Adam Smith explains quantitative easing

So you want to know how QE1, 2 and 3 work?

You could start with the definition of quantitative easing:

A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital, in an effort to promote increased lending and liquidity.

Then eyeball the Investopedia explanation of what it could lead to:

Central banks tend to use quantitative easing when interest rates have already been lowered to near 0% levels and have failed to produce the desired effect. The major risk of quantitative easing is that, although more money is floating around, there is still a fixed amount of goods for sale. This will eventually lead to higher prices or inflation.

Or you could look to the words of Adam Smith, written in 1776 in “Wealth of Nations“:

When it becomes necessary for a state to declare itself bankrupt, in the same manner as when it becomes necessary for an individual to do so, a fair, open, and avowed bankruptcy, is always the measure which is both least dishonourable to the debtor, and least hurtful to the creditor. The honour of a state is surely very poorly provided

Adam Smith

for, when, in order to cover the disgrace of a real bankruptcy, it has recourse to a juggling trick of this kind, so easily seen through, and at the same time so extremely pernicious.

Almost all states, however, ancient as well as modern, when reduced to this necessity, have, upon some occasions, played this very juggling trick. The Romans, at the end of the first Punic war, reduced the As, the coin or denomination by which they computed the value of all their other coins, from containing twelve ounces of copper, to contain only two ounces; that is, they raised two ounces of copper to a denomination which had always before expressed the value of twelve ounces. The republic was, in this manner, enabled to pay the great debts which it had contracted with the sixth part of what it really owed. So sudden and so great a bankruptcy, we should in the present times be apt to imagine, must have occasioned a very violent popular clamour. It does not appear to have occasioned any. The law which enacted it was, like all other laws relating to the coin, introduced and carried through the assembly of the people by a tribune, and was probably a very popular law. In Rome, as in all other ancient republics, the poor people were constantly in debt to the rich and the great, who, in order to secure their votes at the annual elections, used to lend them money at exorbitant interest, which, being never paid, soon accumulated into a sum too great either for the debtor to pay, or for any body else to pay for him. The debtor, for fear of a very severe execution, was obliged, without any further gratuity, to vote for the candidate whom the creditor recommended. In spite of all the laws against bribery and corruption, the bounty of the candidates, together with the occasional distributions of coin which were ordered by the senate, were the principal funds from which, during the latter times of the Roman republic, the poorer citizens derived their subsistence.

That sounds hauntingly familiar. Perhaps they called them QE I, QE II and QE III.

The Roman Empire eventually fell, for a variety of reasons.

John Stossel has a piece on this topic in the newspaper today.

Here is a trailer for the documentary Stossel mentions:

You may watch the entire movie online. Listen for the explanation from a Washington Post columnist: The way a healthy economy grows is that people earn money and go out and spend it. The way an unhealthy economy grows is people borrow money and then go out and spend it.

58 comments on “Adam Smith explains quantitative easing

  1. Nyp says:

    Why is it that you guys have been predicting runious inflation since 2009, and yet inflation has remained incredibly low? How do you integrate into your arguments the failure of your past predictions?

  2. Nyp says:

    Kinda reminds me of the old “communism hasn’t failed because it hasn’t been tried” crowd.

  3. Winston Smith says:

    The Fed – One Hundred Years of Acting Innocent When the Economy Hits the Fan

  4. Nyp says:

    I know. The US economy has been a dismal failure since 1913

  5. Steve says:

    OK.
    Then we just keep on going until it does all come crashing apart at the seems.

    Good idea.

  6. Winston Smith says:

    After the Panic of 1907, the Fed was supposedly created to be a non-politicized central bank that would ensure that economy would be resistant to market vagaries and the value of U.S. dollar would remain stable. Little did the American people realize that the Fed was actually owned by private foreign bankers who would spend the next 100 years manipulating the economy and our political system, and replacing our asset-based currency with debt-based currency.

