Thread: Quantitative Easing in the Eurozone

Nothing to add, but I'm curious as well.

^Appreciate the input

Yeah it's basically artificial inflation. They give it to the banks and I think the banks have some kind of obligation to pass that onto the public.

Not that that will solve the problem with the Euro which is disparity within the member states. The whole problem is that individual countries can't change the value of their currency.

It is a nice term for printing money and causing inflation. It does two things. The first is that it devalues the money. If you devalue you the money, your debt is also reduced. If you owe someone a 100 pesos that is less that owing someone a 100 dollars. So devaluing your money reduces your debts.

The second thing it does is increase the money supply. The theory that many modern economists believe in is that if you devalue money and increase the supply it will cause money to circulate through the economy at a faster rate. If it circulates at a faster rate it causes the illusion of growth. Which is what leads to the boom and bust cycles. Things rapidly increase in value in the booms, like with the housing market. They want to create an artificial boom to spur the economy forward. The problem is that booms are followed by bursts. Periods where the value of items are forced to correct to their actual values.

You understand it correctly, what they are basically doing is sacrificing long term stability for short term gain. They probably theorize that if they can get the economy going now, they can fix the long term problems later, with the money they make from the artificial boost they are trying to create now.

Its like giving the economy steroids, short term boost with long term negative effects. Governments are like sport players, they know the steroids are bad but they think if they just do it for a little while, they can quit later and it will all work out. They never quit though, because if they quit they will get weak again, and it drives them right into ruins.

Originally Posted by Alric

The theory that many modern economists believe in is that if you devalue money and increase the supply it will cause money to circulate through the economy at a faster rate. If it circulates at a faster rate it causes the illusion of growth.

You mean Fisher's equation of exchange (MV = PT)?

Yes, that is probably it. I don't know the actual equations, because I believe in Austrian economics and not Keynesian economics which is what most people follow today. Though with a basic understand of economics, you don't need a formula to see what they are doing is going to cause problems down the road. In fact even people who know nothing about economics can see they are just pushing the problem off until later.

QE doesn't work... the Fed has tried that here to the number of 29 trillion dollars since the recession began. Triple the money supply in 4 years? That can't have negative effects on the economy or the dollar at ALL >.>

Originally Posted by ThePreserver

QE doesn't work... the Fed has tried that here to the number of 29 trillion dollars since the recession began. Triple the money supply in 4 years? That can't have negative effects on the economy or the dollar at ALL >.>

Yes, and the only reason we haven't seen the massive inflation they saw in the late 1970s is because the savings rate in America is so stupidly low (due to both low interest rates and stupid, entitled baby boomers) that the lack of capital is producing a deflationary spiral that's actually able to keep up with inflation. Thus, prices have been relatively stable. But since everyone's unemployed, stable prices is still effectively a kind of inflation, because in a deflationary spiral all prices should be plummeting.

The other reason we don't see massive inflation, is that we sent a lot of money over seas to other countries. Which is why there are a lot of people really scared of the US being dropped as the reserve currency of the world. Because if that happens, the money comes flooding back to the US and we will experience hyperinflation.

Unfortunately, hyperinflation doesn't really hurt the wealthy: they are the only ones who SEE the new money (no net change in value.) It's the middle class and even moreso the working class that will be damaged... we're not going to HAVE a middle class if money floods back here. (Who will support the economy now?)