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Reality Check: Is QE3 Really About Forcing You To Invest In Risky Stocks?



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Overly Simplified but spreads the word about the Fed

QE devalues the dollar, provides little economic stimulus in reality, and is generally poor monetary policy.

Citizens can still find some safer bets in precious metals, foreign currencies, and stocks that classified as investments (that pay dividends) opposed to the speculative stocks (risky) in the title.

Bigger stories on this scene are...
1. Chinese having direct access on to treasury computers to buy treasuries
2. Chinese permitted to purchase US Bank ownership
3. US Banks are required to buy US soverign debt

Obviously the Govt. has no intention to stop spending, while American dollar is SOL

"This isn't what the govern meant"

"Win the crowd and you will win your freedom"

This is an interesting take

This is an interesting take on Ben Swann's part.... however, a little simplified and not entirely accurate.

Interest rates on Government debt have been nominally negative for a long time now (that is, after you factor the real rate of inflation, there has been a negative return for bond holders of U.S. Government debt well before QE3...), so QE3 is more about the desperation of the Fed having to monetize the debt (that China all others with any good sense are backing away from) than it is about getting you and me to throw up our hands up in frustration because of the negative return and instead invest our money in Wall Street. Not to say that's not a valid objective, however -- it is -- but for that we have the plunge protection team that manipulates the market and the Fed that buys stocks, if necessary, to stabalize the market and create a false feel-good indicator of the economy's health. The Fed buys stocks either directly or by funneling free money through their proxy banks, who then buy stocks, which props up the market and drives a series of "suckers rallies" so to speak. This is how they throw out their lines in the water to reel in the masses hard-earned money, not by QE3, per se...

Good times.

Yes, but...

without the Fed buying up government debt, interest rates might be going through the roof right now. That's the argument that RP and Schiff make -- that we're only keeping the lid on and ultimately even Fed intervention won't be enough to stop rates from catastrophically skyrocketing all at once, causing a total monetary collapse.

But even more importantly, it's the inflation caused by Fed policy that forces us to "play the market" more than we might otherwise prefer. It's funny, progressives often decry the fact that average folks have to risk their retirement money in the stock market, without realizing that it's their own Keynesian policy that forces them to do so.

Higher Interest Rates

Can you educate a fellow Daily Pauler on how interest rates will catastrophically rise? I'm a bit new to Austrian economics. I read somewhere that a run on the dollar will cause foreign countries to lose confidence in the dollar, and therefore they will ask the U.S. to increase the interest rate (rate of return) on their U.S. Treasury Bonds in order to keep foreign countries to monetize the U.S. debt (continue to buy U.S. Treasury Bonds) Is this how interest rates will rise, or is this too simple of an explanation? Also, if the U.S. Treasury Bonds interest rate rises, why does the interest rate of a normal loan (to go to school or to start up a small business) also increase? Thanks!

There's basically two possible outcomes.

And which outcome we get depends pretty much entirely on the Fed.

As the debt keeps increasing, and the Fed continues to monetize it, the dollar loses value, and investors move out of dollars and dollar-denominated investments like treasuries. But that can't go on indefinitely with ever-increasing debt as the Fed has to buy debt (print money) at an ever accelerating rate -- at some point confidence would be lost in the dollar and it hyper-inflates. So what does the Fed do (and does the Fed manage to do it in time)? I.e., does the Fed see the hyperinflation coming far enough in advance to throw the brakes on (which means dumping much of its treasury holdings and driving up treasury yield -- which simultaneously strengthens the dollar and maybe isn't too late to save it), or does the Fed just let the dollar completely fail?

"Also, if the U.S. Treasury Bonds interest rate rises, why does the interest rate of a normal loan (to go to school or to start up a small business) also increase?"

Because there are multiple "costs" that interest on a loan has to pay for. One of those is "opportunity cost" -- what the lender could have made by lending to someone else (or otherwise investing that money). The interest rate of any given loan is basically the cost of default-risk + loan-servicing costs + other various costs of lending + that base opportunity cost.

I wonder if Ben Swann was so

I wonder if Ben Swann was so smart before he started covering the Paul campaign, or if he's learning a lot of good stuff. I heard he started looking at Paul after a friend complained Paul wasn't getting a fair shake. Swann didn't think much of this, but though "hey you know what, what harm is there in looking." (Paraphrase) Now he's on board the liberty express. Did he ever think about QE or stuff like that before?

From the fox19 website, "Ben is a graduate of Brigham Young University with a Masters in Humanities from California State University. " And he was in Texas and got big off of his reports on the drug wars.

They teach you economics, let alone austrian economics in the Humanities?

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ben swann

lookin a little sunburned

Here Sure Does!

I got some beach time in myself today...Ha!