    Even though the Fed has been an ever-expanding parasite on our nation, since it has been done with the complicity of various klepto-republicrats and the controlled mainstream media, the American people generally remain totally oblivious to the true extent of the manipulations, and are provided some modicum of economic success (or socialist redistribution) to placate them.

    That some people who understand the actual operations of the Fed are OK with this situation does not prove that the system is either moral or functional. It is not a question of whether the U.S. economy has been a success or failure at various times since the advent of the Fed, it is a question of whether the Fed is parasitic by design, siphoning off trillions to the profit of foreign entities, and indebting the nation to a point that can never be overcome by future generations, thereby guaranteeing the eventual collapse of the American financial system, at which point the parasite will move on to its next victim, most likely Communist China.

  7. Rincon says:

    “…a question of whether the Fed is parasitic by design, siphoning off trillions to the profit of foreign entities, and indebting the nation to a point that can never be overcome by future generations…”

    Can you elaborate Winston? I don’t understand how the Fed profits foreign entities or adds to our debt.

  8. Steve says:

    Communist China itself is being slowly converted into a paying entity. To be leached out like every past producer in history.

  9. Nyp says:

    Wow. Peak Crazy.

  10. Steve says:

    OK. Then it’s good to keep on course Captain Nyp!

    Captain orders flank speed! All ahead “forward”!

  11. Nyp says:

    1. You seem not to understand difference b/w deficit and debt
    2. I like that chart that pretends that Bill Clinton’s tax policies had nothing to do with the excellent economy in thev1990s

  12. Steve says:

    Deficit = Annual overspending.
    Debt = Cumulative annual overspending.

    It’s like an iceberg, the worst part is below the water line.

    All ahead full, captain!

  13. Nyp says:

    Nope, but it is a nice way for you to ignore the fact that the deficit has been declining rapidly. Too rapidly, in fact.

  14. Steve says:

    Yes it is. Though economists love to couch it in complex looking math.

    Simply stated debt is the sum of annual deficits. This is only in relation to government spending.

    You are wishing to intermingle private debt with government debt. This is not Keynesian. Keynes was a spendaholic who hypothesized the government should act opposite the prevailing private economy.

    Save during good times, spend during bad times. Thus leveling the economy. This was how I was first introduced to the theory. Trouble is we don’t follow it and you guys want to go full steam ahead into the iceberg.

    Now you could link to a short explanation of why you say its not, but none of those exist because no one wants to make clear just how much the country is being bamboozled by you guys. So you keep it as complex as possible and claim everyone else is wrong every time they show what you are doing.

    Damn the torpedoes! Full speed ahead!

  15. Athos says:

    Nothing like Revisionist History

  16. Athos says:

    Now, as to that wonderful shrinking deficit of Zerø’s. Wonder who ran that rascal up for the last 5 years, anyway? This is about 6 minutes. Little stiff but cuts to the chase.

  17. Winston Smith says:

    Steve, never get in a pi$$ing contest with petey, especially where you have to define anything, since he’ll always disagree, but never define it himself. Doesn’t want to be held to any absolutes of his own making, methinks…

    War is Peace; Freedom is Slavery; Ignorance is Strength; Disinformation is Truth

  18. nyp says:

    I don’t watch videos. What does it say?

  19. deficit decking too rapidly?

    >

  20. Steve says:

    It’s funny reading the stuff Nyp dreams up, Winston!

    Like the one about not watching vids… selectively.

  21. nyp says:

    yes. Most mainstream economists blame the overrapid shrinkage in governmental expenditures for the sluggish economic growth we have experienced ever since the stimulus program ended several years ago.

    Same thing in Europe.

  22. The “stimulus” was an utter failure and nothing more than a handout to public employee unions.

  23. nyp says:

    yeah. it was terrible to keep all those teachers employed during the depths of the Great Recession.

