Guest Post: "Monetary Easing" Fixes Nothing

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

"Monetary Easing" Fixes Nothing

Central banks keep pulling their one lever to "fix" the economy, but nothing is fixed. Monetary easing only compounds the problems.

Stripped of acronyms and pseudo-economics, Central banks have one lever: monetary easing. Whatever the name offered for creating money electronically and suppressing interest rates, it boils down to making money abundant and cheap to borrow, at least for banks and other favored players, such as buyers of homes using 3% down-payment FHA mortgages.

The problem is that easy money doesn't fix what's broken. We can state this simply:

1. One primary problem with the real economy is there is too much debt, too much leverage and too little collateral.

2. Making money cheap and liquid only compounds this problem.

3. The other problem is household incomes are stagnating, making it difficult to service the monumental debt carried by households.

4. Making money cheap and liquid for banks and speculators does not funnel money into the real economy or households, so it neither reduces debt loads nor boosts incomes.

Easy money flows into "risk-on" speculations like equities. The one "achievement" of the Obama administration and the Federal Reserve is the Bull market in equities since the March 2009 post-meltdown low.

As this chart (courtesy of Scott at reveals, stocks rose in lockstep with the expansion of the monetary base. The key indicator here is the red line, a ratio of the S&P 500 stock market index growth and monetary base growth:

Note that the ratio rose smartly in the 1990s as equities experienced strong growth while the monetary base remained stable. This Bull market did not depend on a rapidly expanding monetary base.

Now look at the red line during the 2009-2012 Bull market. As the monetary base exploded higher, the ratio of equities growth and monetary growth plummeted as monetary expansion completely swamped the rise in equities. A stupendous rise in the monetary base yielded a comparatively modest rise in equities, a reality reflected in the nearly flatlined ratio line.

The standard measure of money in the real economy, M2, has also gone nowhere when correlated to the monetary base.

This chart reflects an economy and stock market that is increasingly immune to the expansion of the monetary base.

Incentivizing debt and leverage does nothing to reduce leverage or debt, and incentivizing speculation does not reduce household debt loads or increase household incomes. And without improving household incomes, you have a recessionary economy held aloft by unsustainably profligate Federal borrowing and spending.

Is this a "solution"? No. Is this sustainable? No.

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CPL's picture

RSI just died.  Market is going to shit the bed again.

CPL's picture

Nasdaq jumped the shark on no volume.

CPL's picture

There's the signal, RSI and Volume are now in place for a good old fashion manipulation

ArkansasAngie's picture

Oh boy!!!

PPT to the rescue

Cant have the whole thing tanking 2 days before Bernanke has to talk to congress

The Big Ching-aso's picture



The economy is like an erection.  It can't be pumped up forever without severe penileties.

Nonexistent Uninvented God's picture

Printing money won't solve the problem!? Time for plan B, print even MORE MONEY!!

Short Memories's picture

ZH is low on orginal content on the quiet days so we are doing this flashback episode :-D

Taterboy's picture

Yes, then we can spend that money on Obama's "thingamagigs"

ronaldawg's picture

My "thingamagis" is getting hard thinking of all this monetary easing.

Cognitive Dissonance's picture


Let's go over this again.

They Aren't Trying To Fix Anything.

ITrustMyGut's picture

+ 1Trillion

there is NO INTENTION to fix... the INTENTION is DESTRUCTION...  and consolidation of wealth into the hands of a few...

Matt's picture

Or, for those who believe in "cock-up before conspiracy", they are simply trying to punt the can down the road a bit further so it becomes the next elected person's predicament.

ITrustMyGut's picture

my brother.. how much more evidence do you need? its a statistical impossibility.. that a series of selfish and stupid blunders got us to this place.. when there is ample evidence.. there is a design... you merely have to remove the blinders to see it...


Wilson told us after having signed the Fed into existence.. he unleashed a shadow gov

Eisenhower told us, Kennedy told us, MANY with inside knowledge have told us..


there is a agenda.. its not communist... is Monopolist!

Dr. Richard Head's picture

A "few" quotes to prove the intention of the centrally planned and controlled economy is to benefit the few at the expense of the many.

