Until recently, “QE2” conjured nothing more in the American imagination than a vague reference to a rather large ocean liner named after a certain likeable, if prim, British monarch. Thanks to Ben Bernanke, who is plugging his “new” product with the fervor of the late Billy Mays hawking a revolutionary floor cleaner, we have learned that “QE2” also refers to the Fed’s second bite at the “quantitative easing” apple. With the invocation of the familiar “life as we know it will end tomorrow if we don’t do this today” drumbeat, one may be forgiven for likening Uncle Ben’s sales pitch to that of a carnival barker singing the praises of the precocious offspring of the bearded lady and the sideshow geek.
The term “quantitative easing” is — left unexplained — only slightly more informative than its acronym. The idea is that the Federal Reserve authorizes the purchase of U.S. Treasury notes with money that comes into existence only as the result of the fortuitous intersection of special tamper-proof paper, black ink, green ink, and a federal printing press. This is “new money” in the most literal sense of the word.
We have to print our own money to buy our own Treasury notes because the Chinese et al. are finally wising up. The global proprietors of the open bar on which Uncle Sam is currently slumped in a demi-stupor, face-down in a half-empty bowl of peanuts, have put a “stop” on his tab. Apparently, invasive and massively oversized government is on a “cash only” basis from now on, so we’re just printing it. How jolly.
What would buy you 20 to life, were you to try it with a high quality scanner-printer combo, instead buys our prodigal children in D.C. another round, or maybe even two.
Having the Fed print money and then use that quixotic currency to buy equally whimsical Treasury notes has been compared to using one’s Visa to pay off the Amex, but that’s not quite right. It’s actually more along the lines of persuading your mortgage servicer to mark your note as paid-in-full in exchange for your solemn promise, at some point in the distant future, to capture the leprechaun who lives in your backyard and hand over his pot of gold.
A Ph.D. in economics plus decades of insulation from the perfidious private sector apparently makes one blind to a truth that is obvious to everyone who has ever had to meet a payroll, or even balance a checkbook, viz. that creating money where none previously existed amounts to a kind of indirect theft.
QE1 has already snuck into your bank account late at night and replaced some of your hard-earned savings with what amounts to Monopoly money. Following QE2, more of the dollars that you have worked so hard to save will be replaced with even more fairy gold courtesy of Uncle Ben, who refuses to allow the printing presses to lie fallow, however briefly. In short, the American worker is being robbed.
When inflation inevitably comes on the heels of this profoundly misguided policy, we schlub plebeians will be robbed again, as the value of our savings and investment portfolios (whatever is still left of them) is eaten away, percentage point by percentage point, like unseen moths nibbling at Aunt Gertrude’s heirloom sweater — stashed away in the attic chest of drawers, next to the old bike with the bent front rim and the forgotten Dungeons & Dragons paraphernalia.
No genuine good exists in a vacuum, and very few are “zero-sum.” Industriousness and innovation create genuine new wealth, but this new currency churned out by a D.C. printing press is in any substantive sense entirely counterfeit. It is backed by literally nothing, and is created — equally literally — from nothing. How odd it is that so many who mock the notion of creatio ex nihilo display such naive credulity in embracing the concept of pecunia ex nihilo.
Of course, nothing is really created, and in fact much is destroyed — personal savings, investments, and, most disturbingly, our national faith in the justice of our own monetary system, which creates money out of nothing and effectively gives it to itself. Like Marx and his merry cohort, the regulatory state can conscientiously promise nothing more than equal shares of the collective misery it leaves in its wake.