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 Now the EU begins its own Quantitative Easing (QE)
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James R. Davis
Male Administrator
17396 Posts
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Houston, TX
USA

Honda

GoldWing 1500

Posted - 01/22/2015 :  8:43 AM Follow poster on Twitter  Join poster on Facebook as Friend                        Like
I know this website's principal theme is motorcycles, not economics, but it seems to me that we can discuss a wider range of topics without threatening the main theme (as long as we do it in an 'Off Theme' forum), especially if those discussions somehow effect our motorcycle world.

This particular topic is essentially economics - and you cannot deny that economics effect the price of motorcycles (and everything else) along with standard of living for all of us.

You know that the United States Federal Reserve has been engaged in what has been called 'QE2' for some time. Today the European Union announced that it will begin a two-year QE program of its own.

What is QE? It is the printing of money and spending it in such large amounts that the money supply in circulation is noticeably increased.

The Euro has been declining in value for some time as compared to other currencies. The EU wants to stop that. In other words, the Euro has been DEFLATING in value and the EU wants to stop that by adding 'a little' inflation.

It is actually a straight forward economic concept in which there is absolutely no disagreement.

The simplest way to look at it is with a formula:

MV = PQ

Where
M = money supply
V = Velocity of spending (How often that money is spent)
P = Price of everything
Q = Quantity of everything

What the formula says is that the amount of money in circulation times how often that money is spent determines the price and quantity of everything that that money can buy.

So, if you increase the money supply (which QE does), either the price or quantity (or both) of everything it can buy also increases. That's called INFLATION!

What will immediately go up is the price of stocks. We've seen that in the US for years.

And on the assumption that when someone sells his or her stocks (for money), that person will then spend that money, the price of other things will go up as well.

The quantity of Goldwings, or BMWs, or all other brands of motorcycles cannot increase overnight, so until they do, the price of those things goes up. Again, that's INFLATION.

Bitcoins (just another kind of money for this discussion) is unique in that 'M' (the amount of bitcoins in circulation) CANNOT be manipulated like any fiat currency such as US Dollars or Euros.

So while stockholders are dancing in the streets, sooner or later the world (meaning the average Joe) feels that inflation when he goes to the market and tries to buy his food and everything else.

And that little assumption I mentioned - about the proceeds from the sale of stocks being spent in the economy - well, when you have a $Billion in the bank, and sell a $Million worth of stock, why would you need to spend it all again, for anything?

Anyway, food for thought.
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