaro has a Master of Science (MS) Degree in Nuclear
Physics, B.A. Degree Physics and completed many advanced study
courses toward his Ph.D Degree in Nuclear Physics at Brooklyn
Polytechnic Institute of New York. He attended Long Island University,
C.W.Post, New York University and obtained his Paralegal degree
from Adelphi University, worked 35 years for the United
States Government as a Nuclear Physicist, and is in Who's Who
in Technology and Who's Who in the East.
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