QE3...... No not the boat

So last week there was a lot of chatter about QE3. This week there has been a lot of chatter about Greece finally defaulting on its debt obligations. So what would happen if Greece defaults? Most likely there would be a flight to quality. What this means is that money would flow out of Europe (Euro) and into dollars (I'm not making a statement on the "quality" of US dollars). This happens because people, investors, institutions see the dollar as a liquid, relatively stable currency thus ensuring a non-volatile place to park their money until they decide what to do. Ok, then what happens? Well I'm glad you asked.

Money is an interesting concept. You trade paper slips and electronic blips for goods and services you need or want. Currency has no intrinsic value. Our belief in it is the only thing that gives money any value. Because of this belief and with no "real" value, currency's are traded and priced relative to each other. As of 5/17/12 @ 3:20pm mst, a euro is worth $1.2694 which is worth 79.32 yen which is worth ..... etc. Because of this ability to trade in devaluing currency's, people, investors, institutions can "sell" devaluing currency's and "buy" stable currency's with a click of a mouse button. This will cause extensive money outflows/inflows during times of crisis'.

So what does this have to do with me you might be asking yourself. Actually quite a bit. If the dollar is bought when someone sells their euros, the "value of the dollar" appreciates. This causes the USA's exports to become more expensive for anyone buying goods and services with euros (this is a simplified example). On the flip side, the products and services we import from euro zone countries are cheaper (so are vacations). So its always a balancing act for governments to on one hand keep currency's cheap enough to buoy exports while making imports available for a reasonable cost.

Which brings us back to QE3. If Greece does default, and their is a flight out of euros and into dollars, then the dollar will appreciate. This would be good for the average consumer in the US for a short period of time. Oil becomes cheaper with respect to the dollar, imports become cheaper, etc. What a strengthening dollar would do is choke exports. QE3 would lesson the impact of a strengthening dollar to the US export industry.

So why was there chatter about QE3 last week? I believe it was to get the discussion started for an eventual Greece default and what the fallout of the expected euro crisis would entail. This could include a slip back into recession for the US and possible TBTF bank issues. Talk about a quantitative easing (turning on the printing press) now in preparation for the coming future unknown. Just my $0.02.


PS - Why are we making it more expensive to go solar when what needs to happen is to let market forces drive out inefficient manufacturers and thus bring on the gained efficiency that a distributed electrical system can provide. Who's protecting whom???