polifrogPolifrog lost a year and a half of his time on Earth (valuable years in his 20s) working for a used car dealer. Despite the sense of loss, there were lessons learned.
One such lesson was on shilling.
Dealers don't just sell their cars on their lot; a large percentage are sold at auction. It was at one of these auctions that
Polifrog was surprised by his employer's request that he be a shill. Apparently the cars that had been flowing through the stalls were bringing poor high bids so he gave me a secret sign to look for as an indication to stop my bidding and sent me to the floor to bid on his cars as they flowed through.
Polfirog was a poor shill and the request was not made again. Apparently auction houses
reprimand dealers in some fashion when the dealers are caught distorting the market.
Polifrog was bothered by the experience as it was dishonest. The dishonesty was in the fact that shilling subverts the attempt to find a natural real market fair price for the cars. It was theft.
The recent announcement by the Federal Reserve that they would once again buy Gov. debt caused
Polifrog's lackluster experience as a shill to resurface from the darkness of lost memory.
It was, in
this article Polifrog read that the Federal Reserve was going to enter another round of Quantitative Easing and what follows is similar to what played out in
Polifrog's muddled thoughts while reading the article.
So the Central Bank tries to auction some of its cars (sorry treasuries), to finance more federal spending, but there aren't enough buyers with enough money so they have to sweeten the product with some new paint.. sorry, they raise the interest rate on the treasuries they offer.
But the government says "no," to higher interest rates (fresh paint) because (1) they have a lot of debt that needs servicing and higher interest rates make that expensive, and (2), they want to keep home interest rates low to spur the economy.
But how to do that? "No problem," says the Government we can use the Federal Reserve (shill) to act as a deep pocketed investor interested in our treasuries (cars). This will keep interest rates on the treasuries and home loans down.
Voila! A distorted market with abnormally low rates of return on treasuries, the kind of stuff grandma depends on and abnormally low interest rates on home loans.
The problem is that it is theft whether a dealer does it or the Federal Reserve. It is the productive people in this country from which the Federal Reserve steals the money with which it plays a shill for the Central Bank. The theft comes as inflated dollars for us all.
Polifrog believes all the dollars that have flowed into the economy through this dance will be much harder and expensive to remove after the inflation it creates arrives.
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