QE may be just another scam to steal national wealth
by tonytran2015 (Melbourne, Australia).
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#treasury bonds #QE #quantitative easing #scam #stealth, #zero interest,
Figure: Fiat money relies on the payments to government employees with it and the power to collect it back as taxes on the population.
It has been a US policy of borrowing from bankers through Treasury bonds (the method is given in section 1). USA have thus been designed to be in a perpetual state of indebtedness to bond holder bankers. Quantitative Easing is an even more outrageous extension of that monopoly. This posting shows why.
1. Borrowing from the population.
(as previously posted in ref. , sect. 7)
We note that the US government regularly issues and has been using its own Fiat money. When the government wants to borrow X units of its fiat money from its citizens, it may have to conduct an “auction”.
It may offer to all of its people to give the government any each of their spare $1000 now to receive a (transferable, resellable) certificate to receive $30 every year and hold it until the end of 10th year to get $30 plus the principal of $1000.
Too many of its citizens may accept the offer and the total amount of their money may far exceed the requirement of the government. If that is the case, it may next say No, not $30/year anymore, but $20/year. The amount may goes up again until the acceptance has only about X units, the amount it requires.
This is the idea of Treasury Notes, Treasury Bonds.
Anti-corruption requires that the bidding process be public and transparent.
If the final auction price is $30/year of for $1000 of money then the Treasury Bond rate is 30/1000 or 3.0% per annum.
In practice, for a Treasury note at 3% maturing in 10 years , its auction price will be (97%)^10 = (97%)*(97%)*…*(97%) = 0.73742 of its value on redemption. In this way, the buyer of the $1000 Treasury Note would pay $737.42 and he would redeem it for $1000 at maturity and there is no need for him to collect yearly interests from some government office.
After the auction, the transferable T-Bonds may also be available for resale on the financial market. Initially it was worth $737.42 and subsequently it may drift up or down but after redemption day it will be worth exactly $1000 (Its face value.).
Its value at any intermediate time is the worth of a Treasury note redeemable on the same day at the prevailing interest rate.
As a second example, a bond that will become $100,000 in 5 year time will be bought for less than $100,000. Otherwise prospective buyers would not bother and they only need to put their own $100,000 in own safes for 5 years. If it was bought at $95000 then $95000 would earn $5000 as compound interest in 5 years. The interest rate would be:
(100,000/95,000)^(1/5) – 1 = 1.0103114593 – 1 = 1.0311% yearly.
As a third example, if it was bought at $80000 then $80000 would earn $20000 as compound interest in 5 years. The interest rate would be:
(100,000/80,000)^(1/5) – 1 = 1.0456395526 – 1 = 4.5639% yearly.
If there were too many of those bonds, their prices would come down and so the interest rates would go up. When there are too many Treasury Notes and Mortgage Backed Securities, their prices fall down. The problem is worse when people anticipate that there would be additional Treasury Notes coming to the market
A $1000 bond has 9 years left. The economy has decided to have a 0.01% interest rate continuing past the redemption date.
If interest rate is set at 0.01%, the present value of the bond is worth nearly
(99,99%)^9 X $1000 = $999.1003599,
Irrespective of the original purchase price, the T-Note holder can sell it for $999.10.
It has been US government practice to always keep the US in debt with Treasury bonds. There has been no plan to ever free the US from debts.
It would be alright if the debts are spread to ordinary US citizen. In reality, the debts are concentrated to only a handful of billionaires. The indebtedness to a handful of them may threaten the democracy of the US and these people have now extended their grip into another scheme for skimming national wealth called Quantitative Easing.
The end of democracy and the defeat of the American Revolution will occur when government falls into the hands of lending institutions and moneyed incorporations.Thomas Jefferson
The Central Bank is an institution of the most deadly hostility existing against the principles and form of our Constitution. Thomas Jefferson
A private central bank issuing the public currency is a greater menace to the liberties of the people than a standing army. We must not let our rulers load us with perpetual debt. Thomas Jefferson.
2. Quantitative Easing.
Quantitative Easing is an even more outrageous extension of the manipulations on Treasury bonds.
When the government wants to have more money circulated in the economy of the population, it can buy gold from the population so that the population keeps the money and the government keeps the gold for future resale. Beside gold the government can also buy infrastructures or services from the population.
