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QE…D: Why Printing Money will end badly for the US
You may have heard the news, the European Central Bank have started up the printing press. They are soon to print upwards of €60 Billion a month. The crowds of economic pundits have collectively cheered. Europe stands to enjoy significant near term benefits, but at what cost?
They speak of lower government borrowing costs for new debt, by lowering funding costs and thus the hurdle that projects must meet to become viable. They believe our exchange rate will fall and our goods will be come cheaper abroad. Europoean products and services will be flying off the shelves, etc. Well, it is an absolute nonsense. Yes there will be short term benefits. Any time you give a liquidity jolt you temporarily relieve pressure. But the longer term risks are far far greater, now that the act of QE has been taken. Essentially the technocrats have short circuited the capitalist system which continuously prices risk based on perceived repayment risks and cost of funds. This is a road to ruin as returns become obscured by official and politically motivated credit flows.
They will argue that deflation is a threat and must be tackled early before it takes hold. This is a smoke screen. The deflation we are experiencing is spotty and multi faceted and is primarily being driven by lower oil prices which are a global phenomena, not a purely European one. Secondly oil prices have already begun to stabilise and if anything are likely to drift higher from here. Don’t get me wrong deflation is a vey dangerous condition and can lead to a vicious negative feedback vortex to a state of depression. But we are no where near that level of risk or type of deflation.
The thing is it is being sold as a low risk, one way bet. Worryingly there has been no talk of the actual cost or the ramifications of his new measure.
So who pays? Someone has to, you can not just create money out of thin air. The answer is “we do, you and I”, in the form of a devalued currency, diminished savings and devaluing pensions.
The ECB was always going to to launch Quantitative Easing whether it wanted to our not. Once the Fed, BOJ, BOE launched their programs in 2008 it was only a matter of time. We are in a era of global competitive currency devaluation were desperate governments must devalue currencies in order to spur domestic growth by improving the value of exports.
The problem with QE or money printing is it is a like a Pandora’s box. Once it is opened it can never be put away again. There will, now, always be an easy way out of every economic issue. All interested parties will now be able to eye this short term financing tool as away of solving short term issues. The Euro will likely morph into the Lira over time.
QE is not actually the creation of money, not in real terms. What it is is the reallocation of the monetary pool from those that have a share to those that do not. All they have done is to devalue the Euro’s held by duplicating and allocating the new Euros to central banks. The Central Banks will in turn buy junk assets off commercial banks and government bonds all in return for cash.
The hope is that the banks will lend the new cash to businesses who will employ people and in doing so add productivity and value to the economy, increasing bank earnings and taxes and wealth.
But the banks will not do that. They will hold the money first to improve their capital ratio’s then they will invest in the the stock market via funds or other instruments.
The ECB also hope that the governments will have more money in the treasury and be able to tax less, but they wont, rather they will allocate to social partners such as Unions.
In short what we are seeing is the wholesale capture of the monetary system by special interests and the mass confiscation of wealth from pensioners and savers to governments and government proxies. I fear that we have just passed a monetary Rubicon that may eventually undermine the very basic social contract of our capitalist system: work hard and you will prosper.
It will take time for the effects of this to be felt but the gates have been well and truly opened and from now on we are only as strong as our weakest political masters at their weakest moment. Those actors will surely plunder this monetary tool.
This tragically could be the step that opens the gate to extreme political entities who can canvass on the widest remit and promise everything to everyone. Indeed the definition of “urgent need” will change by degrees over time, until it will take very little to invoke a new round of money printing.
You are witness to possibly the greatest economic slight of hand ever perpetuated on a people, when the long gaze of history looks at this decision, deflation fears will not be part of the final analysis, arrogance, stupidity and theft will be.
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Let's see... if the QE3 money was instead given to the American people it could have made 85 thousand people millionaires a month. Would that have helped the economy more, or less, than giving it to banks?
http://incapp.org/blog/?p=2453
"You cannot create money out of thin air."
Of course you can! It's being done as we speak. What cannot be created out of thin air is...VALUE.
Conventional (fiat) money has the illusion of value; The illusion is being destroyed.
Monetary stimulus is like manure: it only works if it is spread thinly and over a wide area. In a concentrated heap it is toxic.
Problem is well connected insiders can't stay away from the spigot. They are drawn to it and tend to horde it, so it never gets out and does what it theoretically is supposed to do. Then the whole process of monetary stimulation becomes, wink wink, an exercise in mutual benefit between big merchant banks and central banks.
Nothing has changed since Fugger of Augsberg was collecting and processing indulgences for the Church, except we now have a theoretical veneer on the corruption provided by academic economists.
This writeup is spot on.
He touched on a subject most miss.
"Essentially the technocrats have short circuited the capitalist system which continuously prices risk based on perceived repayment risks and cost of funds. This is a road to ruin as returns become obscured by official and politically motivated credit flows".
