henry1000

Hello SIUYA: “so Henry - the question still remains.” Your post looks more like a 10 part question to me. "What is the difference between the Fed printing it and the banks printing it when it comes to digital money? regardless of where it goes..... This is the point - on one hand we hear the banks are sitting on excess cash, on the other hand they are deficient in their capital ratios and dont have enough shareholder capital.....people cant make up their mind." ... I will try and answer the first part question even though I am not quite certain what you are really asking in the above line. What is the difference between paying cash and paying with a credit card. To the seller nothing really except an added charge from the credit card. And if you pay off your credit card in time it makes no difference to you. What if you pay online (digital money ?) instead of in person ? Money is money once it leaves the source. It is the same to the buyer or seller. If you mean what is the difference between the way the Fed makes money out of thin air and the way the banks make money out of thin air. Then that is a different question. For the Fed it mainly has to do with writing checks for government IOUs like Treasury notes. The government issues a bunch of Treasury notes the Fed buys them by making some entries on a keyboard. The Fed does not have the money to buy these IOUs it simply creates it out of thin air. It then tells the government they have that amount of money in their account. The government can now spend it. This new money ultimately ends up in banks as deposits who because of the fractional reserve system can loan out some multiple of the new deposits of the new money and thus create money out of thin air in that way. If the Fed changes the reserve requirements of the banks they can change the amount by which banks can expand the money supply. See How the Fed Rules and Inflates Mises Daily: Friday, December 14, 2012 by Murray N. Rothbard https://mises.org/daily/6320/ A lot of the uncertainty in the economy is caused by the whole monetary system we have now which is inherently inflationary which creates economic inefficiencies by causing malinvestments. "There real issue is how the Fed gets out of QE - how the banks take up the slack again and the effects on the economy......" Do you mean how does Ben Bernanke get out of QE ? He should just quit. The whole philosophy of QE, namely printing money to stimulate the economy in to prosperity is brain dead and he should know better. Why - see my post # 8 and # 13 at Re: Will Quantitative Easing Be Japan's Savior? http://www.traderslaboratory.com/forums/market-analysis/16222-will-quantitative-easing-japans-savior.html please read the suggested reading list. Austrian economics, which is what the reading list is about will answer a lot of your questions. Here are some more answers to the rest of your post: Gold is a better inflation hedge than cash and I consider it mainly a store of value as I have said in my previous posts here. And you are right being "a permanent bull or bear" is not a good idea. Banks lending more or less in the past or future and why they will or will not or should. See my previous posts. In another post you say: "If my thoughts on printing digital money is right then the only reason why the fed is full of idiots is because they dont make money from their printing (or will they?), while the banks did....or does it means the banks are full of idiots as well because they simply printed money.....and blew up the economy before the Fed...." Are you saying you don't know if the Fed "makes money from their printing". Of course they don’t make money from their printing, every one knows the Federal Reserve is a non profit organization, right up there with the Red Cross and the Salvation Army. Just kidding. They collect interest on loans and charge for their services just like any other bank. But their customers are sitting at the front of the plane and so they get charged a little more for their first class service. Calling the Fed idiots is not what I meant. What I meant is that if some one like Bernanke actually believes printing money will bring wealth and prosperity to America then he is an idiot. Why won't printing money make America great again. See the suggested reading material. The short answer is that in a free market people vote with their dollars, and industries grow and wither, start up and die accordingly. When the government injects stimulus money (monetary inflation) in to the economy this supply-demand relationship is distorted because the favored businesses that first received the stimulus money will now buy products and services that were not in demand before. This creates jobs but the jobs are artificially created. Once an injection of money has run its course the market seeks equilibrium, meaning that the market will try and reestablish the relative value of goods and services based on real supply and demand. But if the government sees a market sector or companies failing again and it decides it needs to be bailed out again it will take a larger injection of money to get the same effect. The short term result is more jobs for the people in those targeted businesses and less jobs in areas where there is real demand. So people's standard of living declines because there are less goods and services they would otherwise be receiving. And of course there is an inflation tax caused by all this new money which further erodes the cost of living. This QE inflationary policy is more like Robin Hood in reverse. Those at the head of the money food line get richer. But it hurts the people on fixed incomes, the people who save money, and the poor who see the price of the basic necessities of life going up. Are we doomed ? Yes but I expect it will be a slow death just like the way it is now. A continued decline in the standard of living, more government defaults, more unemployment, more hours of work for less pay, more states defaulting unable to pay their debts. See Detroit or Japan if you want a preview. Or move to Greece if you to see some real doom. And no I don't think the United States will end up as bad as Greece. After all we can create our money out of thin air, the Greeks can't. Btw does any one knows where the nearest Kinkos is ? I want to print some money and stimulate the local economy. Henry1000

