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Quantitative Easing & What It Means To You!!
The Federal Reserve met this week and announced on Wednesday (11/3/10) that they had decided to pump another $600 BILLION into the banking system, at a rate of $75 billion per month, for the next eight months. The economic term for this is “quantitative easing.” In plain English, it’s simply “printing money.”
The Fed is going to create money out of thin air and then use it to buy government and/or corporate bonds. Historically, governments have used quantitative easing when interest rates are as low as they can go and the government wants to do SOMETHING, other than cut taxes, to try to stimulate the economy.
It’s been done before, in the Weimar Republic before Hitler took power, in Japan before the “lost decade,” in Argentina before their collapse, and in England, and the US, in response to the global financial crisis.
It is normally seen as a desperate attempt to defibrillate a dying economy, and it has a terrible track record!
What are some of the impacts?
Of course, printing money out of thin air means that there are more dollars floating around. Unless we have a corresponding increase in GDP, that means that the dollar will probably drop in relation to foreign currencies. It means that anything purchased in Pesos, Euros, Rupees, Baht, or Yen will get more expensive — like fruits, vegetables, coffee, customer support for large companies, clothes, electronics, etc.
So far, the dollar has declined slowly because of people moving out of Yen and Euros and into Dollars. Likewise, inflation has been moderate because of cheap goods flooding the market from “going out of business sales” and people who’ve lost their jobs selling “all that they own.” This, of course, is not sustainable.
In any case, keep pumping money into an economy, without increasing production, and more dollars end up chasing after the same number of goods, which leads to inflation, or hyper inflation.
The collection of coins and paper money. Numismatic coins are legal tender that are bought and sold as collector coins. Numismatic value is based on its rarity, age, quantity originally produced, and condition.
A network of independent business owners creating wealth, collecting wealth, and preserving wealth through numismatic coins and referral marketing
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