I wanted to start today with a thanks and shout-out to the folks at Provident Metals. After a previous post about Copper as an investment metal, they replied back with a blog postman their own on why copper works the way it does. You can (and should) read that here:
That of course brings me to my next point, it is clear to me, and probably some of you, I am still in the learning process. I don’t think that is bad or should be read as an admission of idiocy, but it does mean that I can only do so much research in a day. With the copper scenario I am still going to stick to my guns that it is a bad investment, but now I know a little more about the why, which is very important.
Now on to my main topic which I failed to finish last night as my word editor kept not saving my documents. Basically, I had a thought after watching a number of videos on the state of the state of the U.S. currency debacle. My posed question is, Would a stop to QE (quantitative easing) even matter at the point? There are basically two modes of reasoning for this question which I’ll explore in more detail.
Mode 1: The amount of currency in circulation has gone from approximately 500 billion to 1.2 trillion since 2004 as you can see in the chart below.
This borderline hyper-inflation of the currency supply has already done a significant amount of damage to the value of the dollar. Currently there is an obscenly large amount of cash bills being printed every month (currently 85 Billion/month according to demonocracy.info) so a cut back in that number would be meaningless. But if we were to cease the printing altogether, wouldn’t the damage still be done? We still have way more cash in circulation than we should, inflation is still much higher than it out to be, etc. Put in other terms, the damage is done, so who cares? Stopping QE won’t remove inflation, or strengthen the dollar, it will simply keep it all at current levels as well as introduce some negative effects. which leads to mode 2.
Mode 2: If you’re already chest deep in water, what really is the difference in going neck deep? Or, do the potential consequences of stopping QE now outweigh the benefits? Since the dollar is already in the tubes and inflation is up, stopping QE now would only decrease market confidence, and possibly pop the bubble that is currently forming. Some may argue this is a band-aid situation and we need to just rip it off and begin the correction. I don’t think it’s that easy. We currently assume Bernake is either stupid or malicious (maybe even both) but I have to imagine there exists a long term strategy to these problems.
Now before people start assuming I blindly trust my government and assume they can do no wrong, I feel it necessary to say that is not the case. What I do believe however is that greed is a very powerful motivator and is mostly unyielding once it gets going. My reason for assuming there is a plan is that the people in charge are greedy. Noone purposely makes their money worthless or damages their wealth without it being part of a larger plan. Perhaps they are trying to inflate away our national debt, or print a bunch of money to buy out a reserve of various world currencies at a fraction of their value, maybe there is some evil borderline illegal plan to steal a bunch of money from us. Whatever it is, thereis a plan, so maybe we ought to ride it out. In all fairness the only plan that sucks is that last one, but even then, that’s why you invest your money instead of leaving it in a bank account somewhere.
All in all, I’m I suppose, surprisingly not too worried about all this. Maybe it’s because I have money in things like Silver, and a bubble (or just QE) in general is good for that investment. It also doesn’t seem to be hurting my other stock investments either, and I’d really rather they put off a market crash till I have the extra money to invest in some seriously discounted stocks. Till next time remember: “If you do it, it’s a crime. When they do it, it’s a matter of national security.”