Hello bobcollett: There are lots of sources. It is widely known amongst the inner circle. Welcome to the inner circle. Btw Bernanke is an idiot if he really thinks printing money will bring wealth and prosperity to America. I am just amazed that intelligent well educated people in the developed world believe this non sense. And even if this were true: “The banks are not sitting on money. They are buying equities and it looks like they have NO money to loan. ” those stock holding would be assets which can be converted to money which can be loaned. Banks are not suppose to be stock funds. Sure doesn't sound like that was part of the plan that was explained in the QE promotional brochure I got the other day. First a definition: “Quantitative easing is a euphemism for an inflationary strategy of monetary policy pursued by central banks. The bank adds money to its balance sheet ex nihilo (out of nothing), and uses the new money to purchase government securities, thus increasing bank reserves, raising the prices of government securities, and lowering their interest rates. It is equivalent to simply printing additional legal tender.” Quantitative easing - Mises Wiki Here are a few sources: The Federal Reserve vs. Widows by Gary North The Federal Reserve vs. Widows by Gary North See this paragraph in the above source: "Is this America's future? It could be. That decision is in the hands of commercial bankers for as long as the FED allows banks to pile up excess reserves at the FED. If the FED finally decides to place a penalty fee on excess reserves, the banks will lend, M1 will rise, the M1 money multiplier will rise, and prices will rise." Massive Misconceptions About Where the Bernanke Fed's Money Explosion Went by Robert Auerbach - Professor of Public Affairs, The University of Texas at Austin Posted: 06/25/2013 12:47 pm Robert Auerbach: Massive Misconceptions About Where the Bernanke Fed's Money Explosion Went See above source: "There is a massive misconception about where the Bernanke Fed's stimulus landed. Although the Bernanke Fed has disbursed $2.284 trillion in new money (the monetary base) since August 1, 2008, one month before the 2008 financial crisis, 81.5 percent now sits idle as excess reserves in private banks. " QE4 Is Here: Bernanke Delivers $85B-A-Month Until Unemployment Falls Below 6.5% 12/12/2012 @ 12:48PM |36,646 views QE4 Is Here: Bernanke Delivers $85B-A-Month Until Unemployment Falls Below 6.5% - Forbes Excess Reserves of Depository Institutions (EXCRESNS) Excess Reserves of Depository Institutions (EXCRESNS) - FRED - St. Louis Fed Henry1000

Hello SunTrader: When I bought or sold gold makes no difference as to what is relevant, the correction is clear on the chart I showed. On shorter time frames of course it would not necessarily be relevant. If you want to start your chart at Oct'08, then you could also say Oct'08 to Sept'11 in Elliott terms was a wave 1 impulse wave and the 61.8% correction off the high is a typical wave 2 corrective swing and therefore does not constitute a bear market. In other words your chart, if that is all you want to look at, shows that we are still in a bull market not a bear market. I never heard of the rule “Bear markets are anything more than 20% off the high”. Do you have a source ? Is 20% off the low a bull market ? I wonder then how do people analyse new stocks. A new stock could be switching from bear market to bull market pretty fast with that rule. Just wondering. Being a Perma bull in any market can be problematic that's for sure. This last move down looks to me more like a panic move down taking out a bunch of stops. The weak hands get shaken out and the strong hands move in. This fast move down is not sustainable and I would not be surprised to see gold turn up from here. Henry1000

Hello SunTrader: A $ 700 move is meaningless without any context. But if you look at the chart below you can clearly see that gold is making a healthy correction. Nothing goes up forever with out making any corrections. Large impulse swings can have large corrective swings. Have we reached the end of the correction ? Possibly. I think gold will have a $ 700 move up before it has another $ 700 move down. Henry1000