But instead of doing that the US government carried out QE (Quantitative Easing) (see reference , ).
Quantitative Easing is simply a (well obfuscated) massive temporary borrowing of fiat money (with a promise of future repayment) and that amount of borrowed fiat money would be only for exclusive purchase of Treasury Notes and Mortgage Backed Securities to manipulate the interest rates of subsequent borrowings (at subsequent auctions of Treasury Notes by placing phantom bids).
As both Treasury Notes and Mortgage Backed Securities and their purchase are mostly incomprehensible by the public the latter would be easily indoctrinated into thinking that QE would not affect (but indeed it would) the market as badly as simply printing temporary extra fiat money.
That borrowed QE money will have to be repaid at some future time before people realize that there have been massive borrowing on top of the official figure of money in circulation.
This is what the government may do in a QE (continuing with the example at the end of section 1):
The government now buy back the Treasury Bond at a price of nearly $999.10 from bankers a bond it has previously sold 1 year ago for $737.42.
So the government has given (paid) an outrageous interest of $261.68 for having a loan of $737.42 for one year! The government lost money in an outrageous loan from the holders of T-Notes with 9 years to maturity. That why US debt had ballooned up after Quantitative Easing. See reference  for the new level of debt.
The injection of money should have been done by government buying gold, infrastructures (including hiring people to build anew or maintain infrastructures) or services from the population.
1. Reference  stated that “A central bank enacts quantitative easing by purchasing—without reference to the interest rate—a set quantity of bonds or other financial assets on financial markets from private financial institutions… QE does directly increase the broad money supply even without further bank lending.”
2. If inflation had been targeted by the government to be 2% (see reference ), buying back a 9 year bond would cost ((98%)^9)*$1000 = $833.74 .
Bankers would be happy to take that if they had bought the T-Notes on higher interest rates (corresponding to lower prices).
The best known example of printing fiat money to command an economy was by Hjalmar Schacht of 1937 National Socialist Germany:
Hjalmar Schacht,… temporarily head of the German central bank, summed it up thus: An American banker had commented, “Dr. Schacht, you should come to America. We’ve lots of money and that’s real banking.” Schacht replied, “You should come to Berlin. We don’t have money. That’s real banking.” (https://nationalvanguard.org/2015/08/how-hitler-defied-the-bankers/)
Unlike the policy of Hjalmar Schacht of 1937 National Socialist Germany that created public works, recent QE massively borrowed fiat money in capitalist countries for dealing with only financial institutions. It was up to those financial institutions and the markets to direct the use of their money.
3. QE gives bond holders surprised gifts with taxpayers’ money.
As long as the bond holders know that the government wants to buy back an enormous amount of X dollars of immatured bonds, they will hold tight to their bonds until the auctioning bid reaches or exceed its redeemable value discounted by interest rate. Any reasonable bond holder would do that.
After that, the absurdity of zero interest rate is born. The government gave bond holders surprised gifts.
It would be alright if Treasury makes both gains and losses with its re-purchase of auctioned T-Notes. The records have not shown that!
Added 2023 April 02
It has been US government practice to always keep the US government in debt with Treasury bonds. There has been no plan to ever free the US from debts.
It would be alright if the debts are spread to ordinary US citizen. In reality, the debts are concentrated to only a handful of billionaires. The indebtedness to a handful of them may threaten the democracy of the US and these lenders have now extended their grip into another scheme for skimming national wealth called Quantitative Easing.
Central banks slashed interest rates during the 2008 global financial crisis and again when the pandemic hit in 2020 as part of efforts to encourage economic growth.
Historical Debt Outstanding, retrieved from Fiscal Data https://fiscaldata.treasury.gov/datasets/historical-debt-outstanding/, Mar 26, 2023
In such QE operation, governments issued the longest maturity date Treasury Notes, Treasury Bonds to get cash to buy nearly matured Treasury Notes, Treasury Bonds. This results in nearly zero short term interest rates and high long term interest rates.
For comparison, US revenue was $4.9T, expenditure $6.2T, deficit $1.3T in 2022 (https://fiscaldata.treasury.gov/americas-finance-guide/government-revenue/)
The outstanding debts increased significantly after each QE as the Treasury bought notes and bonds near maturity at nearly face value with the money obtained by selling bonds maturing much later with far higher amounts of face values. This is seen in the graph at 2008 and 2019-2022.