Think about this. With rules and regulations the fractional banking system works. I know they print/ed dollars out of thin air but the common man had access to this credit creation, too expand his economy. As soon as regulation, oversight and laws were removed, we have what we have now. If the Checks and Balances, as well as the laws and regulation would of been enforced, this would have sustained us for many years to come. Once things loosened for the benefit of 'leverage', to create profits, it was down from here. All while supporting the largess, previous debts and lifestyles of the system and those that have the keys to it (access) and profit from it. Outright printing without permission has commenced in all economies. The problem is that all of those economies need to export domestic inflation to support their currency. Printing or the inflation combined from the two sources (fractional lending through jobs our outright printing) of money creation. How does everyone do that at once ?
See what I mean ?
These 2 types of money creation have two distinct differences. One is non-directable so, therefor it can skew prices, raise wages and expand the economy. This is what we want !
The other one which is, printing without permission is directable with pinpoint accuracy and can be sent with micro second speed, anywhere in the world to assume a financial duty to keep the system supported./
That's why your/our economy cannot expand.
For proof of this synopses refer to the 62% of US households on public aid, and the oil sector people (Domestically) about to bum rush those numbers.
He also refers to the stock market. Why the inflation in the stock market? Because no one has access/keys to it, except the wall street people that extract the equity from it. They do that by running the market up and down and creating more leverage assisted through the options/contracts/POMO schemes. It can't be spent into the economy to expand it (create inflation type number one, as referenced above).
All that money looks great on paper, doesn't
Great article !!
Deflation works!
It got New England into the SuperBowl, turned Belichick into a SuperPhysicsNerd, and made Tom Brady even more money, fame, and the enmity from jealous QB's who can't earn a 1000th of what he gets for simply being the beneficiary of a couple of randomly selected genes, chromosomes, and DNA molecules that aligned perfactly.
Justice?
For that you must wait till you get to heaven.
Not that I really care about a group of guys throwing and kicking a compressed bag of gas as they run back and forth on a field but...Why can't each team inflate its footballs as they wish? Why is this regulated?
It's called CHEATING and it's the American Way. And if you can't 'win' even with cheating then you just change the fucking rules and declare yourself victor anyway. Fuck yeah! Murica!
Have you ever, EVER heard of someone postponing a purchase decision because tomorrows prices might be lower?
Me neither.
Bull Shit Galore deflation.
And why are lower prices bad for me? If they are bad for the economy then bloody import the stuff from the cheapest country.
AND THEN RE-INVENT YOURSELF. Let capitalism do its work.
Me thinks we all are getting lazy.
deflation woyuld be too good to be true.
http://www.covert.co.nr
$18T proves the USG is full of shit
When a government wishes to devalue its currency, does the CB not reduce rates? Our fed has the gas to the floor which should spark an inflationary environment. We're totally screwed here because our idiotic fed has lost its ability to "control" our economy. It has lost that privilege. When there's too much deflation down the road...what will happen?
There is one option, more QE...we are in an incredible mess & there's no way out.
Am I wrong?
the structure of the QE is preventing inflation (for now) except in specific assett classes.
when the shit hits the fan there will be Bi-flation - deflation in financialised assetts, and inflation in consumer goods and services
when this starts to happen, though, there will be arbitrary wholesale policy changes of radical nature. Helicopter money straight to main street, this country may shave 70% off pensions, that country may peg their currency multiples below another, another country will issue a new currency altogether, import/export tariffs may be redeployed, entire industies nationalised. Your stocks may be up 500% but then be confiscated without compensation.
The problem is, the QE wasn't big enough.
Looks like you needed to add a sarc tag for somebody. Such a shame to waste good material.
Agreed. Make it BIIIIGGGER! Why? Because it works. At least for those who count, or can count. And it will never end because we can print forever unless we run out of trees and cotton, but then we can continue to print zeros and ones into infinity. Now go out and get wealthy.
Paul? Is that you?
Unfortunately for the ECB, it has few options to make up for the lengthy history of profligate social spending.
The stagnation in Europe begs for meaningful structural reform. Tragically, the same holds true for the US,
which may not be far behind.
Shocking!
Counterfeiting fails!
What will it take to get people to believe??????
Think long and and hard on this Young Padawans so that we may all learn...
How can qe not be the creation of money? Govs purchase (pay to the holder) of debt. Gov holds the debt and dispurse printed money to the holder.
Once created - it's not possible to destroy the amount of money created - ever!
QE is nothing but the dilussion of money.
Money since it was removed from a relationship to tangilble items (as in gold/silver standard) is, as you say, illusionary. Yet the illusion has run nicely for many decades. Look through your change, eventually you'll find an older, old stlye Jefferson nickel. Buy 5 two dollar rolls and you'll find a few pre-1965.
Now consider that this nickel, found in someone's pocket recently once bought a normal sized candy bar. Yet today it takes about 20 of them to do the same.
Now find ten people who were alive when that nickel was made and I'll bet that not one of them knows this relationship. The illusion has degraded the purchasing power of this single coin 95%. The sheeple do not notice.
But also consider: Pump 100 billion US$ into the system such that the S&P 500 jumps in value by 100 billion. Then add a Lehman type crash 2008/2009--voila, the 100 billion disappears.