Hello SIUYA: The statement "The reduction of any money previously supplied to the economy from the banks balance sheets has simply been transferred to the Feds balance sheet....hence no difference in the money in the economy etc" refers to the Fed replacing toxic assets on the banks balance sheets with TBills and thus saving the largest banks and hence no increase in the money supply in that sense. You can think of it as the Fed providing deposit insurance for the banks on the FED’s buddy list. So the rich banks get richer and the poorer banks go bankrupt, Can you say bank cartel. See Failed Bank List FDIC: Failed Bank List But Bernanke's QE program is printing money at the rate of 85 billion dollars a month, that comes to over a trillion dollars a year. So the banks aren't lending the way Bernanke expected and QE is failing, and so again inflationary effects are not felt because the banks are sitting on the money afraid to lend. Maybe they don't see any good business loan opportunities out there. But how long will the Fed let the banks just sit on all of this money piling in every month. Simple logic says they will eventually have to start loaning out all that money one way or another and then we will see the QE monetary inflation result in price inflation. If you know who, thinks it's ok to make every one in the United States pay for a health care plan whether they want to or not, what's to stop him from making the banks adopt a Fed loan care program. What else are the banks going to do with all that money, give it back ? Just because there is a pause or correction in the bull market for gold does not mean gold is doomed to go down. Bernanke's perpetual QE program of monetary inflation will ultimately result in price inflation. Will we see hyperinflation as a result ? I don't believe so. In any case the long term trend is price inflation not deflation which means gold will go up. Henry1000

Hello MightyMouse: What characteristics need to be present for the bull market in equities to end ? Henry1000

Hello Larry1234: Can you explain how this quantitative easing will help the Japanese economy ? Henry1000

Hello SIUYA: I find this sentence in your post indecipherable: “.then if the Fed is maybe not actually printing any more money than was already in the economy as a result of the inflated balance sheets using leverage than was before.....it was merely a transfer or circulation from the banks to the Fed (- the Fed basically agreeing to underwrite the banks and the economy...instead of the banks) ” If the Fed is not printing any money than before but just transferring it from the banks to the Fed or vice versa then what's the point ? You are back where you started. Please explain. Henry1000

Hello bobcollett: How exactly did Germany save their economy in 1932 by chopping off 9 didgets ? If the middle class ended up losing everything which means 99% of the people are wiped out, then who exactly got saved. Seems to me that their economy was just wiped out end of story. Henry1000

Hello MightyMouse: So which assets for US citizens are you referring to that the government has virtually guaranteed it will increase the value of ? Henry1000 PS: You have a great avatar. Mighty Mouse was always one of my favorite cartoon characters.

Hello sergso: I'm curious. What do you think could replace gold as an inflation hedge/safe haven soon ?

Hello SunTrader: Traders can treat gold just like any other market. Regardless of what the the long term trend is there are certainly going to be tradeable moves in gold in both directions. And yes I am more of a long term investor in gold and not a trader. Henry1000

For most people buying gold as an investment or for speculation is a losing proposition if they have a short term get rich quick point of view. Gold is more of a long term store of value measured in years not weeks or months. Buying gold is a way of preserving your assets to protect your self from the effects of monetary inflation. Monetary inflation will drive the price of gold up over time just like it has in the past. The central banks will do every thing in their power to prevent deflation from happening which means the money supply will be increased at higher and higher rates. As confidence in the future purchasing power of their dollars declines faster and faster more and more people will turn to gold which has been a reliable store of value for several thousand years. How reliable a store of value is the dollar ? The central banks can make as many dollars as they want with a few taps on their computer keyboards. Gold is not so easy to produce. Five years from now how much more gold will there be and how many more dollars will there be ? If you expect the number of dollars to be the same five years from now then gold will go no where. If you expect the economy to be significantly better five years from now and if you expect a better standard of living, high employment and much improved purchasing power of the dollar because the central banks’ QE programs were such a brilliant solution to our economic problems then the price of gold will be lower. Diversifying at least some of your assets in to gold, preferably physical gold as opposed to a paper claim on gold would seem prudent given current economic conditions. Some one said “The market can stay irrational longer than you can stay solvent.” What the central banks are doing to fix the economy is completely irrational and so the markets are following suit. So where gold will be five years from now is any ones guess but I won't be placing any shorts on gold in the next five years. Henry1000

