Wednesday, September 25, 2013

Quantitative Easing (Part 2 of 2)

Last time I wrote about Quantitative Easing (QE) and why the powers that be justify the vast injection of money   We discussed their justification of this by stating that the fears of deflation and how it can wreck an economy is justification of this unorthodox strategy.  It is along the lines of “We are afraid of dust bowls so we are going to flood the plains so dust bowls can not occur.”

While I understand their thought process, I still have the “what are they thinking” thoughts rummaging around in my head.  It simply does not make any common sense.  Let me explain.

Injecting large amounts of currency into the ecosystem will discourage new money from coming into the game.  Let’s say WotC gave each account 243,586 tickets.  Prices for each card would eventually adjust to match the new level.  This is what you would expect.  However, now imagine a new person coming into the game.  What would their level of satisfaction be if their real $20 could not even buy the cheapest and jankiest of commons?  What if it took $1,500 to get into a draft?  Such a level of entry would quickly discourage new players from joining the Magic community and would also prohibit new money from coming into the ecosystem. 

Over time, players who had a healthy collection value (Defined as the worth of their cards and tickets) before the ticket injection will do well with the hyper-inflated prices while players who had little collection value will quickly be swamped by those with assets.  These players will eventually drop out of the game because they could no longer afford to keep up.  In other words, the rich will get richer and the poor will get poorer.

The same thing is happening in the real world.  The banks are receiving this huge injection of cash and bankers want to do something with this money.  Where is the place to put money right now?  Not enough people qualify for loans or are comfortable in trying to get a loan in the current situation.  Bonds are paying close to nothing.  So the money is going into the stock market.  This is why the stock market is at record levels even though the underlying economy is in shambles.