How US is easing itself right into chaos

Dear John:
How can Wall Street’s professional traders continue to pump up the stock market because of quantitative easing?

From what I understand, the continued printing of money will devalue the dollar. So why would Wall Street see that as a positive thing? I understand there is more money in the system, and, of course, greed drives the system.

But if the endgame is worthless money, then everything they are making will one day be worthless. What then? It’s sort of like robbing a bank; you may get away with it for a while, but sooner or later you will get caught and suffer the consequences. I hope you have an answer. G.R.

Dear G.R.: It’s really very easy: Just follow the money.

The Federal Reserve issues trillions of dollars in extra money. It’s in digital form, meaning it is only “printed” on the Fed’s balance sheet.

But the money gets into the real-world economy because the Fed uses this digital dough to buy bonds.

In an ideal world, the Fed would be buying bonds from banks, which would turn around and lend this extra liquidity to people and companies wanting to do commerce. Then more businesses would be created, more homes bought, etc.

But instead, thanks to quantitative easing, that extra money is being used to buy assets, including stocks.

So the stock market rises. Real estate appreciates because professionals buy thousands of homes and buildings. Rare paintings go up sharply in value.

Anything that is tangible increases because people who know the game of money printing don’t want to hold currency.

But something else also happens.

Because of all those bond purchases, interest rates stay low. That is beneficial to people who need to borrow money. And, in theory, it’s bad for those who have savings accounts.

But savers have been hurt so much that many are being forced to take on the extra risk by investing in stocks. So the low rates associated with QE are also forcing buyers into the stock market, which is pushing prices higher.

How will this all end? Probably badly.

Will the dollar collapse in value? That’s anyone’s guess. But the fact that we are even having this discussion means the Fed has already gone too far. Wall Street, meanwhile, has been making a killing.


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