Taxation without Representation

Quantitative Easing: Welcome to the liquidity trap. 

Normally the Fed enacts monetary policy by controlling interest rates, raising or lowering the federal funds rate (inter-bank interest rate with the Federal Reserve) to achieve the desired effect.  It does this by buying or selling short term government bonds, altering the amount of money in the economy while affecting the price and yield of government bonds, which in turn nudges the inter-bank interest rate in the desired direction. 

In 2002 the targeted federal funds rate was 1.75%, in 2006 it was about 5.25%, today it stands between 0 and 0.25%.  A liquidity trap is when increased monetary supply fails to lower, or can not lower interest rates.  An economy in a liquidity trap can not use monetary stimulus to increase output. 

Quantitative Easing is a monetary policy whereby the Fed prints money and uses that money to purchase financial assets from commercial banks with the sole intent of increasing the monetary supply rather than lowering interest rates which cannot be lowered further.  

Laws in the US, UK, Japan, and EU prohibit the central banks from printing money and directly purchasing government debt.  Instead, the government sells bonds to private entities with the understanding of and defacto guarantee, that the central bank will then repurchase those assets.  So in essence we’re saying it is illegal to counterfeit money unless you also launder it. 

Ben Bernake had this to say:

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm

When the government imposes a tax (Say $2), it takes that money out of the private sector leaving individuals and business with less money and the government with $2 more.  When the government uses money that didn’t previously exist (prints money) and uses it to buy (Say $10) something on the commercial market, holds it, and then sells it for a profit (Say $12), the difference ($2) is effectively a tax.  The value that the government has earned has come out of the devaluation of all the other currency held in the private sector, including yours.

Between 2009 and 2011 the government has devalued the US currency supply by some $200 Billion dollars.  This is $200B that the government now holds, that was taken from the private sector, all without the approval or consent of congress (although one may argue they have implied consent).  This is effectively a $600 a head tax each and every one of us has paid.

When government has the ability to create and spend all the money it wants, priorities shift, and the concept of budgeting, as most Americans know it, loses all meaning.  Hand a teenager a credit card, and tell him there is no limit and no accountability for what he spends, and the effect would be the same.  Every dollar created and spent by government makes the dollars in your pocket worth less and less.

Taxes? We don’t need no stinkin’ taxes… we can print all the money we need!

http://www.nytimes.com/2009/01/11/business/worldbusiness/11iht-views12.1.19248009.html?_r=0
http://www.investmentu.com/2012/February/quantitative-easing.html
http://www.cnbc.com/id/46898830/Was_Quantitative_Easing_a_Tax
http://tenthamendmentcenter.com/2008/07/21/why-the-founders-rejected-a-central-bank/

~Finntann