Hello Larry: Printing money hurts the people on fixed income, the people who save money, and the poor who see the price of the basic necessities of life going up. Printing money helps the central bankers and the rich. The Japanese stock market (Nikkei index) keeps going higher and higher breaking all records so the rich see their portfolios going up while the poor see their standard of living go down. So the question is more like who is it helping in the short term. The answer is the rich people, the central banks and the people in government who want to keep their jobs. Long term the economy will just get worse and worse since more and money is being spent on speculative investments like the stock market and real estate which cannot sustain their parabolic rise in prices. Once an injection of money has run its course the market seeks equilibrium, meaning that the market will try and reestablish the relative value of goods and services based on real supply and demand. But if the government sees a market sector or companies failing again and it decides it needs to be bailed out again it will take a larger injection of money to get the same effect. The short term result is more jobs for the people in those targeted businesses and less jobs in areas where there is real demand. See The Wealth of Nations by Adam Smith and his reference to the invisible hand and how the market adjusts it self to become more efficient. An efficient market is ostensibly what all of the economists say they want, but printing money does the exact opposite because it artificially creates demand for goods and services that are not wanted by the free market. People vote with their dollars/yen, but when the government just prints money the normal signals of the free market are distorted and unwanted businesses get propped up at the expense of businesses that are wanted. So the end result is less goods and services that people would have gotten if there was a free market. And since the supply is less prices are higher which is why the standard of living will continue to fall. Simple supply and demand price action principles at work which seems to escape some so called economists who think printing money creates prosperity. I am just amazed that intelligent educated people in the developed world believe in this magical fantasy world where the government can just wave a magic wand and instantly create wealth and prosperity. In this case the magic wand is a computer keyboard because that is how they create money. And the wizards are the men in power who instead of wearing elaborate robes wear nice business suits and spout authoritative words like quantitative easing instead of magical incantations. You might ask your self why don't the central banks just come out and say in order to fix the economy we are going to print money instead of saying we will do quantitative easing to fix the economy. Why doesn't our Federal Reserve have a more accurate name like the Private Reserve. The Federal Reserve is not a part of the government it is in fact run by private banks for their benefit. Blood suckers would be a better name for them. All of the names the central banks come up with for their practices are intended to deceive not to inform. Follow the money is a good rule to follow to see who gets helped by any monetary policy. I believe it will all end very badly for Japan. When of course is the big question. Henry1000

Hello Larry: Quantitative easing is simply printing money. XX. INTEREST, CREDIT EXPANSION, AND THE TRADE CYCLE Quantitative easing will not save Japan or the United States or Europe. It just encourages further malinvestments instead of letting failing businesses go bankrupt and letting the free market adjust free of government interference. The president’s quantitative easing solution to our countries economic problems is a disaster and is no different from what Bush would be doing if he were still president. “Quantitative easing is a euphemism for an inflationary strategy of monetary policy pursued by central banks. The bank adds money to its balance sheet ex nihilo (out of nothing), and uses the new money to purchase government securities, thus increasing bank reserves, raising the prices of government securities, and lowering their interest rates. It is equivalent to simply printing additional legal tender.” Quantitative easing - Mises Wiki See below for a good video explanation of quantitative easing: What is QE2? What Does it Mean? [ame=http://www.youtube.com/watch?v=Sc7GcD2FMB8&feature=player_embedded]What is QE2? What Does it Mean? - YouTube[/ame] “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. “-- Ludwig von Mises If you finally understand what quantitative easing really means, then ask your self is it really possible to just print money and stimulate the economy to prosperity ? If that were true then why do we still have poor people and poor nations ? Why do we still have poverty ? Why do people who counterfeit money get arrested and thrown in jail when according to Bernanke and company printing money stimulates the economy ? Shouldn’t counterfeiters be hailed as heroes since they are stimulating the local economy. Do as I say not as I do. Printing money does not make a nation prosperous. The Germans tried it the the 1920’s when they had the Weimar Republic form of government. It was a disaster and ultimately paved the in part for Hitler. It has never worked for any nation since it is pure nonsense. The below pdf book is the best explanation of money and the business cycle that I know of. Money is never explored in depth by most economists, except to say it is a medium of exchange. Rothbard describes what money really is and how government and central bank (Federal Reserve System) meddling has turned it in to inflationary fiat money. All of this meddling exaggerates business cycles. This is explained very well in this book. The 2008 financial crisis, our current economic crisis, the euro zone crisis were all caused by government and central bank manipulations of money: What Has the Government Done With Our Money by Murray Rothbard http://mises.org/books/whathasgovernmentdone.pdf The below article explains the beauty of the free market so very well while comparing it to the flawed ideas of socialism: What Is the Free Market ? by Murray N. Rothbard What Is the Free Market? by Murray N. Rothbard Hazlitt’s pdf book does what the title says: Economics in One Lesson By HENRY HAZLITT Economics in One Lesson (PDF, DOC) : Library : Foundation for Economic Education The school of economics that I consider to be the most correct is the Austrian school of economics. This web site will explain the origins and reasoning behind this school of economics. See their FAQ: Ludwig von Mises Institute : The Austrian School Is Advancing Liberty In this book Hayek warns against the dangers of increasing government control of the economy. The Road to Serfdom by Friedrich A Hayek who won the Nobel Prize for economics. Henry1000