After reading this statement at the end "Ironically,the catalyst this time may be realized when the financial system andthe global economy are found to be in better shape than most suspect,and that once the stimulus is slowly removed... surprise, surprise -life goes on and the markets function." You cannot believe anything this guy says to be true. Yeah the global economy will be found in better shape when half of Europe is going bankrupt, American cannot stop printing money, The Middle East is out of control and one of the biggest economies gets taken out overnight. Debts don't just get erased and vanish and the way America is choosing to deal with their debt problem is by printing more money (QE2). Whoever thinks the QE program is temporary is very clueless. QE will never end because the Fed is now 70% of the Treasury market. If they stop buying who will be buying? With no buyers the government can't raise the funds to cover its $1,500,000,000,000 deficit for this year and where will it get the funds to conver the $1,500,000,000,000 for next year? It is just impossible to keep printing money and keeping interest rates very low. Kenyesian Economics does not work and IMO is coming to an end and Hyperinflation very well may hit America and then we'll really see if you can sell those Tiffanys for $600 or even $50!
This little piece does a very good job at explaining the Feds QE program (QE2INFINITY)
Keeping the tent inflated
Sometimes physical analogies are the most helpful in understanding complex relationships. Let’s think of the economy as a large inflated tent. The extent of the tent’s inflation is the health of the economy. Under normal economic conditions the tent is fully inflated. In the course of time, events take place that cause the need for a correction to the economic system. New technology can come along which obsoletes old industries, bad investments and debt must be liquidated etc. When this happens a free market economy will correct itself. Capital tied up in failed industries will be reallocated and invested in new businesses. New jobs will ultimately be created and people will go back to work. Of course this reorganization takes place over time and this is what a recession is – a healing process for the economy. In our tent we can think of this as a tear that forms in the fabric. While this hole is being repaired, air escapes and the tent begins to sag a little. The extent of the drooping is the extent of the recession. Once fixed, the tent and the economy go back to normal.
QE is a wholly different method of keeping the tent propped up. It does not repair the hole, but rather attempts to keep the tent inflated by pumping more air in than is escaping through the hole. This is the new money being created and pushed into the economy to offset the credit destruction in the banking system. This is a dynamic process that must be maintained. The catch is that the hole doesn’t just stay a fixed size. The tear begins to lengthen allowing greater amounts of air to escape. The economic tent begins to sag until the volume of air being pumped in is increased to overcome the outflow. This is why QE can never end. To stop now, with such a large hole, would result in a severe and frightening recession. The tent would lose a tremendous amount of air in the time it takes to make such an extensive repair.
This process continues until eventually the hole is so large that the tent collapses around the massive flow of pumping air. This is the ultimate fate of money printing as policy – a currency crisis – the endless flow of new money loses purchasing power faster than it can be created. We are left with an inflationary depression in which savings are decimated and the standard of living of most Americans is dramatically lowered.
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