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Truth in Numbers – A Study in Quantitative Easing

Earlier this week, Texas Governor Rick Perry came under fire due to his comments concerning Fed Chairman Ben Bernanke’s proposed third round of quantitative easing. As I’ve said on my morning radio program, quantitative easing, or “QE” as it’s casually referred, is a fancy way of saying “printing money.” However, it’s actually worse than simply printing money, because the money “created” by the Fed through QE doesn’t even exist in paper form. Instead, it is simply added to the Federal Reserve’s balance sheet through an accounting adjustment. So, suffice it to say, the folks at the Fed create money ex nihilo or “out of nothing.” If this sounds bizarre, that’s because it is, and it’s dangerous to boot.

The act of creating currency out of thin air undermines the property rights of all Americans, our nation’s economic security and the efficiency of our free market system. Through QE, the Federal Reserve manipulates the monetary system as to artificially keep interest rates low. While this may sound good on the surface, it has profoundly negative consequences for price indicators in the market, which will typically lead to a “bubble” economy. An example of a “bubble” economy is the housing market that reached astronomical heights around 2007, only to come crashing down the following year. The Fed policy of artificially low interest rates, which ignored underlying inflationary pressure in gasoline and food commodities, led to an inflated housing market. This occurred because the cheap availability of money fueled excessive home purchases, which artificially drove-up home prices. As market values soared, the appreciation led investors to believe that housing was the safest and most rewarding investment, thus everyone tried to get in on the action. The problem was that most folks were investment buyers, who intended to re-sell their property after it appreciated in the rallying housing market; however, by the time folks started trying to sell their investments there were no buyers left to buy. The buyer’s market was an illusion created by loose monetary policy. This illusion left millions of folks disillusioned and holding real estate assets they couldn’t divest.

The Federal Reserve is fundamentally ignoring reality when it engages in creating currency out of thin air. There is only One person who has ever been able to create ex nihilo and His Name isn’t Benjamin Bernanke. God is the Creator of the Universe and, as such, He is the only One who can create from nothing. He created all things, and this includes mathematical principles. Even the Federal Reserve with all its wonders cannot overturn the natural, and immutable, laws of math. Supply and demand are economic concepts, based on mathematical constants; therefore, rapidly increasing the monetary supply (increasing the supply for money), will always decrease the value of the currency. Any time an individual or entity floods the market with too much of a good or service, the value of that good or service drops dramatically. So is the case with the U.S. Dollar. Make no mistake about it: the reckless policies of the Federal Reserve will lead to the devaluation of the dollar, out-of-control inflation and more deficits and debt in Washington DC.

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The LORD warned His people in Leviticus 19:36 to “use honest scales.” He was referring to their medium of exchange (economic or monetary medium), and how important it was that they did not cheat their fellow countrymen by devaluing the currency they used to pay their bills. America is engaged in all-out rebellion against this Leviticus 19:36 principle, as our central bank is seeking to ease the pain of our reckless spending policies by simply making up numbers. As I stated earlier, this isn’t going to work; man did not make mathematics, he is simply subject to them. Mathematical principles, like all other absolutes, don’t change simply because we will it. We may break these laws for a time, but they will ultimately break us, leaving us with a wrecked economy and a collapsing national currency.

I don’t believe Governor Perry was out-of-line when he suggested that it was “treasonous” for Chairman Bernanke to engage in yet another round of QE. In fact, the Governor has the support of history on his side. In 1792, the United States Congress passed its first Coinage Act, prescribing how U.S. Currency was to be created and issued. One section of this law, Section 19 to be exact, prescribed the penalty of treason to those who knowingly and willfully engaged in the devaluation and debasement of U.S. Currency. It has, in the past, been considered treason to debase the dollar, as the Founders understood the significance of sound and honest money. In short, they understood the importance of “using honest scales.”

I support Governor Perry’s opposition to Chairman Bernanke’s threat of a third round of QE, for I believe its consequences will be calamitous for our country. Instead, I believe we need to call on Congress and the President to get our nation’s fiscal house in order, and stop having the Fed cover for their absolute inability to be fiscally responsible. Bad fiscal policy has fueled disastrous monetary policy, as the Fed has sought to sooth Washington’s pain by monetizing the debt it incurs. This must end; it will end, whether by our choosing or because the law of mathematics drives our nation over the fiscal cliff.

 

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