Monday, September 17, 2012

Quantative Easing


I am getting a lot of questions regarding QE3.

"Quantitative easing (QE) is an unconventional[1][2] monetary policy used by central banks to stimulate the national economy when conventional monetary policy has become ineffective. A central bank implements quantitative easing by buying financial assets from commercial banks and other private institutions with newly created money, in order to inject a pre-determined quantity of money into the economy. This is distinguished from the more usual policy of buying or selling government bonds to keep market interest rates at a specified target value.[3][4][5][6] Quantitative easing increases the excess reserves of the banks, and raises the prices of the financial assets bought, which lowers their yield.[7]"

Read the whole link if you have time. It's all about the manipulation of money so it is above the average person's head. It is important to every citizen though, especially those of us in business whether we are farming or not.

It affects us greatly in agriculture with our petroleum based economy affecting everything we purchase from diesel fuel to propane to the fertilizer we use and the parts shipped for our equipment.

Here is what we shared in one email:

"I was doing some research on QE and its affect on gasoline prices.
2010: Gasoline in my area was $2.85 a gallon this week.
2011: Gasoline in my area was $3.41 a gallon this week.
2012: Gasoline in my area is $3.98 a gallon this week.

Fact: The United States has used 6.5% less fuel as a nation in 2012 compared to this time in 2010. Despite us using 6.5% less fuel as a nation, fuel prices are 39.6% higher. This QE thing is great for some, but breaking the back of the enduser. Many businesses were screaming higher for the past ten weeks or so until this week when gasoline touched $4.00 a gallon. Now things are slowing again.

I would get into a long drawn out version about how this could backfire on the FED this time but I don't think wasting bandwith is worth it. If money continues to exit treasuries like it did this week, the FED will have taken us to the gates of hell. If Bernanke miscalculated which direction interest rates are headed with this third round of QE, I can only say GOD PLEASE BE WITH US."

All I can say we really need stability in this country and this world needs for us to be stable economically and politically. I see too much uncertainity and too much unrest.

I really can't wait for this election to be over but I do fear neither side will bring the stability we need it and it could well be the match that lights the raging fire.

I also really don't like to think about this but I must put my business and my family in the safest, best working order I can.

What is your take on this? You can't spend forever money you will never have and playing with money markets is dangerous business.

It is definitely going to affect our future and our grain markets right now. The dollar dropped like a rock Friday with more coming. Traders are wondering with the bond market going down, will interest rates go up as usual or stay down?

Thanks,

Ed

1 comment:

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