How do I make a fortune ?
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You may not have heard of Jim - But Those of us who are a bit older and have read “Market Wizards” Books certainly have ! = Spend half an hour listening to a genius !
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Good video and I respect Jim Rogers alot.
But I’m going throw a very large spanner in the works. It is false to say that QE is money printing.
QE actually takes liquidity out of the system - it does not add it.
Yes I know 99.9% of experts believe it’s inflationary but from what I can see they are wrong.
The word money printing is used rather a lot - Weimar was money printing, so was Zimbabwe - but it’s against the Federal Reserve act to ‘print money’.
Times are bad for sure but the notion we are going to hyperinflation IMO is a flawed one
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So I am curious why do you see it not being inflationary?? What is your logic and how do you back that up with fact??
Truth is that if you allow cheap money to flood the market all you succed in doing is devaluing the currency and that can lead to inflation.
Cheers
Blackduck
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Very fair question.
QE is not inflationary because when the Fed buys bonds the money it gives to the banks go into a holding account - that cannot be touched by the banks.
So now you have got less bonds floating around the system but you have also got less money.
To have inflation you have to have bank lending, and right now there is very little.
When consumers or businesses pay off loans that money is drained from the system too - it’s deflationary.
And right now consumers and business are doing that
I will not supply actual facts but if you go to the Fred data website and look at the bank asset and liability data you can see the contraction in lending and paying off of loans.
Also QE has been used in Japan for over twenty years and it is deep in deflation, of course each country is slightly different but the effect is generally the same.
It’s a topic I am far from an expert on by the way - and it’s possible I’m talking out my backside - but from looking at the data it appears I’m correct
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Also if a major inflation wave was coming the bond market would have called the Feds bluff and rates would already be much higher
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You may want to read up on the fractional banking system.
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Meaning the money from QE doesn’t go into a reserve account at the Fed?
Im aware of the system but unless lending takes place money isn’t being created.
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I agree with you assumption for the most part but here is the problem.
A central bank commences QE by first crediting its own account with money it has created ex nihilo (“out of nothing”). It then purchases financial assets, including government bonds and corporate bonds, from banks and other financial institutions in a process referred to as open market operations. Bearing in mind that bonds are in effect nothing more than someone elses debit.
This purchasing of debt give banks the excess reserves required for them to create new money by the process of deposit multiplication from increased lending in the fractional reserve banking system.
This increases the money supply and thus stimulates the economy. However this risks the policy being more effective than intended, spurring hyperinflation. Hyperinflation is what happened in Venezuela that destroyed their whole economy. There is also the risk of not being effective enough, if banks opt simply to pocket the additional cash in order to increase their capital reserves in a climate of increasing defaults in their present loan portfolio.
The other problem is that debt is still debt. At some stage that money has to be paid back.
Here in Australia our government has lifted the countries debt ceiling to 1.1 trillion dollars and the way they are throwing cash around in government welfare and spending that debt ceiling will be hit. That is a scary situation for a country with 25 million people.
Bottom line is “it is not the governments position to supply it’s citizens with enough money to live on.” Borrowing money by whatever means to simply prop up the economy is a recipe for disaster.
In my honest opinion QE is nothing more than a dog chasing its tail. Round and round you go with no way of ever catching up.
Cheers
Blackduck
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Yes I agree with pretty much all that.
But when the word money printing is used it’s always associated with QE.
If anything QE is reserve printing. The Fed cannot force the banks to lend (yet) so to assume that QE is Weimar stuff (which is what is pumped out to the gold bug community) is not correct
And this idea it is hyperinflationary gets a lot of new investors into trouble.
In Japan they have been doing it for two decades - where is this inflation?
ECB have been buying bonds since 2007 I believe - again where is the inflation?
Looking at US the money multi pliers and velocity of money are slowing not speeding up
In short I just think we need to be careful using the term money printing.
Final point, the banks (certainly in US) are not allowed to touch the money from the bonds they sell to the Fed so it’s not like they can buy stocks, or give themselves big pay rises.
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What you are ignoring is that fact that unemployment in a lot of western countries have been high. Remember people out of work don’t spend as much as they would like to, don’t save as much as they would like to and don’t get pay rises. These lead to low inflation. That is the reason countres at this stage continue to use QE as a way of propping up their economies. It’s an easy fix but it is a lazy fix. One that gets them re-elected. However the underlying debt still remains.
The other issue is what happens when countries run out of debt to buy??
Already the Bank of Japan has begun to run out of eligible bonds to buy or swap really for reserves at the central bank. And Ben Bernanke noted in late 2016 that “…constraints on the availability of JGBs [Japanese Government Bonds] were seen in many quarters as limiting the BOJ’s ability to maintain its easy policies beyond the next year or two.” Japan is very close to purchasing all of the outstanding JGBs — at which point it will not be able to continue its QE program.
So what happens when QE can no longer be used??
We will see and I think that will be very scary especially if the next president of the biggest economy in the world and the provider of the safest currency in the world starts to pour even more money into the economy to implement radical socialist policies.
Cheers
Blackduck
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To be frank, I completely agree with you on this topic. Glad to have advisers like you. 
