Quantitative Looting, QL

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by Jeff Fisher: The
Dollar’s Third and Final Act

by Jeff Fisher

 

 
 

Governments
are spending far more than they could ever hope to collect through
taxation.

In order to
finance these yawning deficits, governments are borrowing massive
amounts of capital from the private sector.

In normal times,
government deficits are financed by investors choosing to invest
a portion of their savings in government debt securities.

The amount
of savings transferred from the productive economy to fund unproductive
government spending is usually a fraction of total annual savings
generated by the productive members of the economy.

Government
deficits consume capital and tend to lower the productivity of labor
below what it would be in the absence of government deficits.

However, if
deficits are small relative to savings, net savings tend to increase
and the capital stock of the economy is maintained and standards
of living remain stable.

Today we are
living in anything but "normal times."

Since 2008
governments have been running deficits far in excess of annual savings.

As a result,
capital well beyond what the economy can save annually must be extracted
from the existing pool of private capital in order to fund the schemes
of the State.

This poses
a problem for governments unwilling to cut their expenditures.

How can that
capital be seized and used to fund the State?

Taxes can not
be raised enough to meet the deficits and massive borrowing threatens
to spike interest rates.

Quantitative
Easing (QE), I call it Quantitative Looting (QL), or debt monetization,
is a very effective means of funding government spending beyond
what is available through taxation or borrowing.

It enables
the State to loot the entire capital stock of the country using
its legal tender as money.

Or, in the
case of the USA with the dollar as the world’s reserve currency,
QL enables the US Government to loot the savings of the entire world.

QL enables
the State to bypass taxation and the private loan market and simply
capture what it needs with the purchasing power created by newly
printed money.

This printing
press money allows the State to bid away capital from the productive
economy and consume it as needed.

The immediate
consequence of QL is a massive looting of savings and higher prices
for the goods and services that the government purchases.

Furthermore,
the new money created by QL becomes high-powered money which can
be the base for further credit inflation of the fractional reserve
system.

The longer-term
effects of QL are a shrinking of the productive sector of the economy
as it is robbed of savings and capital, and accelerating impoverishment
of the majority of people in society as savings dwindle in real
term and prices for consumer goods skyrocket.

So, next time
you hear cheers for QE, think QL and all the destruction it brings.

Rothbard addresses
Fed direct purchases of Treasury debt briefly in his book The
Mystery of Banking
and simply states that it would be "wildly
inflationary."

In summary,
QL or QE is simply a means to loot savings on a grand scale by using
the printing press.

It destroys
the capital structure of the economy and creates a huge incentive
for people to withdraw capital from the banking system and the productive
economy.

Replacing old
equipment and maintaining production will be far more costly than
businesses currently estimate.

As savings
vanish and capital flees prices will rise faster and faster.

The inflationary
fire of QL will not be extinguished until at least these two things
occur:

  1. The Fed
    must stop the monetary inflation.
  2. The US
    Govt. must balance its budget.

If these two
actions are not taken, the dollar will lose purchasing power at
an ever faster rate.

The most dangerous
and destructive stage of every hyperinflation is the final few months
or years.

It is not too
late to exit the financial system, the Dollar, or the US paper markets
(Muni, Corporate, or Treasury); however, time is growing very short.

Jeff
Fisher [send him mail] is
an independent investor and professional trader living in Austin,
TX. Formerly, he co-managed a successful hedge fund.

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