Accomplished commercial real estate investor, Michael Eisenga, covers the topic of what Quantitative Easing (QE) is and how it affects the lives of Americans.
Michael Eisenga, former mayor of the City of Columbus and expert commercial real estate investor, shares the importance of understanding Quantitative Easing (QE) and how it plays a role in all Americans’ day-to-day lives and futures.
“Quantitative Easing is a complicated way of saying ‘printing money’,” said Mike Eisenga. This is when a central bank grows the money supply and stimulates lending and investment by purchasing longer-term securities from the open market with fiat money the central bank creates, that is considered QE monetary policy.
The process of QE happens when the Federal Reserve Bank uses the dollars it creates to buy treasuries that the government is issuing. Economists call such a process “propping up the balance sheet of the federal reserve.”
Presently, the Federal Reserve Bank purchases eighty billion dollars each month in United States Treasuries and forty billion dollars in mortgage backed securities like home mortgages. In addition, the Federal Reserve Bank is also currently purchasing corporate bonds.
The reasons behind these purchases done by the Federal Reserve Bank are an effort to keep rates low in the bond and lending market due to the lack of enough people to buy such a large volume of debt each month. If the Federal Reserve Bank were not making these monthly purchases, rates would have to rise to attract investors to buy these instruments.
The American people are being affected by the amount of money that the United States government creates out of nothing on a significantly large scale. As the saying goes, the higher the quantity, the less it is worth. Americans are seeing this exact scenario play out in the form of inflation. Inflation is a contributing factor towards increased costs in necessities like lumber, clothing, and groceries. The immense amount of money that has been handed out in the past year as part of the government’s response to the coronavirus aid has resulted in people willing to pay steadily elevating prices for goods and services. These higher-priced goods and services are now becoming more scarce, as many stores have limited supplies in almost everything. Limited supplies also mean an even higher cost. In addition, people need to be able to afford goods and services, which means that they want to make more money, and the cycle continues.
QE is an easy way out for governments spending much more than they bring in through taxes. As long as the people of the nation and other countries continue to honor the currency, this process of simply printing the difference works. Of course it is in essence an invisible tax because by diluting and devaluing our money it buys us less and things cost more.
“However, this strategy eventually leads to problems where money loses value quickly and hyperinflation happens,” said Eisenga.
History shows that hyperinflation has taken place many times. When Germany lost World War II, their money became valueless, or in most recent years, when Venezuela had a one million percent inflation rate in one year.
QE can be a tool, but it should not be relied on for a long-term fix. Investors can prepare for the adverse effects of QE by holding assets like gold or silver, and some may even argue for bitcoin or other cryptocurrencies.
“I don’t recommend crypto’s, but I’m not knowledgeable about it – gold and silver, on the other hand, are a great hedge against inflation. Consider before the end of the gold standard, the price of gold to the dollar was $35.00 per ounce. Today it is around $1,800.00 per ounce. While I am not advocating for anyone to sell everything they own and buy gold or silver, it is something to watch, especially as the United States government prints and borrows more and more money making those dollars less valuable,” said Eisenga.
About Michael Eisenga
Michael Eisenga is a commercial real estate investor, entrepreneur, and proud father of three boys. His wide range of skills includes commercial real estate investing, property management, assisting living facility operation, leadership, strategic planning, public policy, and community outreach. Eisenga is most passionate about finding and improving profitable investments. Lately, he has been focusing on fueling development in smaller communities through assisting living facilities.