QE4

According to Google, quantitative easing (QE) is monetary policy

used by a central bank to stimulate an economy when standard
monetary policy has become ineffective. The federal government of
the United States has initiated over the past few years three levels of
quantitative easing, respectively called QE1, QE2, and QE3. A brief
synopsis of these monetary policies follows before an introduction to a
new concept called QE4.

HISTORY OF QUANTITATIVE EASING

QE is needed in times of economic instability when the interest
rates are so low that they cannot be further minimized. During a
period of QE, a central bank, such as the Federal Reserve Bank of the
United States, will purchase quantities of financial assets, such as
bonds and securities, from lending institutions, such as domestic banks
and other private institutions. This raises the prices of such financial
assets and lowers their yield, which concurrently increases the
monetary supply of the target economy. Interest rates are usually
affected in a non-QE period when governmental bonds are bought and
sold in a short-term basis. QE differs from short selling because the
assets are held for a longer period of time. Moreover, the
governmental policy of short selling no longer works when the interest
rates are very low because the interest cannot sustain the payout, and
QE must then be implemented to further stimulate the economy by
purchasing assets of longer maturity than short term government
bonds. The process lowers longer-term interest rates further out on
the yield curve causing the economy to grow. Thus, QE is a viable tool
to effectuate change in the economy in times of low interest rates.
When speaking of inflation, QE can help to control inflation too so
as to keep it at an intentional rate. This is done in the same process as
described taking into consideration the inflationary levels in the
economy rather than the interest rates. There are certain risks to
inflation when considering the QE4 idea below. These include, but are
not limited to, the banks and lending institutions holding onto the
newly formed capital, causing the economy to slow, and the QE policy
being too effective, causing deflation. Deflation is particularly
dangerous because it leads to a subsequent inflationary period due to
an increased money supply after the deflationary period.
The actual process of QE is quite simple. The Federal Reserve

purchases a set number of bonds and assets from the private financial
institutions on financial markets. This expands the markets. This also
expands the money supply due to increased lending. The rationale
behind the idea is that the expansion of bank lending extends the
markets and money supply and that will improve the economy. The
people then spend the money causing the economy to grow and
everyone including the government will make money. The government
will specifically benefit through tax revenues based on the larger
taxable economy. Also, if the central bank can purchase these assets,
which are riskier than the government bonds, it can lower the interest
yield on them.
QE1, QE2, and QE3
When the American government initiated QE1, QE2, and QE3, the
following steps took place. Before the recession of the 2000s, the
United States Federal Reserve held $700 - $800 billion of Treasury
notes on its balance sheet. The Federal Reserve then bought
mortgage-backed securities, peaking its amount held at $2.1 trillion
dollars in June 2010. The economy started to improve. To maintain the
improvement, the Federal Reserve bought $30 billion in two-to-ten
year Treasury notes every month. This was QE1.
In November 2010, the Federal Reserve announced QE2. It
bought $600 billion of Treasury securities by the end of the second
quarter of 2011.
QE3 was announced on September 13, 2012. The Federal
Reserve bought $40 billion per month in an open-ended bondpurchasing program of agency mortgage-backed securities.
Additionally, the Federal Open Market Committee (FOMC) announced
that it would likely maintain the federal funds rate near zero through
2015. Because of its open-endedness QE3 had been called QEinfinity. On December 12, 2012, the FOMC announced an increase in
the amount of purchases form $40 billion to $85 billion per month. On
June 19, 2013, the Fed announced bond buying would continue
depending upon the progression of the economy. There was a
subsequent tapering off period for a while and then purchases were
halted on October 29, 2014, after the Federal Reserve had
accumulated a total of $4.5 trillion in assets.
Now, the problem is, the Federal Reserve has too many
premature assets and too high of a debt. Hence, the introduction of
QE4:

QE4
The Problem
QE1, QE2, and QE3 definitely helped boost our American and
World economies; that is an undeniable fact. However, these policies
have created a huge crevasse of debt in the American economy that
can only be filled by QE4. The problem created is that when the
Federal Reserve bought the $4.5 trillion worth of debt, it failed to
materialize the cost of the debt. As time progresses the debt will grow
at an exponential rate as the $4.5 trillion is subject to the rates at
which it is held. Although the Federal Reserve may go further in debt
to pay off the realized market value of the held debt, eventually the
debt will grow far beyond the reach of the rate at which it can be paid
off. This means that the debt held by the Federal Reserve will have to
be paid off by tax revenues through a major tax hike on the people of
the United States, on credit from the federal government. The Federal
Reserve cannot merely sell off its $4.5 trillion in assets for fear of
unduly increasing the money supply leading to a harsh inflationary
period. As well, the increased money supply would also lead to lower
interest rates, but the interest rates now are too low to minimize them.
That was the entire problem leading to QE. Also, as the Federal
Reserve holds the debt, it cannot continue to practice QE3 to incur
substantial amounts of new debt for fear of overwhelming itself and
the economy with too much new debt. In effect, the more debt the
Federal Reserve holds, the slower the economy will operate because
the higher the amount of debt held in the Federal Reserve, the less
room for operation of the government. Soon, if these policies are not
corrected, the Federal Reserve will have no ability to raise interest
rates and no ability to start up and continue QE3. We are not in a crisis
yet because the economy is performing well, but after any type of
minute crash in the economy, the disaster will be prevalent. This is in
addition to the debt held by the federal government.
The Solution
The United States holds two types of debt. The first type of debt
is debt held by the public, such as Treasury securities held by investors
outside the federal government including those held by individuals,
corporations, the Federal Reserve System and foreign, state, and local
governments. The second type of debt is debt held by government
accounts or intragovernmental debt, such as non-marketable Treasury
securities held in accounts administered by the federal government

