QE: A Threat to Global Prosperity
What is QE?
QE, or Quantitative Easing, is an often misunderstood monetary policy tool.
When the economy is slowing, the central banks create money in their computer system and then buy from the financial markets various yield-producing assets, driving the asset prices up beyond natural, free-market levels. Their purpose in buying the assets is to put more money into the economies, to stimulate them. But it causes the prices of all the assets in the markets they purchase them to rise generally in response to the government buyer with deep pockets.
Another effect of QE, however, is to drive yields down, because of the inverse relationship with prices—when a bond cost more, the same income from the bond now has a lower yield as a percentage of the cost of the bond.
A generally unacknowledged result of QE purchasing of financial assets that produce income is to nationalizes the yields. The income that normally is paid to bond or financial asset holders is now paid to its new owners, the central banks. The massive size of QE, on the order of $15 trillion globally thus far, has by buying the income-paying assets siphoned-off funds from the global GDP. The world has a lower GDP because the central banks have nationalized the yield revenue.
Thus, not only are most financial securities producing lower yields, there are less yields returning to the people in the society who normally receive them as interest rates for their savings.
Companies and People Need Fixed-Income Investments
Hard-working companies and people save their money, investing in bonds and other fixed-income instruments. They receive interest on these savings, which augments their normal income from selling goods, or what they are paid as salaries.
By nationalizing yields and driving up prices to reduce yields, ultimately QE has reduced the financial sustainability of companies and individuals everywhere who depend upon income from their savings to even out rough spots. This has made business more difficult and risky, and life more treacherous for individuals.
Who Benefits from QE?
Because when central banks buy financial assets with money they have created, the current owners receive higher prices for their existing assets. As nearly all securities prices are higher for the various assets that are bid on in the open market, QE packs money in the pockets of the wealthiest, by driving up the value of their assets artificially.
This gives advantage to the wealthiest, and disadvantages the less wealthy.
Increasing Risk When Rewards are Reduced
As a consequence, people who don’t already own fixed income assets find it more difficult to buy them, and if they can afford them, the returns are generally not worth the risks. This is because yields in free markets are a reflection of their inherent risks, as measured by all the market participants.
If central banks are an artificial market influencer, with unlimited money at their disposal, by buying financial assets and inflating their prices they distort market information for everyone else. Assets appear to be less risky because their prices are higher, and they pay less dividends or yield to cover the risk, making the rewards too low to hedge against their inherent risk.
Pensions and pensioners also receive lower returns, reducing their incomes and undermining the long-term security of retired people everywhere.
If QE is So Bad, Why is it Used?
The leftist press has a field day because of QE with headlines about how “capitalism” isn’t working. If leftist groups want to undermine successful free-market functioning, QE is their dream tool.
Because the FreeMark is effectively a different monetary system, with automated monetary policies that keep the currency stable, savers, buyers and sellers in the Worldfree Network are not at as great a risk from the foibles of the central bank QE implementations.
This is because as QE is used, inflationary devaluation of fiat currencies results. The FreeMark protects its owners against inflationary forces because the pegging to commodities connects the FreeMark to the physical-world basis of goods.