Q.T., Quantitative Tightening, is finally in vogue.  Q.T. is a method to reduce the money supply.  It is an important concept that affects every part of our economy and individual freedom.

Some of us have lamented its opposite, Q.E. (Quantitative Easing), or printing money, which becomes federal spending, since 2008.  So it’s good the rest of them caught up.

Some economists lament the catastrophic effect on bank liquidity due to Q.T. (reducing the supply of money by letting Fed Reserve Treasury Bonds expire).  For those massive banks who were recipients of its opposite, Q.E., tightening will create an illiquid event.  These banks are the largest, the money-center banks.  They are deeply embedded in the posterior of the Fed and Treasury.  They deserve what they get. 

But to the rest of us, Q.T., or reduced money supply, will have minimal impact on bank liquidity.  Most community and regional banks have already prepared their avenues of obtaining liquidity through the FHLB, sale of bonds, and deposit generation.

What I find most perplexing is that the economists don’t seem to see the positive side of Q.T.  In fact, I submit that reducing the supply of money in the economy is the single most important thing the Fed can do to relieve our economy of inflation and every citizen of the debt burden that Q.E. created.

That single act of reducing money supply and thereby federal spending and debt has a very positive effect on other aspects of our economy.  Most notably, it allows those in the private sector, employers and employees, to retain more of what they earn and thereby reinvest in businesses and grow the economy.  This single act will allow everyone to benefit — especially the poor and the middle class.

You see, Q.E. becomes debt in the form of Treasury bonds issued to balance the vast amount of money the Fed printed.  Further, and perhaps even more importantly, that debt was and is funneled into federal spending on social welfare.  The government used that money supply, liquidity, to create spending programs for questionable ends.

Those spending programs are a direct-control mechanism over the population: If one is dependent on a handout, the one handing out controls.

Federal debt is a drain on the private economy in that private business and citizens must pay that debt off.  Instead of reinvesting their earnings and income in their businesses or families, the government will take more from your paycheck to pay off the debt they incurred.  Did you ask for that?  Did you benefit?  Then why are you paying it back?  You are paying it back because they will take it from you.  Sounds like a totalitarian state?

To answer the starting question, the government, its agencies, and the Federal Reserve can get out of our lives.

The concept is straightforward: printing money (Fed Reserve) = debt (Treasury).  Debt (Treasury) = more government spending (Congress).  Government spending (Congress) = government control (federal bureaucracy.)

This can’t go on.  The cost of the national debt is $1 trillion per year.  Add in principle reduction to retire the actual debt, and the debt service number is extreme.  Our nation’s debt is unsustainable.  The solution is simple, but painful and absolutely mandatory: stop government spending in order to reduce debt, and put the government back in its constitutional cage.

Jay Davidson is founder and CEO of a commercial bank.  He is a student of the Austrian School of Economics and a dedicated capitalist.  He believes there is a direct connection joining individual right and responsibility, our Constitution, capitalism, and the intent of our Creator.

Image: pasja1000 via Pixabay, Pixabay License.