Friday, November 12, 2010

QE2: An Unconstitutional Taking of Property . . .

A second round of Quantitative Easing (QE2) is now underway, supposedly to stimulate the economy, but effectively devaluing the dollar, much to the chagrin of the US' trading partners.  Cheaper US dollars make US exports less expensive for buyers in other countries, but they also make foreign imports more expensive here.

Supposedly China has kept its currency, the yuan, artificially cheap for years, which has contributed to the US trade deficit. However the US is receiving little sympathy from its trading partners to pressure China to strengthen the yuan because of the US' own rounds of printing money.
A stronger yuan would shrink the U.S. trade deficit with China, which is on track this year to match its 2008 record of $268 billion, and encourage Chinese companies to sell more to their own consumers rather than rely so much on the U.S. and others to buy low-priced Chinese goods.
But the U.S. position has been undermined by its own central bank's decision to print $600 billion to boost a sluggish economy, which is weakening the dollar.
Also, developing countries like Thailand and Indonesia fear that much of the "hot" money will flood their markets, where returns are higher. Such emerging markets could be left vulnerable to a crash if investors later decide to pull out and move their money elsewhere.
In all likelihood the US' newly printed money will NOT stimulate the US economy, but, rather, be invested overseas where better economies will produce a return on investment.

Few outside the conservative media discuss the negative impact of QE2 on the average person: eventual inflation.  The National Inflation Association recently released its projection of future US food prices.
NIA projects that at the average U.S. grocery store it will soon cost $11.43 for one ear of corn, $23.05 for a 24 oz loaf of wheat bread, $62.21 for a 32 oz package of Domino Granulated Sugar, $24.31 for a 32 fl oz container of soy milk, $77.71 for a 11.30 oz container of Folgers Classic Roast Coffee, $45.71 for a 64 fl oz container of Minute Maid Orange Juice, and $15.50 for a Hershey's Milk Chocolate 1.55 oz candy bar. NIA also projects that by the end of this decade, a plain white men's cotton t-shirt at Wal-Mart will cost $55.57.
$23 for a loaf of bread?  OUCH!

NO ONE is discussing the legality of printing money to stimulate the economy.

Back when the dollar was backed by gold or silver, money had clear value.  You could trade your paper dollar for precious metal.  But if someone gave you a counterfeit dollar, you were robbed!

Nowadays, the dollar is (per Wikipedia) supposedly
backed by all - the sum total of - the underlying value systems in an economy, namely sound governance, sound economic policies, sound monetary policies, sound industrial policies, sound commercial policies, etc.
In other words, the money is only as good as the country that makes it, similar to shares in a corporation.

If you owned 10 shares of a corporation that had 100 shares outstanding, you would own 10% of the corporation.  If the corporation simply printed up 100 more shares and gave them away, the corporation just took 50%  of the value you owned in the corporation and gave it away.  That would be theft if it was done without your permission.  That is why creation of new shares requires authorization of the existing shareholders . . .  and that usually requires the corporation to receive something of value in return for the new shares issued.

QE2 is like a corporation printing up more shares. . . But when did you (or your elected representative) give permission for this to happen?  What is the value that the country receives in return?

Essentially the value of your hard-earned savings in the bank is being taken from you.  Debtors, on the other hand, can satisfy their debts with dollars of less value.  Wealth is being redistributed.

The Fifth Amendment of the US Constitution provides that
No person shall be . . . deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation. 
The money you have in the bank is your property.  Through QE2 the government is taking your property's value and redistributing it to others, allegedly for a public use, but giving you nothing of value in return.

QE2 is therefore an unconstitutional taking of property.


Anonymous said...

Just a word of caution: The National Inflation Association seems to be ONE guy (who is in the gold selling business) with a fancy web site. I would check other sources for predictions on inflation.

Anonymous said...

It may be more likely that stagflation is in our future. Our weak economy of high unemployment combined with printing too much money may return us to the Cater 70's. After all Carter Light is in the White House. But, the central point is that the endless spending and expansion of the money supply can only lead to dollar cheapening as it has. This is particularly dangerous given the dollar being the world's reserve currency. It is foolish not to protect oneself against the looming stagflation/inflation threat; if one can. Sadly many cannot. Although the coupling of the China relatioship is part of the equation, the situation is much more complicated than a "China scare" scenario. Read the latest National Review issue which presents an interesing view of the China question.