The monetization dubbed Quantitative Easing (QE) Round 3 (“QE3”) is very confusing, and there is a lot of mystery attached to the confusion. To fully understand what just happened to us I find it useful to frame the scenario in this why, and this maybe a better way to understand it for some. When I put currency somewhere(make a purchase or invest it) it is currency that I worked to obtain and represents an exchange of my labor for a specific amount of currency. This currency is representative (if I negotiate the salary correctly) of the value of the work I preformed or the risks I took to obtain it. So when you or I put money somewhere it is a transfer of value that we obtained from our labor or risk from somewhere to somewhere.
When congress decides to put currency somewhere it can be from tax payers in the form of taxes or from IOUs (Treasury notes) that the treasury department sold to investors or to the Fed. When the Treasury sells these IOUs to investors, again the investors are taking the value of their labor or risk and trading it for the chance to to make a return in essence renting their currency to the Treasury for a fee. Taxes are the same way, it is part of the value of our labor that we are willing to trade for services, but the value came from our labor.
However, and this is where it gets interesting, when the Fed purchases these IOUs (Treasury Notes) from the Treasury, they have not traded any of their labor or risk for the currency that they are handing to the Treasury Department. So the big question is where does the value of that currency that the Fed gave the treasury come from? The answer is pretty simple it comes from you and me, it devalues the currency that we hold.
The same is true when the Fed is buying the mortgage backed securities, they are not trading anything that they have for these worthless investments, they are trading the value that we create through our labor and risk for these. The only reason that they are willing to trade the currency they create for these worthless investments is because they don’t actually have to give up anything for them. They just take the value from us, and 99% of the population is completely naive to this fact, and this is the reason that I wanted to post this. People are being robbed, hard working people that have no idea that the value of the dollars they have toiled to earn are being funneled into investment banks that made really stupid decisions, and into Government spending that is way out of control. To me this is a hidden tax that is right under our nose, that we have absolutely no say in, and no control over.
That in itself is pretty bad in my opinion. And in the past the fed at least had the decency to put finite terms around it, all be it very large terms. So in the past when they said in essence that we are going to take X% of the value of your dollars and hand it to our cronies on wall street and the bumbling mass we call congress at least it was only part of the value. This time it is the whole enchilada, and in essence they are going to take all the value of the dollars that we hold and transfer it to their cronies on wall street, and the bumbling fools in congress on both sides of the isle. They may say that they will stop at some point but we all know that once the congress sees that they have more money to spend they will spend it in a way that requires it to keep coming. So the way I see it, the value of the dollar is on a downhill slide from here on out, and the reason I am choosing to get out of Dollars and into [tangibles which are] something from which the Fed cannot magically remove value. – Jacob R.