4. Social effects of absurd zero interest rate.
With zero interest rate, pension (or superannuation) funds will not have incomes on any future investments in bonds. They will have to keep cash, gold or plunge into the share markets. This shows that even well designed pension funds will face more risks from the share markets.
Bond holders (including some pension funds) got a surprise gift of free money through QE by the government, but the gift will not drip down to pension funds and individuals on fixed term deposit with the banks.
Having PRIVATE Federal Reserve Banks, practicing obfuscated Quantitative Easing all look like plans to defraud American people of their wealth and permanently enslave them with ever increasing debts to bankers.
As of March 21, 2013 the US Treasury balance sheet included $3250B of securities with $2870B on T-Notes, some due to QE (https://en.m.wikipedia.org/wiki/Quantitative_easing). As at 2020, UK had spent £900B on Quantitative Easing. For comparison, the US Budgeted Revenue was $4228B for 2023 (https://en.m.wikipedia.org/wiki/United_States_federal_budget); the total of circulated money is $2308B in 2023 (https://ycharts.com/indicators/us_currency_in_circulation). Treasury’s holding of T-Notes and MBS climbed up fast from 300B in 2008 to 4000B 2015 due to QE. That is the Treasury is lending to the US government $4000B it has created out of thin air. For comparison, the US Budgeted Revenue was $3316B for 2017 (https://en.m.wikipedia.org/wiki/United_States_federal_budget).
. Your fiat money (Part 2), posted January 12, 2017.
. Your fiat money, posted January 9, 2017.
[3a]. Quantitative Easing, Investopedia, http://www.investopedia.com/terms/q/quantitative-easing.asphttp://www.investopedia.com/terms/q/quantitative-easing.asp, accessed 1st Mar 2017.
Quantitative easing (QE) is a form of monetary policy in which a central bank, like the U.S. Federal Reserve, purchases securities from the open market to reduce interest rates and increase the money supply.
But until recently interest rates were just above zero. There was no scope for another big cut.
That’s why the Bank turned to quantitative easing (QE) as a way to encourage spending and investment.
. Quantitative easing, Wikipedia, https://en.wikipedia.org/wiki/Quantitative_easing, updated on 02 March 2017, accessed 03 Mar 2017.
Quantitative easing (QE) is a monetary policy action whereby a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity. Quantitative easing is a novel form of monetary policy that came into wide application after the financial crisis of 2007-2008. It is intended to mitigate an economic recession when inflation is very low or negative, making standard monetary policy ineffective.
. Why does the Federal Reserve aim for 2 percent inflation over time?, Board of Governors of the Federal Reserve System, https://www.federalreserve.gov/faqs/economy_14400.htm, updated January 26, 2015, accessed 03 Mar 2017.
. kchild2013, US national debt soars by $100 billion. . . in just 8 hours, sentinelblog, https://sentinelblog.com/2017/01/05/us-national-debt-soars-by-100-billion-in-just-8-hours/, January 5, 2017
. sdbast, Ripped-off Britons: Osborne finally admits BofE’s QE payouts gifted min £600bn to the wealthy, worth half the national debt: https://t.co/WNp9Kw7XVb, sdbast.wordpress.com, https://sdbast.wordpress.com/2016/12/18/ripped-off-britons-osborne-finally-admits-bofes-qe-payouts-gifted-min-600bn-to-the-wealthy-worth-half-the-national-debt-httpst-cownp9kw7xvb/, Dec 18, 2016.
. peoples trust toronto, Bank Of Japan Said To Start Preparing For Losses On Its “Huge” Debt Holdings Once QE Ends, https://peoplestrusttoronto.wordpress.com/2016/05/20/bank-of-japan-said-to-start-preparing-for-losses-on-its-huge-debt-holdings-once-qe-ends/, 2016 May 20.
. Markets upended because Fed has ‘no clue’ how it will end bond buying: IMF, Reuter , https://www.reuters.com/article/uk-us-economy-imf-idUKBRE95O0P720130625, June 25, 2013.
Added after 2018 Feb 02:
. What affects inflation and deflation? posted on 2023/03/19
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Reblogged this on ' Ace Friends News ' and commented:
Well written, researched and informative post … Tony ⭐️😊👍
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Thank you, Ian, for re-blogging and the comment.
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