QE4 (Quantitative Easing 4) is officially announced by Ben Bernanke, The Chairman of Federal Reserve on 12th December 2012, which is only 3 months after QE3 is announced in September 2012. This “money printing” will be adding 1 trillion dollar (USD 1,000,000,000,000) into financial market in 2013.
Silver price fluctuate in an (almost) exact mirror the day before and after the announcement of QE4. It is obvious that the traders are systematically trading silver on paper using previous day as an opposite reference.
Creating inflation is the main objective of quantitative easing. Throughout history, government that “print money” will eventually collapse their own economy. Germany (in the 1920s), Zimbabwe (in the 2000s) and Japan (2001-2006) have all done quantitative easing and the efforts are all FAILURE.
Why do they have to print money? Why create inflation? What is the real problem here?
The problem here is really simple: The economy is not growing. The people are not spending enough money to stimulate the economy. Hence, the government “print” more money for the people to spend. Federal Reserve will “print” as much money as possible until the economy recovers, which is IMPOSSIBLE.
I will show you a simple explanation why this is impossible.
Abu is born in a rich family. His father En. Jamal is a decent businessman. When Abu at age 21, he got a job with salary RM2,000 a month and he applied a credit card from Maybank with credit limit of RM20,000. Being young and fantasized by the materialistic world, Abu started spending money using the credit card. He soon has reached his credit limit and he could not afford to pay back the debt. En. Jamal (being a loving father), used his personal saving to help Abu to pay off the credit card debt. Abu is happy now and very soon, he started spending on the credit card, again. But this time, he called up Maybank to ask for a larger credit limit of RM50,000 because the smaller and cheaper “toys” could no longer satisfy him. Once he hits his credit limit, the father En. Jamal has to use his personal saving to pay off his son’s debt – only this time a larger debt at RM50,000. Abu knowing his father will always pay off the debt for him, Abu this time ask for RM100,000 credit limit from Maybank. Then… well you know what happen… The credit card debt cycle will grow larger and larger until one day En. Jamal can no longer help his son.
So how does the story relate to Quantitative Easing?
En. Jamal is the government and Abu is the economy. Every time Abu is in financial trouble, En. Jamal has to take out money for Abu to keep Abu going. Each time the amount will be larger and the problem happens more frequent. The money being used to “save” the situation did not really save the situation but encourage the problem to be bigger the next round. QE3 is printing $40 billion every month and QE4 is printing another $45 billion every month. Then, guess what’s next?
If you have problem understanding the story of Abu and En. Jamal. Another example would be a drug addict and his drug. When the drug addict is addicted to a drug, he will need it from time to time, with a heavier dose and more frequently. He will continue need it until he finally collapses. In this case, US economy is the drug addict and QE1, QE2, QE3, QE4 are the drugs.
The interesting part is, QE1 and QE2 have definite period of time and definite amount of money to be “printed”. When it’s over, it’s over. While for QE3 and QE4, they are open-ended. In other words, there is no end to them. Federal Reserve will print as much as they want, that’s why QE3 and QE4 are QE Four-ever.
The solution is the problem. En. Jamal should have NEVER helped Abu when the 1st time he get into financial trouble. En. Jamal should have let Abu felt on the ground and learn to pay off the debt himself (learn to recover from the financial trouble himself). Similarly, Federal Reserve should have NEVER introduced QE1, QE2 and QE3 at the first place. US should have let the economy crashed in 2008 and recover on it’s own (not by artificially stimulating the economy using QE1). The financial problem will now grow bigger and bigger to a level that beyond recovery. Since US Dollar is the world reserve currency, this financial crisis will grow so big until the whole financial system collapse.
I have no power to change what Federal Reserve has done, but I have the ability to prepare myself for the coming financial crisis. J.P. Morgan (1912) said, gold and silver are money, everything else is credit. I’m preparing myself and keeping my wealth in precious metal (real money) especially silver.
Silver has huge industrial demand (while gold has little, close to none), in fact it is the second most traded commodity in the world (after oil). Silver to gold production ratio is 10 to 1, while current price ratio is 51 to 1. In other words, silver is still way undervalued. Silver price has to increase significantly to match the actual production ratio. Robert Kiyosaki said “Silver is no.1 investment today, silver is biggest thing against inflation, great investment!“.
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