Quantitative Easing explained #101

http://www.zerohedge.com/article/quantitative-easing-explained

Or here it is, no need to go elsewhere

(Actual clip inserted by Soutie)

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Author: coldwaterjohn

CWJ travelled extensively with his family, having worked in eleven countries over thirty years. A keen photographer, holding a Private Pilot's Licence, he focuses mainly on landscape and aerial imagery. Having worked in the Middle East extensively he follows developments in that region with particular interest, and views with growing concern, the radicalisation flowing from Islamic fundamentalism, and the intolerance for opposing views, stemming from it.

8 thoughts on “Quantitative Easing explained #101”

  2. They simply can’t bring themselves to announce that they are just printing more money, so this piece of goobledegook was invented to cover their embarrassment at the prospect of being compared to one of the earlier Reichs – I can’t remember which one it was, but its collapse was caused by thinking the solution was just to print more and more money. It’s irresponsible when Zimbabwe does it, or Uganda did, but of course it is very finely tuned economic strategy when the USA or the UK does it.
    Who described economic forecasters as having been invented to make astrology seem respectable?

  4. – Mary is the proprietor of a bar in Dublin . She realizes that
    virtually all of her customers are unemployed alcoholics and, as such,
    can no longer afford to patronize her bar. To solve this problem, she
    comes up with new marketing plan that allows her customers to drink now,
    but pay later. She keeps track of the drinks consumed on a ledger
    (thereby granting the customers loans).

    Word gets around about Mary’s “drink now, pay later” marketing
    strategy and, as a result, increasing numbers of customers flood into
    Mary’s bar. Soon she has the largest sales volume for any bar in Dublin
    .

    By providing her customers’ freedom from immediate payment demands,
    Mary gets no resistance when, at regular intervals, she substantially
    increases her prices for wine and beer, the most consumed beverages.
    Consequently, Mary’s gross sales volume increases massively. A young
    and dynamic vice-president at the local bank recognizes that these
    customer debts constitute valuable future assets and increases Mary’s
    borrowing limit. He sees no reason for any undue concern, since he has
    the debts of the unemployed alcoholics as collateral.

    At the bank’s corporate headquarters, expert traders figure a way to
    make huge commissions, and transform these customer loans into
    DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled
    and traded on international security markets. Naive investors don’t
    really understand that the securities being sold to them as AAA secured
    bonds are really the debts of unemployed alcoholics.
    Nevertheless, the bond prices continuously climb, and the securities
    soon become the hottest-selling items for some of the nation’s leading
    brokerage houses.

    One day, even though the bond prices are still climbing, a risk
    manager at the original local bank decides that the time has come to
    demand payment on the debts incurred by the drinkers at Mary’s bar. He
    so informs Mary.

    Mary then demands payment from her alcoholic patrons, but being
    unemployed alcoholics they cannot pay back their drinking debts.
    Since, Mary cannot fulfill her loan obligations she is forced into
    bankruptcy. The bar closes and the eleven employees lose their jobs.

    Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%.
    The collapsed bond asset value destroys the banks liquidity and
    prevents it from issuing new loans, thus freezing credit and economic
    activity in the community.

    The suppliers of Mary’s bar had granted her generous payment
    extensions and had invested their firms’ pension funds in the various
    BOND securities. They find they are now faced with having to write off
    her bad debt and with losing over 90% of the presumed value of the
    bonds. Her wine supplier also claims bankruptcy, closing the doors on a
    family business that had endured for three generations, her beer
    supplier is taken over by a competitor, who immediately closes the local
    plant and lays off 150 workers.

    Fortunately though, the bank, the brokerage houses and their respective
    executives are saved and bailed out by a multi-billion euro no-strings
    attached cash infusion from their cronies in Government. The funds
    required for this bailout are obtained by new taxes levied on employed,
    middle-class, non-drinkers who have never been in Marys’s bar.

    Now, do you understand economics in 2010?

  5. CWJ, we have ‘brilliant’ and ‘Wxcellent’ (I’ll assume that’s Romanian 😉 )

    It’s a very good video, most members here won’t bother to follow your link, it is available on youtube (almost 3million views) why not simply post the video in your post?

    Posting the video is a simple cut and paste of the URL. I’ve done it for you, feel free to re-edit if you’re unhappy, just makes more sense to me this way.

    Regards

    S

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