Readers of GP’s Economy category know that I like to write about how money-printing, now called “Quantitative Easing” (QE), actually drags on the economy (rather than stimulating it). In the long run, QE is just a ripoff to inflate asset bubbles for the Point-One Percent – and stick the rest of the economy with the fallout.
The topic is obscure, but it explains much of what has gone wrong in the U.S. economy as well as Europe, Japan, etc. (Overgrowth of the State explains the rest.) But today, I’ll spare you my verbiage and refer you to Pater Tenebrarum’s. Key passage:
When central banks or commercial banks add new money to the money supply, not one iota of real wealth is created…
However, monetary pumping does disturb the finely tuned dynamic processes [of the economy], as it distorts interest rates and prices. Economic calculation is then falsified and malinvestment invariably ensues. Have the housing bubbles in e.g. Spain and the US not shown this quite clearly?…The emergence of such illusory profits leads to the consumption of capital..
Eventually it turns out that companies actually lack the funds to maintain their real capital. This is what we mean when we refer to the pool of real funding being under pressure: the capital structure has been damaged. Actors in the economy need to…”repair” [the economy’s real capital]…Then the economy is in “recession”, but this is really a healing process. It takes time to heal.
Additional money printing actively sabotages this healing process. It achieves nothing but even more impoverishment in the end, especially if it succeeds in igniting another boom by redistributing existing wealth and spurring more capital-consuming activities…
Inflationism is apparently more popular than ever. It doesn’t seem to matter how often and how consistently it fails to produce the desired results, there are always more people in the world who have an epiphany about saving the economy by printing money…[until] the economy has become so structurally damaged…that if banks indeed were to lend out more money [as the money-printers desire], they would be almost guaranteed to lose most of it.
If you have the patience, Read The Whole Thing.
Addendum: By the way, the Swiss don’t get it, after all. Last Sunday, 78% of Swiss voters were against having a sound currency. (Updates my earlier post, Do The Swiss Get It?)
UPDATE: The Japanese people suffer from their latest version of QE, even as their Nikkei stock index sits at seven-year highs. In the end, the U.S. will fare no better (and probably worse).
The worse thing about money printing is the cronies that get their hands on it first get to spend it before it depreciates the rest of the currency letting them buy hard assets.
2 safety messages to go with current events.
http://www.activeresponsetraining.net/mob-mentality-escaping-from-riots-and-flash-mobs
http://www.activeresponsetraining.net/surviving-mob-attacks-on-your-vehicle
Disturbing the finely tuned processes of the economy is what we do.
And we have more than money printing for disturbing things. We have tax policy, trade policy, immigration, urban “planning”, criminal law and civil litigation, myriad regulatory regimes, education (and indoctrination), popular culture – you name it.
Granted, I am a broken record on this, but a “service” economy has nothing tangible to sell.
For example, a megabillion dollar cruise ship is a “sunk cost.” [Ask the Achille Lauro owners what a beached cruise ship returns in revenue.] It makes a profit after the food is paid for, the fuel is paid for, the wages are paid, repairs are paid, dockage is paid, advertising is paid, reservation services are paid, taxes are paid, etc. Yet whole fleets of these monsters are taking deep discounts in order to generate enough cash flow to service the debt and keep pretending that they are making money. Ditto air lines. Ditto trucking fleets. Ditto Damntrack. Ditto Government Motors. Ditto Amazon. Ditto Best Buy.
OK. Government Motors produces something. But only because it is too big to fail and the government refused to allow it to go belly up.
The point is that true capitalism is based on added value in the production of tangible goods. And an economy “colonizes” money from other economies by having an imbalance in trade which favors exports over imports.
We are stuck with billionaires who are skimming off the top of the cash flow; they produce nothing but their own higher standard of living.
The EPA is running amok curbing agricultural, mining, and industrial jobs. Those “low skill” jobs are the backbone of the corner gas station, the grocery store, the bar and the movie theater. Those jobs pay the service economy. Now they are disappearing and their former workers have settled into the public dole.
People who will do the jobs “Americans won’t do” are simply fulfilling one of the basic functions of the invisible hand. They are accepting less money for their labor. Meanwhile, Ferguson, Missouri is busy destroying its commercial sector over what unemployed and marginal brainiacs will and will not accept in terms of their particular brand of social justice. After the ashes have cooled, Ferguson will be a seething pot of malcontents waiting for the next Mexican to risk opening a taco shop.
We grow too soon old and too late smart. Our increasingly planned economy is patched together with used clarinet reeds and Scotch Tape by regulators and political panderers who can not see beyond the next election.
When you have to sell money printing by calling it “quantitative easing” it is already too late for common sense to prevail. It is like building our emergency response headquarters at the base of the dam so that we will be the first to know when the dam bursts.
How we stop this madness is the problem. The average risk taking entrepreneur can get far better guidance from the Farmer’s Almanac than any amount of advice from the combined resources of Harvard. Yet we continue to believe in elites and gurus and hope and change and dame fortune.
Our economy is “happening” to us in slow motion. I suspect that most people are propelled by the “positive” evidence that the “crash” didn’t occur. It is like passing a truck on curve in the dead of night in a rainstorm with no visibility on the basis of a 50/50 chance you will survive to tell about it.
I think people believe our gov’t is actually printing this money.
It isn’t.
It can’t print fast enough.
It ”prints money” electronically.
Then it uses that imaginary money to ”buy” our long-term debts as short term debt.
By doing this the gov’t ”saves” a few dollars in interest payments.
But this shell game cannot go on much longer.