QE3 the wrong approach

J. Keith Johnson Senior Writer, The Gold Informant
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A couple of weeks ago I wrote an article pointing out why this simply isn’t the right timing for QE3. And over the past few weeks I’ve mentioned many times in The Gold Informant thoughts along the same lines.

Now, I know that unemployment is up. In fact, as John Williams points out for us, if we count the folks who’ve given up looking for work and use the formula that was used a couple of decades ago, the current rate is almost 23%.


Furthermore, income levels are dropping precipitously, sucking the lifeblood out of the governmental machine. In this case, median household income, adjusted for inflation, has dropped to levels not seen in about 15 years. Of course, the government does not adjust for inflation. And, even if they did, they’d use the new formula that keeps their numbers much prettier than reality.


Consider these observations from Shadowstats.com, offered with the above chart.

  • Real median household income collapses to 16-year low
  • 2011 income below levels of late 1960s, early 1970s
  • Income variance hits record high, suggestive of greater financial and economic crises ahead
  • Trade deficit contained by short-lived decline in oil prices

In other words, economically we’re doing very poorly. In fact, we’re doing much worse than the government statistics tell. However, other aspects of the markets are looking up. While real estate still lags in most of the country, in many parts of the country property values are soaring. The stock markets are climbing closer to all-time highs. The dollar, while a little off recently, has shown some strength this past year. And metals are keeping right with the pack, reaching six-month highs in recent days.

Quantitative easing is simply a means of attempting to stimulate the velocity of money by making dollars cheaper. They won’t put it to you that way, but it’s what it comes down to. By making dollars cheaper, inflation is foisted upon us. In other words, more dollars are printed, which we will necessarily pay for through the insidious tax that’s often called inflation. Inflation renders saving useless, even self-defeating, because any savings necessarily drop in value. So borrowing and buying takes the place of saving in our mindset.

The net result of the open-ended QE will be higher prices across the board. Oil spiked immediately upon today’s announcement, along with everything else. Higher oil prices result in higher gas prices, which result in higher costs to get your food to the market and more expense for you to get to work. Whose economy is this stimulating?

I’ll say it again — QE3 shouldn’t have happened. Responsible fiscal policy would dictate that Twist, QE1 and QE2 should never have happened either. But they did. And now we find ourselves facing new challenges in the long run.

For today, there’s celebration on Wall Street. However, for tomorrow, there will be groaning on Main Street. The euphoria will die, the unemployed will continue to give up, the poor will get poorer, the rich will get richer and the can will get kicked down the road for our grandchildren to deal with; if they can break free of the chains we passed down as well.

J. Keith Johnson’s Austrian and libertarian perspectives on current socioeconomic and geopolitical affairs are fueled by his insatiable desire to both discover and share the truth. A Goldco Direct affiliate, you’ll find his commentary on The Gold Informant website, as well as various Internet financial and news sites.