The “People’s QE”

October 5, 2015

By: Kelly Diamond, Publisher

While everyone is squawking over gun control, monetary policies are coming to a head… on a global scale. Indeed while the global markets lost $10 Trillion in value over the last three months, we have basic idiots eagerly welcoming all things Pumpkin Spice back to the store shelves and crying over gun control.

Gun control is such an obvious distraction, I’m surprised people still bite the line when baited. Alas, there will always be the liberal who goes guano over guns and the conservative who becomes unhinged over some dude in a desert half way around the world. Everyone has their hobbies. Mine is scrapbooking and watching the world burn.

Well, some central planners are turning up the heat!

Seasoned traders are looking at how the dust is settling in the US after our little QE spree, and watching the markets like a train wreck: hands over face, but peeking between the fingers.

I’m no expert, but I’ve owned a lot of things of which I also was no expert. My car is a good example. I’m hardly a mechanic, but when I hear unfamiliar noises or get a diagnostic back that says a part is in critical condition, I know I have one of two choices: I can either fix it, or I can patch it up. Not that there isn’t a time and place for patchwork, as that’s usually what I resort to until I can get the car to the shop. But I DO actually get the car to the shop as soon as possible, and I DO suck up the cost of proper repairs!

Now take our economy, where every one of our Fed chairs have resorted to enough collective quantitative easing to devalue our dollar by over 90%. Sometime during the last 100 years or so, printing money went from a patchwork remedy to the silver bullet solution.

Then a more recent phenomenon introduced itself: Negative Interest Rate Policies. I touched on this before (“US Dollar is Going from Worthless to Imaginary”) as the European Central Bank decided to indulge this idea. The result was that banks stopped storing reserves, and started buying sovereign debt. The US wants to dabble in this black magic now thinking that negative interest rates will discourage reserve saving and encourage the buying of US Treasuries.

Why would we need to do that? Probably because over the past 12 months, the sale of US Treasuries has been on a steady downturn? China has stopped. Brussels can only buy so much considering the sovereign debt issues in the EU right now. The hope is that if saving money becomes too costly, then naturally people and institutions will divert their money into something that has a prospect of paying out some margin.

As if QE wasn’t bad enough. None of this amounts to permanent fixes or solutions. None of this is about allowing the market to correct itself. This is about smoke and mirrors. It’s about looking good by cutting others down. The manipulative process of getting banks to buy up treasuries isn’t making the USD stronger, it’s making the Eurodollar weaker.

Right now we have a China-esque situation with our equities markets. According to some analysis, it is highly overvalued. So when I say that people are anxiously waiting to see whether inflation expectations will continue to soar a little longer or the equities markets are going to take a nose dive, I’m being very serious.

But like an infomercial in a very bad nightmare… There’s more!

If economics could be represented as a chemistry set, and there were a mad scientist, his name would be Etsuro Honda, a “special advisor” to Japanese Prime Minister Shinzo Abe.

Japan is in such economic disarray it’s difficult to even assess where their problem begins and ends. There was their bubble in the 80’s, lost decade in the 90’s (after their bubble burst), and then several rounds in the ring with recessions and recoveries. Does it count when you get one blip on the readings after charging someone up with defibrillators? Apparently for Abe and Honda, the answer is: ABSOLUTELY!

Never mind that their economy is heading toward a virtually vegetative state. It’s technically alive! Abe had a three point plan that involved monetary and fiscal easing as well as structural reform. Tier three was totally ignored in favor of revisiting another round of the first two.

It is referred to as “QQE”: quantitative and qualitative easing. Increasing the quantity of yen in circulation for the sole purpose of devaluing it in hopes that people and institutions would want to get rid of it quickly and en masse.

Well, Japan’s economy shrank going on two quarters in a row.

So we went from QE to QQE… and ZIRP to NIRP… now Abe and Honda will inject this with steroids and bring you what is being called the “People’s QE”. That’s not me being snarky either! Honda says there will be a “supplementary budget, focusing on the real income shortage of mid- and low-income households.” This is currently the burden of the taxpayers, but there is a good chance it will shift to this “People’s QE”.

“The idea behind “People’s QE” is that central banks would directly fund government spending… and even inject money directly into household bank accounts, if need be. And the idea is catching on.

“Already the European Central Bank is buying bonds of the European Investment Bank, an E.U. institution that finances infrastructure projects. And the new leader of Britain’s Labor Party, Jeremy Corbyn, is backing a British version of this scheme.”

Does this sound crazy? The idea of money fresh off the printer being deposited directly into the accounts of low income people? But crazy doesn’t mean unpopular. In fact, human history has shown that popular and crazy often stroll down the same path.

Imagine for a moment, Bernie Sanders getting wind of this idea, and how the message will be delivered:

“For so long, the Federal Reserve has been printing money and the only beneficiaries have been the evil 1%. Banks and Wall Street reap the spoils, while Main Street gets the crumbs that are left, if that. Well no more! It’s time the people started benefiting from their country too! So I have created a plan that puts the brakes on endless profits for the 1%, and shares the profits with those who prop up this country, who work hard in our American industries, and who deserve a break. The People’s QE.”

We are not in recovery. We are in crisis management. All the rhetoric in the world will not change this. Over-medicating someone to treat symptoms while never addressing the illness is bad medical practice. Over inducing an economy with manipulative policies like QE and NIRP while never addressing the necessary market corrections is likewise poor economic practice. In fact, its quackery. But it’s popular. So in addition to waiting for Japan’s nuclear waste to reach our shores, now we wait for its monetary policies as well. If I were more superstitious, I’d call this a case of Hirohito’s Revenge.

This is the future.  Get ahead of this!  Click here to schedule an appointment and see what you can do to protect yourself from inevitable policies like this!