Investment Contrarians

Federal Reserve Economic 2013 Outlook, No one knows this better than the Federal Reserve

Federal Reserve Economic 2013 Outlook, No one knows this better than the Federal Reserve

Quantitative Easing (QE) is the act of printing money to buy government bonds that support spending programs. Since 2008, the Federal Reserve has printed roughly $3.0 trillion, or roughly $9,533 per person, and it’s climbing each month by an additional $85.0 billion.

The extra dollars pumped into the economy are supposed to spur growth. Unfortunately, it also has the reverse effect of shrinking the buying power of each dollar—the driving force of inflation. Since July of 2012, the U.S. dollar index has gone down more than five percent. As the U.S. dollar declines in value against other world currencies, goods imported into the U.S. become more expensive.

What has an influx of $3.0 trillion into the U.S. economy accomplished? It was supposed to increase lending, create more jobs and lower the unemployment rate. Instead, banks are sitting on a pile of cash and remain tight-fisted, fewer jobs have been created and the unemployment rate remains high.

So, what’s keeping the U.S. economy afloat? The Federal Reserve is artificially propping up the entire U.S. economy by buying 61% of the government debt issued by the Treasury Department. As a result, the U.S. government has become dependent on borrowing (creating money) to finance itself.11

Where does the U.S. government get the money to buy the bonds? It creates money out of thin air, printing the money itself.

This is a dangerous, unsustainable trend that cannot continue. And, it’s one Ponzi scheme that will eventually come to a crashing end. The U.S. cannot continue to issue government debt and then print the money to pay for said debt.