Ron Hera on why QE3 is really a bank bailout

GoldMoney’s Alasdair Macleod talks to Ron Hera, who is the founder of Hera research. They discuss the Federal Reserve’s latest quantitative easing programme, investing in the resource sector, problems in the eurozone and the US government’s fiscal cliff.

Talking about investing in oil and precious metals producers, Hera states that he likes companies with a clear potential to increase resources and production. He also buys physical precious metals as well as other real assets outside of the financial system, such as timberland and farmland. Hera judges the inflation risk to be very high due to government deficits that are being financed by the expansion of the money supply.

They talk about the new quantitative easing programme from the Fed. Hera points out that QE3 is really a bank bailout by which the Fed is taking over troubled mortgage-backed securities from banks balance sheets in exchange for cash. This releases the banks from these toxic liabilities while boosting their capital reserves.

QE3 aims to keep the prices of bank collateral elevated in order to prevent debt deflation. The Fed is also hoping that banks will lend the money into the economy to stimulate growth and jobs. However, Hera states that there is no way that Fed policy can boost employment because banks won’t increase lending in a declining economy.

This podcast was recorded on 22 September 2012.

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Alasdair started his career as a stockbroker in 1970 on the London Stock Exchange. In those days, trainees learned everything: from making the tea, to corporate finance, to evaluating and dealing in equities and bonds. They learned rapidly through experience about things as diverse as mining shares and general economics. It was excellent training, and within nine years Alasdair had risen to become senior partner of his firm. Subsequently, Alasdair held positions at director level in investment management, and worked as a mutual fund manager. He also worked at a bank in Guernsey as an executive director. For most of his 40 years in the finance industry, Alasdair has been de-mystifying macro-economic events for his investing clients. The accumulation of this experience has convinced him that unsound monetary policies are the most destructive weapon governments use against the common man. Accordingly, his mission is to educate and inform the public in layman’s terms what governments do with money and how to protect themselves from the consequences.

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