“Quantitative Easing” which is the unconventional monetary policy that the United States, Japan, and other countries have taken on since 2008, has gone from being a relatively new buzz term in the 2010s to something that most people who read the financial news are aware of.
But just being aware of something is something very different from understanding what it means.
Quantitative Easing is used by a government when the economy stalls and the central bank wants to encourage economic growth by buying government bonds, which they buy by creating massive amounts of money out of nothing to buy those bonds.
This lowers short-term interest rates and increases the money supply, and it’s theoretically supposed to promote lending and increased liquidity to get businesses to borrow more money which will stimulate the economy.
Theoretically that’s how it’s being sold to the public and that’s most likely as much as most people know about it.
People know that there’s massive amounts of money creation happening and it’s often called “cheap money”, but that’s where most people’s education on the subject ends.
The thing is the cover story is just a façade to explain away a sophisticated monetary policy that insidiously steals the wealthy of tens of millions of working people to be transferred to governments and the banking sector.
I’m not trying to be cynical but I am trying to educate as many people as humanly possible about the devastating effects of Quantitative Easing on your future standard of living. It’s because most people don’t understand it that the powers that be can get away with it.
Your understanding of how Quantitative Easing transfers wealth, and our collective outrage, is the biggest threat to this system. Central Bankers rely on deception to carry on with what they’re doing because if you truly did understand this, there is no way you would ever stand for it.
So what’s the purpose of Quantitative Easing really?
The real reason that governments are creating new money is to manipulate markets, like the bond markets, treasury markets, mortgage back securities markets, stock markets among others.
This manipulation overrides normal free market forces that used to exist (they don’t anymore) and gives the Federal Reserve (the Fed, the United States’ Central Bank) the ability to lower the borrowing costs for the US government.
Quantitative Easing and the manipulation of markets is why we’re seeing a rebounding real estate market, a stock market that is reaching all new highs, bonds with ultra-low interest rates, mortgage rates and their lowest levels ever.
This despite the fact that the US economy is in terrible shape, really.
And on the surface, most people are happy to see their retirement portfolios up, their home prices back up, and mortgage rates at or near all time lows.
Except that what’s really going on are several hidden wealth transfers that are insidiously stripping the wealth of tens of millions of good, hard working people who have done nothing wrong and transferring it back to governments, banks, and a relatively small amount of people that 1) understand what’s going on and 2) position themselves to be on the benefiting side of these wealth transfers.
So how can you get yourself on the winning side to have wealth transferred to you?
First it takes understanding how these wealth transfers work.
So let’s go over them.
- Quantitative Easing transfers wealth from savers to borrowers.
Generally, governments and central bankers can’t stand savers. Because when people save their money, it stops circulating and when it doesn’t circulate, does nothing for the economy.
This is not what governments want.
So what Quantitative Easing does is print cheap money to manipulate markets and this results in below normal interest rates. By below normal I mean interest rates that are below what they normally would be in a normal free market given the occurring circumstances in our economic environment.
So interest rates are artificially low right now. That means that the people who save and invest, people who keep their money in the bank, or in fixed income bonds are getting paid too little in interest. By keeping money safe and small, savers are not getting a fair return on their money.
But what’s the flip side of this? If you’re a borrower right now, you’re also getting an artificially low interest rate. If you’re a borrower, you’re actually getting a cheaper deal on borrowing money than you should be.
PLEASE NOTE: I am not saying go out and get into crazy credit card debt. That’s not the kind of borrowing I’m talking about. I’m talking about borrowing at low interest rates to invest, and primarily into real estate (though that’s not the only way).
In his Rich Dad Poor Dad series of books, Robert Kiyosaki says again and again “savers are losers, debtors are winners”.
So savers are getting a lower than normal return on their money and borrowers are getting a lower than normal borrowing cost.
So the wealth that should be built for savers is being transferred to borrowers. This is the first type of wealth transfer that Quantitative Easing causes.
- Quantitative Easing transfers wealth from the Citizens to its Government.
The wealth transfer between citizens and government is something that economists call Financial Repression (it’s not my term, I didn’t make it up).
Financial Repression, broken down very basically, is when governments put on measures that keep interest rates artificially low and inflation rates that are higher than those interest rates, as well as other controls.
By using inflation to destroy the value of its currency, and using Quantitative Easing to keep interest rates low, a country and its government can effectively reduce their national debt by paying it back at interest rates that are lower than they should be and with dollars (or whatever currency) that are worth less than what they were originally borrowed at.
Again, debtors are winners here.
And the US Government, as well as Japan and a number of European countries, are the biggest debtors around.
And how wealth gets transferred from citizens to its government is by cheating their citizens of the returns on their savings as well as destroying the purchasing power of their savings through inflation.
I’m really oversimplifying here and leaving a lot out, but let’s just say that there’s enough complexity to this that the average investor has no idea what’s really going on, that they’re being cheated out of the interest rates and returns they should be getting on their savings, and that the purchasing power of their investments is being destroyed little by little every single year.
- Quantitative Easing transfers wealth from normal investors to sophisticated investors
If you consider what mainstream financial wisdom tells most people to do, it’s likely that the majority of individual investors have no idea what I’m talking about right now.
And neither do their financial planners or advisors.
The investment markets have changed. People know that they’re getting an incredibly low rate of return on their savings and investments. People know they’re taking a higher than normal risk for the returns they’re getting.
Most people know they’re not able to get the returns they used to be able to get.
But they don’t have the whole picture of what’s causing these investment challenges.
And they don’t know there’s a whole picture to be looked at.
So what am I saying here?
I’m saying that you have to forget everything that you’re being told about how to invest and save for retirement, for your future, etcetera.
Because we are in an environment of manipulated investment markets that transfers wealth from the people who don’t understand that we’re in manipulated investment markets to the people who do.
It’s a sucker’s game to do what we’re being told to do for investing for retirement, investing for the long-term in your mutual funds, and buy and hold.
On the other side of that, there are the sophisticated investors, whether its people who trade for investment banks and hedge funds, and a relatively few number of individual investors, who understand the whole picture of what’s going on.
And one of the primary differences between individual investors and sophisticated investors is a principle called OPM, or other people’s money.
For example, when you deposit your money at the bank, the bank can do use your money (which they call OPM, or other people’s money) and lend it out to someone else for more than what they’re paying you.
They’re using OPM (that’s you) to make money.
So there’s a wealth transfer happening here between normal investors who are taught not to use OPM and sophisticated investors who use OPM as the core of their investment strategies.
And again, because it’s cheaper than it really should be to borrow money, they’re getting a better deal on the money they’re borrowing, which only increases their returns, at the cost of the individual investors who don’t understand this idea (let alone how to use it themselves).
This is just a few of the many ways that Quantitative Easing is shaping the lives of everyone, whether or not most people understand how this works.
And I know this stuff seems really negative and not the kind of thing that abundance and money mindset coaches talk about, but it’s incredibly important to understand how Quantitative Easing works, because it looks like it will be the way of the world (and the way that our wealth is going to be shaped) potentially for decades to come.
And my job here is to Clear Your Money Vision to help you see more clearly these threats and opportunities to your wealth. Because it’s only when you thoroughly understand what’s really going on here that you can decide for yourself which side you really want to be on.