Quantitative Easing

America came in for a good deal of criticism in Seoul for its latest batch of QE from the Fed. Quite right too. To expand the money supply whilst spending at cosmic levels on borrowed money risks a very bid bang indeed. Even if there is no explosion economically, it further damages the economic clout of the U.S..

Modern money is not based on gold, it is based on assets and wealth creation. Thus anybody can make electronic money and that is what happened in the boom before the crash. By parcelling up worthless securities and creating a market for them to be traded, money was created with no substance.  When the crunch came there was nothing there. The Fed and the government had to rush in with real money to plug the gap. This they had to borrow mostly from China. Printing money, to use the old name, is very dangerous. If the Banks had all been allowed to go bust and QE had been used to restock depositor accounts it would be less inflammable. Using it on top of massive borrowing and government expenditure leads to an accelerating defamation of the currency. It was tried by the Confederacy, the Wiemar Republic and Zimbabwe and led to economic collapse every time.