that are owed to program beneficiaries, such as the Social Security

Trust Fund.
What we must do to fix the problem, to balance the budget,
extremely lower the national debt, and substantially improve the world
economy, is take the public debt and governmental debt and hold it in
four banks instead of one. The bank structure is as follows. There will
be one Operational Bank that serves as the operations center for the
new Federal Reserve System and three subordinate Congruent Banks.
The Operational Bank shall be above the three other Congruent Banks
and shall hold all the funds and accounts that the federal government
uses and employs. In effect, the Operational Bank operates similar to
the existing Federal Reserve Central Bank, except for the fact that the
Operational bank has three subordinate Congruent banks that hold the
national debt and investments. The three Congruent Banks are
identical to each other under the laws and operate to effectuate QE on
our economy and the world economy. The existing satellite banks, the
commercial banks, and public and private institutions will all be
subordinate to the Operational Bank. The commercial banks may
purchase assets from the Congruent Banks at any time. The
Congruent Banks will hold every type of asset offered.
The tax revenues from the federal government will flow into the
Operational Bank into the various funds for normal use for
governmental processes. After the budget has been balanced, the
surplus money, or additional debt if the budget has not been balanced,
will be freely exchanged between the Operational Bank and the
Congruent Banks. The Congruent Banks will collectively hold all the
assets formulating the federal debt; both public debt and
governmental debt. The Federal Reserve can subsequently buy and
sell through traditional QE and short selling methods these assets, in
addition to newly purchased assets. Investors, corporations, banks and
governments can purchase new assets in the same manner as before
from the Congruent Banks. The Congruent Banks will operate with one
purpose: to balance the American and World economies.
The splitting of the central bank creates a new tool for the
Federal Reserve. Specifically, the Federal Reserve can trade QE
accounts in three Congruent Banks at the same time. Before, the
Federal Reserve set the interest rates on the entire economy. Now, the
Federal Reserve can set the interest rates on one or two Congruent
Banks and leave the interest rates at a different level in another
Congruent Bank. This leads to a situation where new investments can
be offered in one Congruent Bank at a lower total interest rate than the
others. What this idea presents is a solution to offer the Fed a way to
QE the debts in the Congruent Banks by shifting the debt according to

the set interest rates. So for example Congruent Bank 1 will hold $4.5
trillion in public debt owned by the Federal Reserve only, while the rest
of the national debt will be held in Congruent Banks 2 and 3. The
Federal Reserve will set a lower interest rate on Congruent Bank 1 than
Congruent Banks 2 and 3. This will allow control over inflation as the
new assets sold out of Congruent Bank 1 are sold because the time of
sale can be regulated as the rate of sale increases or decreases and
the entire debt does not have to be subject to the lower rate. In effect,
this idea will allow the Federal Reserve to slowly reduce its $4.5 trillion
share of the debt without going bankrupt in the process because the
entire economy is not subject to the same interest rate.
The debt can also be consolidated if the Federal Reserve does
not want to split its $4.5 trillion off from the rest of the public debt. So
for example the interest rates in the Congruent Banks can be set at
equal to each other, with the banks holding equal amounts of public
and governmental debt. Next, the interest rate in one Congruent Bank
can be raised while the rate in another can be lowered at the same
time and the third will remain the same. This operation will effectively
stop inflation during a raise in interest rates because the interest will
balance as the investments offered will be held at a higher level in one
bank versus another. All the Congruent Banks will offer investments.
Typically, the Congruent Bank with the highest rate will sell the
overwhelming majority of the investments. However, the Bank offering
the lower interest rate will also offer investments. The fact that the
lower rated investments are on the market will drive the market up; as
well, it will decrease inflation and positively affect the money supply.
Then, when the rates are shifted the other way, and those investments
become the high rated investments, the market will subsequently
improve again because the debt is taken from the market after the
debt closes. Further, the interest rates are therefore higher because
the Congruent Bank with the higher interest rate in the beginning was
raised to a level where its low is higher than the first low banks low.
This process is again repeated with the third Congruent Bank to raise
the interest in the third Congruent Bank. This process is called interest
hedging.
On the flip side, reverse interest hedging works as follows. The
three Congruent Banks will hold roughly equal values of the national
debt at equal set interest rates. Next, the debt in Congruent Bank 2
will be transferred out equally or unequally to Congruent Banks 1 and
3, leaving Congruent Bank 2 empty. The rates on interest charged for
investments in Congruent Bank 2 will then be set at a much higher rate
than the rates charged in Congruent Banks 1 and 3. For example,
Congruent Banks 1 and 3 will charge interest rates of 5% while
Congruent Bank 2 will charge 7%. Banks 1 and 3 will then transfer

