"Quantitative Easing" is Nothing But a Shell Game

The commentary in reaction to the Fed’s second plan for ‘quantitative easing’ (called “QE2”) provides a window on all that ails America, as well as the prescription for America’s recovery.

The percentage of Americans who throw their hands up at the task of even trying to understand the machinations of the Fed is very high. In the past, this has contributed to Americans’ gradual ceding of authority to ‘experts’ and ‘elites’ who surely must know what they are doing, and surely wouldn’t do anything that is fiscally irresponsible as to the nation that they would not do in their own financial household. This was and is always a mistake; it is a reptilian temptation by which we are enticed to accept a government of men in lieu of a government of laws under God.

The good news is that all of that is changing now—as the informing powers of the internet dwarf the elites’ power to retain a mystic barrier of incomprehension to shield them from accountability. And once the American people are no longer willing to cede authority to the elites, and the shield from accountability has been dismantled, the path to recovery and restoration emerges from the fog of ‘complexity’ and ‘sophistication’. It is found in the government of laws under God that is the America of the founding.

Back to QE2. You can find many worthy commentaries on QE2 throughout the web; American Thinker is always a good place to look, as in this discussion. Here’s the simplest takeaway—the government’s QE2 plan to print money to pay its own obligations is akin to you using your credit card to pay down your mortgage. That’s about all you need to know to realize how irresponsible and truly outrageous and dangerous it is.

In your own household finances, you know the use of a credit card to pay down your mortgage is of zero benefit in reducing your debt. All it does is carve the debt up into two pieces, and the most benefit you’ll receive is a difference in payment due dates that gives you a little more time to pay. You are playing a shell game, disguising your inability to pay by suckering another creditor to help you fool your first. But your total debt hasn’t changed, and you haven’t addressed your core problem, which is that you have too much debt in relation to your income.

You may have slightly postponed your day of reckoning but you’ve actually made it worse by now forcing yourself to deal with two creditors rather than one. Moreover, once your credit card company and mortgage company know what you are doing, they will both view you less credibly—you are playing financial games, but you are not facing your debt honestly. You will likely find yourself shut off from other credit card companies who do not want to participate in your games. You will also find both your credit card company and your mortgage holder getting nervous and wanting to call their own debt due so they get out from under your games before they lose.

The American government has too much debt. It does not have the ability to pay it off. QE2 is a financial shell game, designed to postpone the day of reckoning on the theory that prospects for actually paying the debt will improve over time—i.e., the economy will improve, tax receipts will rise, and everything will get better. But it ignores what is happening to the credibility of the party playing the shell game. In the parallel of the household example, it is you the borrower whose credibility is shot. On the national scale, it is the credibility of the US government that is shot.

And how is that loss of credibility measured? In the value of the dollar.

We’re already seeing this played out. World financial markets are moving away from doing business with the US government because the US government has lost credibility. They are therefore moving away from dollar-denominated instruments, believing they will find more safety and security in the holding of commodities like oil and gold. That’s why the prices of commodities are rising, and the value of the dollar is declining.

America cannot ‘shell game’ its way out of this mess through monetary tricks, any more than the individual can.

America cannot possibly tax its way out of this mess; this would be like the mortgage company and credit card company taking more and more away from the borrower, which actually leaves the borrower less able to pay the debt.

What America has to do is not more complicated than what the individual has to do—cut expenses until they are well under the level of income. For the government, this means government jobs must be cut; government salaries and benefits must be cut; government spending programs of all kinds must be cut. Most of all, government must stop smothering the freedom of the American people through regulation and taxation. Government must become, not an alternative to the people or an opponent of the people, but a reflection of the people. And the people need to follow their Judeo-Christian faith and values in their own lives—which will eventually show itself in a government that reflects their faith and values.

All of this is simple; none of it is easy. But it does not have to invite the chaos and catastrophe envisioned by some commentators. The American people, following the lead of their founding fathers--with ‘firm trust in divine Providence’—can pray and persevere their way out of this.

Paul Gable

November 9, 2010