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I would have thought they could implement QE to infinity not sure what happens if they run out.
However I do think the end game is negative interest rates and bail ins - as happened in Cyprus.
Savers will get absolutely creamed - but the irony is savers and public will let it happen because the alternative will be much worse.
But we have a long way to go before then.
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True.
Time to trade.
Happy Trading
Cheers
Blackduck
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I need to get my head around this proposition - Be back in due course !
Quite so ! - I’m struggling with that too ! - Yet as John says later in the thread - "Where’s the inflation ? "
Are they ? I have to say that I am thinking of doing exactly that !
I agree - back - I think in the '80’s there was a documentary I watched about the “Booming Japanese Economy” - and mortgage terms 100 years plus - because property prices were so high ! - A few years later Japan was a “Basket case” and was desperate to boost it’s economy by reducing Interest Rates etc - It seems to be surviving atm and certainly exports of cars etc are giving the impression it is doing well - but underlying that are far deeper and more profound problems.
I don’yt think any of us are mate - in fact I’m not sure ANYBODY is ! - but this thread seems to have attracted some good brains - and nuanced discusiion - Since the actions we take are opposite for inflation and deflation, I would like to see that discussion continued to see if we can understand it between us !
Whereas we already know that long bonds are changing hands at prices which already imply negative interest rates !
I’m thinking that MMT / QE (Are they the same thing ? ) have departed from Cassical Economics to an extent that we cannot really use those classical concepts as definitve at the moment.
THAT - I thnk is the whole crux of the matter - We have long known that to be the case and the whole business cycle is dependent on the fact that such money is then lent out at “Interest” - which seems incredibly cheeky ! - and those interest payments eventually create the money shortage which instigates the next wave of foreclosures, bancruptcies and recession.
THAT “Business cycle” seems to be what the “QE” is meant to prevent - and as Rgers says - "Is merely driving the problems into the future" (Ok so that’s a paraphrase rather than an actual quote)
Does it ? - We know that that debt can be reduced by “inflation” - and presumably “Negative Interest Rates” - Which as @Johnscott31 says - seems to be the likelihood will also reduce that debt ?
However those “Negative Interest Rates” only seem to apply to Governments (encouraging borrowing? ) and to Savings ! - My mortgage and Credit Cards still have pretty huge “Interest charges” attached !
THAT - I think is something we All agree on in this thread ! - But I shall (Soon I promise) be popping up my “Arithmetic thread” - in which I argue that Governments have no option which would in any way render them “Electable” - next time around !
Good Question !
Is that correct ? I undestand the situation to be ;
- The Govt needs money to pay for expenditure
- The Govt issues a Bond (Promisory note to pay a specific amount at a specified future date)
- ANyone can buy this Bond - and the “Fed” (USA Central Bank?) is the buyer of any shortfall as “buyer of last resort”
So the “Money” goes to the Govt and is released into the Economy at large to cover Govt “Overspend” which may be in the form of “QE” or just to “Pay wages”, Welfare etc ?
This is the aspect which leads so many of us to be wary of “Inflation” !
That tends to be how I see it too. (At the moment - but I’m willing to be convinced otherwise) - The doubt I have is as to whether the “debt” - can EVER be paid back (Keynsian Economics) - and according to MMT (Modern Monetary Theory ?) - as to whether there can ever be the will to do so ! - Especially when Interest Rates are 0% or even Negatve !
Don’t even Go there ! 
Great Discussion for sure !
I don’t think ANYTHING can “Go on to infinity” - I think that when the “plebs” realise what is going on - they will lose ALL faith in “Money” (And probably with good reason) - I already see signs that people are looking for alternatives
- Cryptos
- Gold
- Property
- Barter (Already seeing good signs of that ! )
All of which will be highly resisted by Govts and Central Banks - because they will be “sidelined” and ruled out of participating ?
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Exactly! The Fed “creates” money. The money provided through QE does not exist. Once the money enters the banking system, the fractional reserve system generates 9 times the deposited funds.
@Johnscott31 The whole idea of QE is to increase the money supply in the economy.
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As I said before I’m far from an expert. Money supply is one thing, velocity of money is something else - and its slowing and has been since September 1981 when interests rates topped at 15%
I think also QE is to keep rates low, and also sure up banks capital reserves - whether it’s purpose is to increase money supply I don’t know.
There is ample evidence out there that QE is deflationary - probably the most knowledgeable person in the world on this is Dr Lacy Hunt you should check out some of his stuff on youtube.
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No, banks cannot touch the money the Fed gives them for the bonds bought.
That money goes into a special reserve account at the Fed. Yes, they can loan money against it, but they cannot spend it
Thereby increasing the money supply via the fractional reserve system! 
Yes, but my whole point about this was the words money printing is a dangerous term.
It implies Zimbabwe like inflation. QE is not that.
Banks don’t have to lend. And they are not - you can’t have rising prices in goods and services in a debt based economy without lending.
And money supply on its own doesn’t necessarily lead to higher prices
If you don’t believe me that banks are not lending look at the H8 data from the Fed
Do you really think that if inflation was such an issue that treasury bond yields would be this low for so long?