QE explained in simple words

derryb

"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."

Linky fixed, thanks staircoins.
From "QE Is The End Of America As We Know It"

pitboss

Does the new ruling by the supreme court on banks not being able to hide money affect this?

roadrunner

Good analogy.

Outside that tent is an 800# bear ($1.5 QUAD in derivatives) that is presently being kept at bay by all that whistling air noise leaking out of the tent.
When that noise stops, the bear will be tempted to rummage through the tent to see what's for dinner. The bear knows it cannot eat gold or silver.


roadrunner

Staircoins

(Working link)

And of course, noone (on either side of the aisle) is making any substantial moves to fix the hole in the tent.

Baley

.... and to take the analogy further, those performers working in the three circus rings, on the tightrope and trapese, and those handling and feeding the animals, and those spinning cotton candy and assembling hot dogs, and those taking tickets, and the whole audience, is trying to keep the circus running, and are being hindered by the distraction of those running around yelling there's a hole in the tent, and those second guessing and backseat driving the guys trying to patch the hole and keep the blower running.

... and then there's the guys sitting on their piles of assets, waiting for the whole tent to come down on us so that they can be the ones who said, told ya that tent was toast!

roadrunner

and then there's the guys sitting on their piles of assets, waiting for the whole tent to come down on us so that they can be the ones who said, told ya that tent was toast!

Yep, looks like it's about time to blame it all on the "gold bugs." If only they hadn't speculated on hard assets and invested in the Ponzi scheme with everyone else, then things
would have turned out all right. Problem is, most of the people sitting on all those assets are the ones who caused the problem in the first place. You'd probably see quite a few
high ranking politicians, corporate execs, bankers, etc. among that list.

roadrunner

johnperk747

A GREAT READ . . AND SO TRUE!!!!!!!!!!!!!!!

LET'S PRAY FOR AMERICA . . .

BLESSINGS

jmski52

Gypsies, tramps and thieves - you hear it from the people of the town,

Gypsies, tramps and thieves - and every night all the men would come around,

...........and lay their money down..............eh, Baley?

derryb

There are those that prepare for the worst and hope for the best and then there are those.........well, who don't prepare.

Baley

and the Clowns! don't forget about the Clowns!

derryb

I knew they'd be along shortly.

cohodk

This is why QE can never end. To stop now, with such a large hole, would result in a severe and frightening recession

It will end, and it will come. And ALL assets will lose value--even PMs.

renman95

How apropos if the Great Unraveling occurs on the Feds 100th anniversary in 2013.

Bear

QE......Quite enough already.