The market is being manipulated. Market manipulation is when there is a powerful force that changes the prices of items in a marketplace.
In the case of quantitative easing, the US Federal Reserve is buying government bonds – but how is that market manipulation? Here is how this works:
The US Government spends money they don\’t have.
Then, the money that the government spent has to be turned into bonds and sold off. Years ago, this would be sold to people or companies that actually have real money that they earned.
Instead of selling the bonds to people or companies, the US government sells their debt to the US Federal Reserve, which has an infinite bond-buying program. This effectively allows the US government to spend an infinite amount of money on whatever they want.
This infinite bond-buying results in an artificially suppressed bond yield percentage. The more bonds that get sold, the lower the interest rate is, meaning the lesser the reward for bond holders.
The low bond yield percentage makes bond buying unattractive to people and corporations. They say \”Why would I buy bonds and get a 3% annual return when I can buy any dividend stock and get a higher return (with some risk of course that the stock will dip), or even put it in a savings account that pays a comparable percentage.\”
Borrowing and Savings Interest rates stay low. The governments always \”peg\” their overnight lending rate to the bond yield rate. This prevents runaway inflation and thus protects their currency, preventing international creditors from calling in their loans and crushing the country\’s economy.
Inflation continues. The only way to reverse inflation is to take money back out of the money supply slowly, or destroy value of assets, and this can\’t be done as long as there is an infinite bond-buying program. Without the bond-buying program, bond yield rates would increase. Higher bond yield rates would incentivize people to save their money, instead of spend it, but governments need their citizens to spend money to keep the economic machine turning. It\’s much better to have citizens turning the wheels than the government, because that is a market that still works.
Asset prices stay elevated. Stocks and real estate stay at historically high prices in comparison to the money supply. The true value of goods and assets remain skewed. The market is broken and is in a state of runaway inflation.
People start to notice that the US dollar is losing value, and so they try to \”get out\” of the US dollar. Modern Monetary Theory (MMT) suggests that inflation can persist (ideally at 2% per year) and this inflation will actually lower the value of the debt that is owed to bond holders. This means that the US dollar is not a good investment because it is losing value in comparison to assets and commodities.
People and companies will begin to question why they are holding US dollars when they should be holding commodities or value-producing assets like machines or land. Bill Gates knows that land is a real commodity that will produce food which is another real commodity that can be traded for other real things. Remember that the US dollar is just a vehicle to transfer value from one person to another. It should not be viewed as a store of value, and more people are realizing that.
People won\’t buy bonds and they won\’t put it in their savings accounts because they know that inflation will outpace the returns they will get on bonds, so they spend their money instead.
People will trade their dollars for real things. This will increase the price of those things.
The increase in prices will result in the need for the government to create more money.
Inflation will continue. The poor will get poorer and the rich will get richer because they will have had the creditworthiness to purchase real commodities that have increased in value, or value-producing assets like machines and land that continue to produce value.
The government will have to bail out poor people and inflation will continue. If the government doesn\’t bail out poor people then there will be riots.