It has been
my long expectation that the Federal Reserve would uplift a sagging financial
system by way of injecting more liquidly into our economic bloodstream.
On Thursday
September 13th, Fed Chairman Ben Bernanke announced Quantitative
Easing 3, initiating the purchase of 40 billion dollars in mortgage backed
securities per month on an open-ended basis.
A mechanical
breakdown of this style of Keynesian economics is quite intricate, so I will
explain only one chapter as it relates to our current fiscal model of growth.
Essentially by
keeping rates at suppressed levels, homeowners are provided with the incentive
to refinance their existing mortgage rate. A lower rate will in turn cause you
to pay a lesser amount per month on your mortgage.This money
that you save will in theory be used to spend on products and services offered
by the very companies that create jobs in this country.
But as you
know, any company with the purpose to accumulate generational wealth must be
equipped with expanding profit margins and increasing revenue streams over long
durations of time. This criterion is only possible when consumer demand is present.
The problem
is that our current demographics do not quite support this natural cycle of
demand. The baby boom era still remains a large part of our population, and
many of them are either living on a fixed income or exiting the work force. Plus
you throw in the fact the rate of inflation is not keeping pace with their pay
checks and you have a recipe for disaster.
So companies
that benefit from the short-term effects of monetary easing are only profiting from an economically self defeating model which artificially compromises the
absence of real demand.
Therefore
you will always have pockets of society that get left out, causing the poor to
get poorer and the rich to become richer. This development creates an even greater
separation of socioeconomic classes over time.
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