The Financial Markets and Quantitative Easing – printing money to reduce wealth, is this not wonky?

This is my first post under this category: “Don’t understand, help! I want to know more”.  I am keen to hear anything, from anyone, from economists upwards.  As you can see, in my mind, economists have gone to the bottom as it appears that they haven’t had an original thought since The Great Depression.

My question, as simply as I can make it, is:

There seems to be a reversal of roles within the economy.  Previously people dug up, transformed resources and made wealth, or, to put it more simply, they utilised land, labour and capital.  They then went on to use this wealth.  Nowadays the financial services part of the economy is there to make money or wealth that is then used to make things, consumer things, and infrastructure things.  To clarify, at this point, I am not talking about the stock market which’s value is a reflection of the confidence that people have in companies that make, do and service.

The financiers make figures, mindboggling figures, which are then valued in money.  And this money then spins out into the real world through bankers’ bonuses etc (ok, that was cheap).  So the financial services are making all this loot.  This money is swilling around, having been conjured on Wall Street and in the City, in the blink of “fabulous” Fabrice Tourre’s eye or wand.  So this money leaks into the real world, but there isn’t enough money there to give physicality to the money being conjured.  And so to rectify this deficit, the Central Banks print more money – this is called quantitative easing (if anyone else was to do it they would be called counterfeiters).  Seemingly in the US this was used for the first time in 2008 as part of the stimulus package (I am not sure that this is true – as I seem to remember the phrase being bandied around in UK in the late 1990s – long before the stimulus package in the US – so it not a new idea).

So we are printing more and more money.  And this is inflationary.

There seems to be something wonky here.  Why are we reliant on this economic model that is just a massive churning device with really only one outcome – inflation.  And inflation reduces the value of our money.

So there is a paradox here, underpinning our whole financial system; why are we making wealth that will end up reducing our wealth?


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