"The few who understand the system, will either be so interested from it's profits or so dependant on it's favors, that there will be no opposition from that class." -- Rothschild Brothers of London, 1863

"Give me control of a nation's money and I care not who makes it's laws."-- Mayer Amschel Bauer Rothschild

"Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States." -- Sen. Barry Goldwater (Rep. AZ)

"Whoever controls the volume of money in any country is absolute master of all industry and commerce." -- James A. Garfield, President of the United States

"Banks lend by creating credit. (ledger-entry credit, monetized debt) They create the means of payment out of nothing." -- Ralph M. Hawtrey, Secretary of the British Treasury

"To expose a 15 Trillion dollar ripoff of the American people by the stockholders of the 1000 largest corporations over the last 100 years will be a tall order of business." -- Buckminster Fuller

"Every Congressman, every Senator knows precisely what causes inflation...but can't, [won't] support the drastic reforms to stop it [repeal of the Federal Reserve Act] because it could cost him his job." -- Robert A. Heinlein, Expanded Universe

"It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -- Henry Ford

"The regional Federal Reserve banks are not government agencies. ...but are independent, privately owned and locally controlled corporations." -- Lewis vs. United States, 680 F. 2d 1239 9th Circuit 1982

"We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it." -- Congressman Louis T. McFadden in 1932 (Rep. Pa)

"The Federal Reserve banks are one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that this nation is run by the International bankers." -- Congressman Louis T. McFadden (Rep. Pa)

"Some [Most] people think the Federal Reserve Banks are the United States government's institutions. They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign swindlers." -- Congressional Record 12595-12603 -- Louis T. McFadden, Chairman of the Committee on Banking and Currency (12 years) June 10, 1932

"[Every circulating FRN] represents a one dollar debt to the Federal Reserve system." -- Money Facts, House Banking and Currency Committee

"...the increase in the assets of the Federal Reserve banks from 143 million dollars in 1913 to 45 billion dollars in 1949 went directly to the private stockholders of the [federal reserve] banks." -- Eustace Mullins

"As soon as Mr. Roosevelt took office, the Federal Reserve began to buy government securities at the rate of ten million dollars a week for 10 weeks, and created one hundred million dollars in new [checkbook] currency, which alleviated the critical famine of money and credit, and the factories started hiring people again." -- Eustace Mullins

"By this means government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft." -- British Lord John Maynard Keynes (the father of 'Keynesian Economics' which our nation now endures) in his book "THE ECONOMIC CONSEQUENCES OF THE PEACE" (1920).

"These 12 corporations together cover the whole country and monopolize and use for private gain every dollar of the public currency..." -- Mr. Crozier of Cincinnati, before Senate Banking and Currency Committee - 1913

"A great industrial nation is controlled by it's system of credit. Our system of credit is concentrated in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the world-- no longer a government of free opinion, no longer a government by conviction and vote of the majority, but a government by the opinion and duress of small groups of dominant men." -- President Woodrow Wilson

"We are completely dependant on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system.... It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon." -- Robert H. Hamphill, Atlanta Federal Reserve Bank

"The Federal Reserve Banks are not federal instrumentalities..."

-- Lewis vs. United States 9th Circuit 1992

"The Federal Reserve banks, while not part of the government,..." -- United States budget for 1991 and 1992 part 7, page 10

"The Federal Reserve bank buys government bonds without one penny..." -- Congressman Wright Patman, Congressional Record, Sept 30, 1941

"The Federal Reserve system pays the U.S. Treasury 020.60 per thousand notes -- a little over 2 cents each-- without regard to the face value of the note. Federal Reserve Notes, incidentally, are the only type of currency now produced for circulation. They are printed exclusively by the Treasury's Bureau of Engraving and Printing, and the $20.60 per thousand price reflects the Bureau's full cost of production. Federal Reserve Notes are printed in 01, 02, 05, 10, 20, 50, and 100 dollar denominations only; notes of 500, 1000, 5000, and 10,000 denominations were last printed in 1945." -- Donald J. Winn, Assistant to the Board of Governors of the Federal Reserve system

"Neither paper currency nor deposits have value as commodities, intrinsically, a 'dollar' bill is just a piece of paper. Deposits are merely book entries." -- Modern Money Mechanics Workbook, Federal Reserve Bank of Chicago, 1975

