Torrid QE And A Sluggish Economy: What Would Einstein Think?

Includes: TLT
by: Larry Trefz

Earlier this week, St Louis Fed President James Bullard called the pace of QE "torrid" and yet the economy, aside from the stock market, is moving at a crawl. This is after years of increasing Fed stimulus. The Fed itself seems largely at a loss to explain why their massive and ongoing stimulus programs are not yielding a corresponding acceleration in the main street economy.

Most would probably agree with me that money in its modern form (largely digital) is essentially energy (or a store thereof) which is related to time. If we accept the concept that money is energy, Einstein's theory of e=mc2 shows the relationship of energy to mass and therefore to speed.

It is an obvious fact that given the dramatic changes in technology over the last few decades, the speed of the movement of money has increased dramatically. A couple of hundred years ago, the speed with which money could be moved at was largely restricted to that of a horse or a ship. Now, money moves around the globe through fiber-optic cable at the speed of light. This gives the Fed the idea that they can expand and contract the money supply at the stroke of a key, thus regulating the speed of the economy with more precision than ever before; but something is not quite right. The economy is very slow to respond.

Quantum physics has revealed that when we get down to the very small objects (sub-atomic level), things begin to behave very differently. The hard-edged Newtonian understanding of physics no longer applies. At the quantum level, energy and information make up the smallest building blocks of matter. These tiny particles actually have the nature of waves rather than particles and behave in ways that larger objects do not. At the smallest level, these are essentially light waves that contain energy and information.

Could it be that there is more going on in the relationship between the Fed's torrid QE pace and a stubbornly slow economy than meets the trained financial eye? Could the laws of physics be at work in the current economic situation?

Albert Einstein discovered that speed and time have an inverse relationship. Please see the two charts below. The first (Adjusted Monetary Base) represents the effects of the massive speed of QE that the Fed has been engaged in. The second chart (Velocity of M2 Money Supply) essentially represents the time it takes for money to change hands.

Graph of Velocity of M2 Money Stock

The Federal Reserve has admitted on numerous occasions that the stimulus programs they are engaged in are not tested and are essentially an experiment. The tactics of the Fed are such that they operate strictly in the hard-edged Newtonian understanding of physics and expect such a response. This ignores the dramatic changes in the nature of money itself--from hard objects (gold, silver and paper) to quantum wave packets of energy and information moving at the speed of light through fiber-optic cable.

I realize that this is a radical concept and I welcome criticism and comments. I think that changes in technology and the nature of money may warrant a greater understanding of larger issues for economies and modern (digital) money to be managed effectively with modern tools.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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