  24. It wasn’t effective in spurring recovery.

    >

  25. nyp says:

    Most macroeconomic analyses have concluded that it helped bring us out of the Great Recession much sooner than Europe (which, thanks to budget-slashing austerity and the folly of the eurozone is still in recession,) and that, because it was so small, promoted a halting recovery that has since been battered by governmental austerity.

    And oh, yes, it kept tens of thousands of people from losing their jobs.

  26. Steve says:

    Tens of millions lost jobs. No biggie, government spending saved 🙄 tens of thousands…

  27. nyp says:

    I’m speaking of direct hiring of teachers, cops, fire fighters through simulus grants. The overall macroeconomic impact, including avoidance of Euro-style unemployment, came through multiplier effects, plus the Obama tax cuts.

  28. Steve says:

    The new implementation of trickle down economics.
    Hire public employees so they can drop their pennies into the economy and those millions of job losses can beg for the rest.

    Talk about voodoo. 🙄

  29. nyp says:

    That makes no sense to me.

  30. Steve says:

    Lets try again. Hiring public workers to stimulate the economy by their spending which trickles down into the economy. Good joke Nyp. Real funny tens of thousands of public employees hired to stimulate and make possible the hiring of about ten million private sector workers…

    That is as trickle down as it gets.

    Really not much more than pissing on the fire.

    Of course it makes no sense to you, you guys are totally blind to what your leaders are doing to you. 🙄

  31. Rincon says:

    IF lower taxes stimulate the economy, so does increased government spending. The difference between the two just isn’t that great. In both cases, government either spends money it doesn’t have or foregoes income that it would have had. Tax deductions tend to give the rich more money while government spending tends to put money into the pockets of workers, who are predominantly middle class. The rich tend to invest money – often in foreign countries – while workers tend to spend it on items and services. The items are often produced in foreign countries.

    In this particular recession, there’s been lots of capital, but little demand. Extra tax breaks would have done zero while spending was only a short term stimulus, and a weak one at that since many of the dollars earned were spent overseas. In addition, the money will have to be repaid.

    The major advantage to both tax breaks and stimulus spending is the placebo effect, which gets people investing and spending again. In this case, there was no placebo effect because the spending added to our already intimidating debt.

  32. Athos says:

    How can you not read Smith, and see the perilous affects of big government?

    My God, we’re living it, right now. It’s not too late to stop our car from going off the cliff.

  33. Steve says:

    Car’s already off the cliff. Have to build wings for it while in free fall.

  34. Rincon says:

    It’s not so bad. The upper class is better off than ever.

  35. Athos says:

    Rin, the upperclass has always done better.

  36. Rincon says:

    I’m referring to the passage of time. The net worth of the rich has skyrocketed in the last 30 or so years and continues to do so while the middle class and poor are treading water at best.

  37. Athos says:

    So in your world, Rin, how do you account for the number one problem facing poor people being obesity?

  38. Rincon says:

    My world. I like the ring of it, but I don’t ever hope to own the world – maybe a small town, just for kicks.

    If food stamps supply enough food to maintain a large,active man, it can sure supply enough to make a smaller person fat like a pig. Besides, we subsidize high calorie foods like corn, wheat, dairy products, peanuts and sugar, so they’re cheaper than fruits and vegetables.

  39. nyp says:

    Obesity is not “the number one problem facing poor people,” but it is much cheaper to eat junk than it is to eat healthy food.

  40. […] Adam Smith explains quantitative easing Nov4 So you want to know how QE1, 2 and 3 work? […]

  41. Winston Smith says:

    Not just another conspiracy theory:

    http://www.activistpost.com/2013/09/world-bank-whistleblower-karen-hudes.html

    War is Peace; Freedom is Slavery; Ignorance is Strength; Money is Control

  42. Athos says:

    Rin, there is a big difference between people spending their own money and government overlords spending someone else’s money. You do understand that financial reality, yes?

    Winston, those that control the media, control all, wouldn’t you agree?