"This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President [Wilson} signs this bill, the invisible government of the monetary power will be legalized....the worst legislative crime of the ages is perpetrated by this banking and currency bill." -- Charles A. Lindbergh, Sr. , 1913

"From now on, depressions will be scientifically created." -- Congressman Charles A. Lindbergh Sr. , 1913

"The financial system has been turned over to the Federal Reserve Board. That Board administers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money" -- Charles A. Lindbergh Sr., 1923

"The [Federal Reserve Act] as it stands seems to me to open the way to a vast inflation of the currency... I do not like to think that any law can be passed that will make it possible to submerge the gold standard in a flood of irredeemable paper currency." -- Henry Cabot Lodge Sr., 1913

[Note – From 1913 until now inflation of the dollar has been 2950%. A 1913 dollar would now be worth $.034. When I became a wage earner in 1950 I could buy a full breakfast, eggs, sausage, hashbrowns, shortstack, juice, and coffee for $.39. This morning I paid $9.60 for the same, an inflation of 2460%]

"When you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money." -- Putting it simply, Boston Federal Reserve Bank

"There is a distinction between a 'debt discharged' and a debt 'paid'. When discharged, the debt still exists though divested of it's charter as a legal obligation during the operation of the discharge, something of the original vitality of the debt continues to exist, which may be transfered, even though the transferee takes it subject to it's disability incident to the discharge." -- Stanek vs. White, 172 Minn.390, 215 N.W. 784

"I have never seen more Senators express discontent with their jobs....I think the major cause is that, deep down in our hearts, we have been accomplices in doing something terrible and unforgivable to our wonderful country. Deep down in our heart, we know that we have given our children a legacy of bankruptcy. We have defrauded our country to get ourselves elected." -- John Danforth (R-Mo)

"Capital must protect itself in every way...Debts must be collected and loans and mortgages foreclosed as soon as possible. When through a process of law the common people have lost their homes, they will be more tractable and more easily governed by the strong arm of the law applied by the central power of leading financiers. People without homes will not quarrel with their leaders. This is well known among our principal men now engaged in forming an imperialism of capitalism to govern the world. By dividing the people we can get them to expend their energies in fighting over questions of no importance to us except as teachers of the common herd." -- Taken from the Civil Servants' Year Book, "The Organizer" January 1934.

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs." -- Thomas Jefferson, U.S. President.

"If Congress has the right [it doesn't] to issue paper money [currency], it was given to them to be used by...[the government] and not to be delegated to individuals or corporations." -- President Andrew Jackson, Vetoed Bank Bill of 1836

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it's issuance." -- James Madison

"Should government refrain from regulation (taxation), the worthlessness of the money becomes apparent and the FRAUD can no longer be concealed." -- British Lord John Maynard Keynes (the father of 'Keynesian Economics' which our nation now endures) in his book "THE ECONOMIC CONSEQUENCES OF THE PEACE" (1920).

"But if in the pursuit of the means we should unfortunately stumble again on unfunded paper money or any similar species of fraud, we shall assuredly give a fatal stab to our national credit in its infancy. Paper money will invariably operate in the body of politics as spirit liquors on the human body. They prey on the vitals and ultimately destroy them. Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice." -- George Washington in a letter to Jabez Bowen, Rhode Island, Jan. 9, 1787

ronaldawg's picture

Most of those quotes are from the early 20th century - which has nothing to do with the current state of affairs. 

CPL's picture

Yeah now we have computers. Instead of 15 years we now can process the same amount of work to mess things up done in six months.  Then keep repeating the same mistake of throwing trillions of dollars around in an accelerated fashion in terms of time & value & volume.


I'm not surprised that this time isn't the same.  Look at the repeated attempts at the current stupidity going on.  That's just the micro level, the macro level from the current state of affairs from energy to food is nearly unbelievable in how poorly it's being managed. 

Dr. Richard Head's picture

Agreed.  So what happens when the pressure of M1 finally pops the cork of the M2 bubbly?  My guess is that it will be no celebration.

eclectic syncretist's picture

If you're an individual and go broke you file for bankrupcy, possibly facing prison time.

