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Why quantitative easing can't work as a long term solution.



July 23, 2009 – Comments (4)

After listening to the game plan to control inflation, I finally realized that the government's plan will work, it just won't work for long.

We have pumped a record amount of money into the system and most of that went to the banks. We are upset at the banks because they are hoarding that money and not lending it and slowing the velocity of money for recovery and thus slowing recovery itself.

We made a huge commitment to recover, but the fact is that we made the wrong commitment. If we would have focused on making money more liquid than it is now, we would have not needed to pump as much money into the system. All money should have been given to the lowest rung on the ladder. (The consumer) In fact, I think if we would have let all the banks fail, we would be better off. If I were President, I would have done it like this...

 "My fellow Americans, we are going to let all of our banks fail because they did bad things. You shouldn't worry though, because we are going to guarantee all of your deposits with every bank. On top of that, if you have any loan with any failed bank, that loan will be considered to be paid in full. Now the bad news is that credit from this point on will be much harder to come by, but in the long term we think that will be a good thing.The current system asks you to pay more if you are a higher risk. The new sytem will be yes or no question. You'll either qualify for credit, or you won't. We will spend a large amount of government money on credit education, but the biggest thing we'll be looking at is personal savings."

Now, back to the current situation. After ignoring the importance of the velocity of money to recover, the Keysians are counting on slowing the velocity of money to combat inflation. The problem is that even when you slow the velocity of money, the money still exists. The Keysians need to understand how to come full circle. If you increased the speed of money, you have to slow it down, and if added money to the system, you have to take it away. Try taking money away from anyone and let me know how it goes. I expect that we eventually have a short term recovery followed by a worse mess than we have now.

 No matter what else happens in the world, there is still no such thing as a free lunch.

4 Comments – Post Your Own

#1) On July 23, 2009 at 3:36 AM, KamranatUCLA (29.40) wrote:

oh man...sorry but I was laughing so hard when I read your post. Either you are a retarded person or you just woke up from a freezer from 1951.

This U.S. of A. is not the one that our grand parents or even our parents knew about. This U.S. of A. has been hijacked from us and is in hand of a very few.

I have the previllage to work with some of these rich people and what i see amazes me and i ask every minute why we don't have a revolution yet.

Let me explain. I have several degrees from different univerisities and colleges, speak several languages and lived in many countries, had my own company in the 90's too, but now I am a driving instructor and make $10.50/hour and i work in West L.A. I pick up kids from these houses in Beverley Hills, Brentwwod, Malibu, Pacific Palasades...the houses run from cheapest 5 million to 120 million, and when I talk to the kids who take the driving lesson I see why our country is what it is.

Did you know for example that "law and Order" is on TV because few lawyers wanted it. The rating of that show was a joke, but it still was or still is because lawyers want it on. Think about it...millions hate it but it's on TV because few powerfull people want it that way.

I picked up a kid once whose dad was a surgoen that retired only after 4 years of working and became an investor. What does this say about doctors when they are millionares copmared to a sick person who will go bankruot paying her/her medical bills...again the few have the power because they make more money...a lot more money.

In the 50s a CEO would make a maximum of 20 times what his workers would make...2009 there are CEOs who make 90,000 times more than their employees and no one is bothered: trickle down effect. I buy this 50 million dollar home and I hire a gardner and pay him 10 bucks/hour to keep it up...the money you gave me is trickeling down, isn't it??!!

There is such thing as free lunch, and if you have the connections, are corrupt enough and heartless enough and you have the system in your hands like some one's will get plenty of free lunches my friend.

Remember when they were talking about some banks going bankrupt and FDIC would insure up to 100 and later 200K. I had a student whose father "forgot" to take 20 million out of his account, he had to cancel his kids lesson and go to bank first. I like how kids just say the "darnest" things which is usually the truth.

So you can talk all you want about velocity of money, supply of money and so on...but we have entered a stage of capitalism that no one has seen before. 80% are poor, 19.9 % are well-off, .01% doesn't care about money because they have so much of it.

80% will suffer because unlike Iran where I was born, USA is big and people move around so there is no unity..if you can't afford to live in L.A. move to Alaska. And the 19.9% who have it good don't care about the 80% and blame them for lack of education, etc.

Now the .01% used to be ethical persons, people who cared about the long term health of the nation, people who wanted to build a heaven on earth, people who loved this country. Those people are long gone and now only care about thei gated community.

Is it any wonder that the CEO of Oracle owns 200 homes in Malibu Colony each going for 50-100 million dollars? Can you do anything about it? Can you tell that CEO...hey I invested the money in your products not in your private home buddy??!

No, we are absolutly powerless my friend. What can we do? NOTHING. 

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#2) On July 23, 2009 at 5:17 AM, Mary953 (84.83) wrote:


I enjoyed your article.  What you described does work on a small scale (the education and tough love of learning that there is no easy "my family will bail me out of anything" mentality.) 

I think too many in our government have been hanging around with the clowns like your first commenter.  I have been reading a few of his comments tonight and learned that he is the only intelligent being on the face of the planet and the only one who understands what drives the universe.  Perhaps he has been advising the financial advisors as well.  It would explain a great deal.

For parents and economics teachers who care about today's youth and tomorrow's country - thanks.  This would have been change I could believe in! 

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#3) On July 23, 2009 at 6:14 AM, kaskoosek (30.22) wrote:

"there is still no such thing as a free lunch."


Great statement, no one can be tricked forever.

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#4) On July 24, 2009 at 12:01 PM, JonBarleycorn (68.79) wrote:

I think the administrative effort to get the money into the hands of the 'little guy' would have been impossible in the required timeframe. The fact is that, in what was seen as an emergency, it was just easier to throw money at banks than to set up all the recordkeeping that giving it to the little guy would entail.


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