  43. Winston Smith says:

    Athos: If you control the money supply, the major media, the school book publishing, the leadership of the two major parties, the electronic voting, the NSA, FBI and CIA, etc., it’s pretty much covered.

    Of course, when anyone disagrees with your tyrannical agenda, just label them crazy, right-wing, Tea-Party extremists, right NYP? Oh yeah, and they’re racist besides…

    http://theeconomiccollapseblog.com/archives/federal-reserve-whistleblower-tells-america-the-real-reason-for-quantitative-easing

    War is Peace; Freedom is Slavery; Ignorance is Strength; Debt is Prosperity

  44. Athos says:

    I think the only thing stopping these people from coming out into the open, is the 2nd amendment.

    But in 2 more generations, who knows?

  45. Winston Smith says:

    Yes, demonizing the 2nd Amendment and gun owners is certainly a primary goal of the would-be tyrants, but it is obvious that with their recent ammo hoarding by various militarized federal agencies that they are not going to wait for gun ownership to be propagandized away, like in other countries.

    It sure looks like the feds will cause some major catastrophe, economic or otherwise, declare martial law, attempt to confiscate personal weapons, thereby starting a civil war, and then bring in U.N. troops to resolve the conflict. And no doubt, some who troll “extremist” sites like this will applaud it every step of the way.

    War is Peace; Freedom is Slavery; Ignorance is Strength; Conspiracy is Justifiable

  46. nyp says:

    “Ammo hoarding by militarized federal agencies.”

  47. Winston Smith says:

    Oh, let’s define it better so you can understand:

    Ammo – bullets that are fired out of guns
    Hoarding – the acquisition of mass quantities of a given item, far beyond actual or reasonable need
    Militarized – to imbue with the attributes of the military, whether by equipment or behavior
    Federal – Of or constituting a form of government in which sovereign power is divided between a central authority and a number of constituent political units
    Agencies – An administrative division of a government or international body

    http://www.breitbart.com/Big-Government/2013/02/17/Feds-Buy-2-Billion-Rounds-Of-Ammunition

    http://www.usnews.com/news/blogs/washington-whispers/2013/03/22/dhs-denies-massive-ammunition-purchase

    War is Peace; Freedom is Slavery; Ignorance is Strength; Hoarding is Reasonable

  48. Winston Smith says:

    “The nature of the encroachment upon American constitution is such, as to grow every day more and more encroaching. Like a cancer; it eats faster and faster every hour. The revenue creates pensioners, and the pensioners urge for more revenue. The people grow less steady, spirited and virtuous, the seekers more numerous and more corrupt, and every day increases the circles of their dependents and expectants, until virtue, integrity, public spirit, simplicity and frugality become the objects of ridicule and scorn, and vanity, luxury, foppery, selfishness, meanness, and downright venality swallow up the whole of society.” –John Adams, to the Inhabitants of the Colony of Massachusetts Bay, 1775

    Excellent summation of the last 200 years…especially foppery…

  49. nyp says:

    crazy paranoid stuff from a 98/11 truther.

  50. nyp says:

    that’s 9/11 truther.

  51. Athos says:

    Don’t argue the message, petey. Don’t attack the argument. Impugn the messenger!

    Same old, same old with you progressives, isn’t it?

  52. nyp says:

    Yeah. Page 437, paragraph 3 of Alinsky.

  53. Athos says:

    Well, petey, you are what you are, aren’t you?

    I hate to break it to you, but history shows that you’re on the losing side of this war.

  54. Nyp says:

    You mean government has actually been getting smaller, after all?

  55. Steve says:

    Nah, getting bigger. In fact bigger at a faster rate. That’s why you are losing. Its going to fall over from its own weight and when it does the old adage of the bigger they are…will again be proven true.

  56. Nyp says:

    Ah. So I’m winning right now, but eventually I’ll lose.

  57. Steve says:

    Keep thinking that.

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