Quantitative Easing For Dummies

First, I want to say that the video in question is pretty damn funny.  I saw it as it made the rounds a few weeks ago, and I laughed my ass off.  Everyone likes to take shots at the Fed, Goldman, and all those other “Fat Cats.”  That doesn’t mean it’s all true.

JLN FX picks apart the video piece by piece.

Dear Uncle Bob,

I finally got around to that video that you wanted us to watch on Thanksgiving, and while I thought it was pretty funny, I can’t help but notice that we seem to laughing for different reasons.

The Fed isn’t actually going to print any more  money for these asset purchases. What they are going to do is credit the accounts that the banks keep with the Fed, and it’s actually an important difference. For a moment, just think about like the difference between getting an in-store-credit at Best Buy, rather than them giving you a stack of cash; it limits what you can do with it and where, but that’s just the beginning.

The idea that the U.S. has become a ‘failed economic empire’ or a ‘Banana Republic’ would be more sad than funny, if it were true, but it really kind of over states the case, don’t you think? I mean, the USD is still the world’s reserve currency and yes, the it has lost a significant amount of value over the last decade, but the U.S. dollar is trading almost exactly where it was a year-and-a-half ago, and China’s foreign reserves recently jumped to $2.65 Trillion. Do you really think that China would have increased their holdings of U.S. dollars if they were seriously concerned about the long-term survival of the USD?

I’m not a Fed apologist or a Ron Paul-a-loonie.  There is a bull market in bearishness on the ‘Institution of the United States’.  This meme is a function of the economy, the feeling that the sun is setting on American manufacturing, and the fact that America may not be the absolute master of its own destiny in a more global economy.  Smart writers (like Zerohedge) can create a compelling case for just about any scenario, including the evisceration of any and all  global institutions.  I can tell you for certain that rumors of America’s demise are greatly exaggerated.

Why do I bring all this up?  Bull markets are born out of deep pessimism and skepticism.  Check your bias at the door and trade the market you have in front of you.  The stock market is not going to bend to your thesis because you are pissed off at the government and the fine gentlemen at Goldman Sachs.  No amount of moral outrage will bring the markets down 600 handles so that you can say, “I told ya so” at a dinner party.

This reminds me of a twitter post made by Joseph Weisenthal that has really stuck with me.  He said:

Click over to read the entire article.  It’s worth the read.

Source: JLN FX — Debunking ‘Quantitative Easing Explained’


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