Not destroyed unless there were some machinations in the background orchestrating, but in today's reality money can be created out of thin air and can also be deleted/destroyed. Stretches the mind though, doesn't it?
Money changes hands but cannot be destroyed. if a stock market crashes - it does not change the money supply.
The value of money is always changing - agreed. But the nickle is the same regardless of its value.
Once again - once money is created, it cannot be destroyed.
In the grand scheme - the trillions created - instantly dilutes the rest.
I've got a couple hundred German Marks that says money can be destroyed. What happened to all the German Marks when the Euro became the defacto currency?
Not all Marks were exchanged for Euros, now those Marks are merely paper.
Unfortunately, it is not "instantly" or else people would realize the fraud. In fact the first person to use the new money gets the full benefit of the value of current money.
They don't create money, they create credit which is extended to commercial banks which actually creates the money. The thing is it's all ones and zeros on a computer and it is treated as a game of Monopoly.
an accountant huh.
If its a debit or credit it matters not as a QE is the purchase of an asset (bond) with new money.
This public disservice announcement is brought to you by the moronic fool who told you to buy bricks for $1800 now worth $1300. Meantime, your s&p Ishares account would have doubled.
Do not listen to this moron. Henknows nothing.
S&P 2000 - 1525
Gold 2000 - $300
S&P 2007 - 1550
Gold 2007 - $675
S&P 2015 - 2050
Gold 2015 - $1300
The moronic fool is YOU.
and if you bought at $1800 from a country that has just suffered a 30% loss in currency against the $US, well, you've held your ground and made a killing compared to your fellow countrymen who didnt, now, haven't you?
5 people disagree with you enough to down arrow you yet zero people disgaree enough to point out where your assesment is incorrect......
That's called DENIAL....with a bit pf 'yellow' added in for good measure.
Seriously? There ZH articles every day detailing the level of fraud committed upon the hapless people of the world by those who have corrupted the financial system. Why should anyone take the time to explain why we have a moral imperative to down arrow that nonsense?
Arer you sure you didn't down arrow him yourself that many times?
We are NOT in an era of competitive currency devaluation. The USD is soaring and the Fed, who knows full well what this will do to global finances, is allowing it to happen. There's never a word about 'the dollar problem'. I want to know why. What's going on in their twisted lizard brains that they let the derailed train continue on without a word? They have a plan and I'm frustrated that I can't see what it is.
Printing Money will end badly for the US
Wow the first time I've heard this,,,end badly,,,really,,,no shit,, last 9 years..I get it already WTF!!! Total empire collapse in six- 9 months....ENJOY THE FUCKING RIDE!!
dead fred, the dollar is the reserve currency, so it doesnt operate like the others.
How many definitions of "money" are there? Are they all right or are we all totally confused?
i suspect the plan is to demote the growing idea that the $US should be removed as the global fiat. That much seems obvious. Whats not so obvious is how the american leadership thinks that will resolve its decaying civilization from the burden of policing the world
Is the plan: kick the can?
It's to tell the children to bend over and take it.
It's to bail out bankrupt banks and .govs for todays obligations, nothing more nothing less.
We are entering a period of monetary nuclear war and I expect to see more SNB type surprises. Nobody is going to talk about their strategy because it will undercut their tactics. Draghi is the interesting case though, since he isn't smart enough to know when to shut up and is like the WW-1 generals who thought human wave charges into machine guns were a good idea. Yellen is the joker in the deck and while we like to compare her to helicopter Ben she is very good at keeping her mouth shut which gives her the ability to launch surprise attacks. The currency war is gonna get bloody.
It is actually an increase in the number of claims on something of value. I don't know how that benefits anyone.
Anyone who already holds somthing of value.
Anyone already working towards somthing of value.
Anyone willing to safeguard valuable things.
Anyone willing to share things that are valuable.
Same as it ever was.
We the people?
Who are you kidding. More like We the Banksters. We have your money printing press. Ha ha. We buy everything we want, everything with real value, even your women and children, with little pieces of green paper and you are left holding the bag. We get your farms, your businesses, your homes, your forests, mountains, rivers and oceans. You people never learn. We then tell you that you have to pay back the money we spent on ourselves buying all your stuff because it's your "national debt". You just don't get it. We literally tax you to death. You never learn. We brainwash you with our media that blankets the nation, we brainwash your children to grow up and protect us by becoming cops. You never learn. We trick you and your children into going to foreign countries and bombing their children's limbs off so we can steal all their frickin resources. You must all be completely brain dead. We even come right out and tell you all the ways that we're screwing you over and we tell you exactly how we do it to you. You eat it up. You buy it like it's going out of style. You're pathetic. Of course we're going to continue. You're just begging us to screw you over. Why would we stop?
SE, comment of the week. This should be in a screenplay. Maybe I'll update A Christmas Carol just so I can hear a modern "Scrooge" speak it.
"That ain't working, that's the way you do it. Print the money for nothing and the assets are all for free."