limited amounts of investments to be sold out of Bank 2 to the public

at the higher rate. New investments will be offered as well. The effect
created will be such that the demand for the higher rated investments
in Bank 2 will drive the market, particularly if the sales of investments
out of Banks 1 and 3 are shut off. The demand will then cause the
market to rally as more investments are introduced into Bank 2.
Finally, as the demand peaks, the interest rates of all three banks shall
be systematically lowered as the market booms, creating a
deflationary period. This allows the interest rates to be lowered while
controlling inflation and the money supply.
This banking structure allows for another remarkable tool that
can be used domestically as well as on the foreign markets: the ability
to print money without raising inflation. Domestically speaking the
idea is rather simple, but does not raise the amount of capital needed
to pay down the entire debt. Implementing the foreign idea, we can
pay down the debt and at the same time balance the world economy.
This is how the domestic idea works. First, print a certain amount of
American dollars, which would usually raise American inflation because
the import of the extra currency into the economy would raise the
money supply causing the money to be worth less. In order to
counteract the inflation, the Federal Reserve would then buy up
through QE enough investments, or keep the printed money, to
balance the inflation. The rationale here is that putting dollars into the
economy and then buying up investments would balance the money
supply. The banks would then in turn have more capital from the QE
purchases to put back into the economy through lending to the public.
This series of events will not stop the inflation yet. In order to
domestically stop the inflation, the Federal Reserve must then take the
additional investments that it bought up and split them across the
Congruent Banks to be held long term. Then, through a new process
called security sheltering, the Federal Reserve will exchange the public
debt held in these newly purchased bonds for governmental debt. The
reason why this idea eliminates the inflation is because the
governmental debt is a loan to the government from the government,
from funds to be held by the government to the government. All the
Fed has to do is take the newly purchased securities with the printed
money and transfer it to the governmental debt and then the
government will go on a note back to the Federal Reserve. The note is
at 0%. The money made on the change in interest rate is larger than
the inflation gain on the loan; therefore the rate the money will accrue
is faster than the rate of the inflation. The only limitation is that
domestically, we cannot print too much money because the
government cannot put an exorbitant amount of new governmental
debt into the system while waiting for the interest to pay out.

The foreign idea is a little more complicated. In this idea, we are

going to outsource the debt to the people and foreign countries
through the Congruent Banks, using inflation and deflation to fill in the
gap. There are two specific ideas that are independent of each other.
This is how the first idea works. A foreign entity, such as China, who
holds approximately 10% of the United States public debt, or about
$1.28 trillion, will have high inflation rates because it cannot control its
surplus. Or, a country such as Greece will have a huge deficit and
cannot pay its bills. The reason why we need three Congruent Banks
rather than one Central Bank is because it opens up the possibility to
marketize our debts and deficits. China already owns 10% of our
national debt. If we were to loan money to China, which we currently
cannot do, the Central Bank would just balance the existing debt with
the amount loaned and the debt owed to China would merely reduce.
Now, in one Congruent Bank we can hold the $1.28 trillion and at the
same time QE the Chinese economy and even lend money to China, or
purchase Chinese investments without reducing the $1,28 trillion debt
out of the other Congruent Banks. This is a huge idea because it
allows the United States to ease the Chinese inflationary consequence
caused by Chinas unresolvable surplus. In effect, we can QE with
China at the same time China can QE with the United States.
Further examining this idea, the following is the second idea. We
will create a market system where a foreign or domestic bank, or an
investor, can invest in the American-Chinese transaction. The
American federal government will create a trade fund with China that
will allow foreign and domestic commercial and private banks to invest
in the transaction. The capital transferred into the fund will be held by
China and America concurrently in the fund for a set period of time,
say a week, month, or day long period, and will pay the bank or
investor a commission on the investment. Some investments may be
allowed to stay open and close with no time limitations. The
commission is based upon the currency rates applied to the account.
So for example, the Chinese Yaun will exchange for a certain
percentage of the American dollar. When the investment matures, the
difference between the buy and sell price is calculated and the
commission is paid out based upon that percentage of gain or loss.
This is all based upon the currency markets, but will be a new market
not tied to the foreign exchange markets. The difference between this
market, which we will call the debt markets, and the FOREX markets, is
that the FOREX markets only trade currency while the debt markets
trade equity in the fund that the governments can use for QE purposes.
Additionally, large banks and corporations, and even foreign
governments who are not in on a certain debt market trade, can invest
very large amounts of capital for a short period of time, allowable for
maybe an hour or even a couple of minutes. A large trade, such as

$100 billion over the course of a couple minutes or an hour, could

cause a market trend, and also create the ability to print money across
the market without raising inflation. Over the course of a few years,
these ideas will allow us to balance the world economy and
significantly reduce our national debt. The money generated form the
debt markets and the QE in the Congruent Banks will shape the world
economy into a viable and productive machine. We can start by
implementing the QE4 in the United States. Then, after success we
can implement a similar idea in various foreign countries.