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QE2 Quantitative Easing - not the boat

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In a futile attempt to keep the economic and financial system afloat, QE2 is underway. It began in early June as banks changed the rules for awarding loans. Their efforts over the past few months have only met with moderate success. Banks had cut back lending by some 25% over the past 16 months mainly to small and medium-sized companies. In the process the economy slowed down markedly and unemployment shot up to levels not seen since the 1930s. These first attempts to restart a sliding economy have so far not met with success. It was not long after that the real decision makers at the Fed that QE2 was going to be needed. We saw the marshalling of financial and economic forces and the tell tale sign of a stock market moving upward for unexplained reasons. That tipped us to QE2.

This interventionism effective for the short term will again on the long-term drive out real investment. The kind that creates jobs and profits, that does not directly reflect the financial system. The policies being put in place by the Fed are the antithesis of a free market not only because they interfere with a natural process, but also because they are borne of debt created out of thin air - debt that will have to be repaid by the taxpayer. Much of the funding being created by the Fed will and has been used to fund the debts of the Treasury and government agencies, which produce nothing but more debt. In this process they also crowd out other borrowers of money, which ultimately leads to higher interest rates and offsets banks’ ability to lend. We are currently seeing a perceived flight to quality into US Treasuries from the market and from corporations. The perception that government’s cannot go broke, particularly the US government, is pure fantasy. The profligacy of debt has to be paid by citizens. That takes purchasing power out of the hands of the consumer, which in turn pushes the economy deeper into depression.

Just to show you how out of touch with reality the administration and Congress is the Democrats have introduced two new bills, The Debt Free America Act, HR 4646, which would put a 1% sales tax on credit card and securities transactions in the US and the Automatic IRA Act of 2010, which would decree a mandatory payroll tax on all workers of 3%, to be used to purchase government retirement bonds. That tax is expected to rise to 15% within three years.

This Automatic IRA Act is a foot in the door for financing government deficits. It will be followed by legislation that will force present IRA, 401k and all retirement plans to purchase retirement treasury bonds, which will be called, Guaranteed Government Annuities.  This has been buried within the Automatic IRA legislation.

The labor department has an agenda coming up next week on September 14th and 15th, which would decide on whether this so-called lifetime annuity should be required for private retirement accounts of all kinds.

The former transaction tax, we are told by our people in Washington, will rise to 3% within three years. This is the worst possible thing that can happen to the economy. Congress is almost totally purchased, so we see little resistance to passage, prior to the end of the year. The elitists are about to bury the economy. The President has been in office 19 months and Treasury has increased debt by $2.74 trillion, or by $144 billion a month. Freddie Mac had a quarterly loss of $6 billion and wants $1.8 billion more in taxpayer aid. You are seeing the nationalization of housing.

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