If you're a bank and go broke the government gives you an unlimited credit line.

SmoothCoolSmoke's picture

Easing makes stocks go up.  That is all the Sugar Long, "me-me-me" people care about.  They hypocritically "hate" Big Govt, yet salivate over Big Govet money from the Fed to make their stocks go up.  Sad state the USA is in. 

Bob's picture

The cream of American capitalism:

If you ain't in, you're out.  As in, fuck you very much, working class! 

francis_sawyer's picture

They teach 'can kicking' at the best Ivy League schools...

intric8's picture

How about balls kicking, preferably those of the Fed Reserve governership, no education needed


RobotTrader's picture

Bernanke simply didn't print fast enough.

He tried to be a "hero" and crash commodity prices with his jawboning, and inadvertently caused a meltdown in stocks and a breakaway run in bonds.

He should have started printing faster when the SPY broke the 50-day and the CRB Index was already down by 35%.

If he had done that, the SPY would be at new highs by now, gold at $1,800 and crude at $125.  But who cares about mild inflation as long as everyone's 401(k) accounts are soaring?

Printing works great.

You just need to go "all out" and hammer the accelerator.


francis_sawyer's picture

Are you still sore at him because he trashed your Lululemon longs?

Matt's picture

Maybe the next program should be for the Federal Reserve to hold a bunch of dividend yielding stocks on behalf of every citizen, so that way the inflation trickles down in the form of rising dividends so everyone gets more money to spend as things become more expensive.

Otherwise, if the inflation keeps happening and some people don't get more money to keep up, they will become poorer and angrier. 

Why aren't food stamps indexed to inflation? What about marginal income tax rates, do they scale with CPI? They should.

eclectic syncretist's picture

Bernanke believes that the depth and length of the Great Depression was worsened to a large degree by the gold standard, because it constrained the ability of the Fed to issue credit and thereby prevent bank runs.

mayhem_korner's picture

Bernanke simply didn't print fast enough.


Next time he should just print larger-denominated bills.  Save time and ink.

urbanelf's picture

My ABX position says, "Monetary easing fixes everything!"

Matt's picture

Ok Austrians, what counts as money supply? If M0 increases +200% but M2 decreases 50%, is it inflationary or deflationary?

Dr. Richard Head's picture

M3 would be a better picture of true money supply, but they don't want us to see that anymore.

The answer to your question is yes, though.  Inflation in non-dsicretionary, deflation in anything the money supply goosed up in the first place - housing assets, stocks, etc.

tarsubil's picture

M1 and M2 are sorta silly to me as they include and exclude different things that don't necessarily jive as money supply. That is why weird things like this appear.

Here is another take on money supply. Mises true money supply.

AR's picture

Profound and simple statement:  "Monetary Easing" Fixes Nothing...

We'll add: " never has, or will..."

A well respected colleague of ours just wrote us back this:  "...We are witnessing the greatest socialization in history. First they socialize risk, then they will embark upon socializing everything else..." 

mayhem_korner's picture



Just wait until all the new, digital money - that isn't yet in M2 - gets into circulation. 

Disenchanted's picture



You mean creating more debt doesn't solve debt problems?


Well I for one am shocked...



scatterbrains's picture

I see the next primary trend moves reflected in the copper chart (JJC)  The longer term trend will be established by a break or fail of the line...

who feels lucky ?

Impotent_Smurf's picture

Printings what the economy craves, its got electralytes.

MFL8240's picture

Not rrue.  It may have a short term affect that will fix the ovember election!

mayhem_korner's picture



It's almost as if the equities rise in the 1990s created an addiction that needed to be fed once the structural bull market faded.  In stepped hopium debt, and reality became a pinprick on the rear-view mirror horizon.

LULZBank's picture

4. Making money cheap and liquid for banks and speculators does not funnel money into the real economy or households, so it neither reduces debt loads nor boosts incomes.

So making (artificial) money cheap and liquid for real economy or households will help? How?

Funny, how commentators and experts like you are quick to identify with REAL economy but when it comes to money, you're happy with all the artificialities.

Respected Sir, what you refer to as REAL economy is actually based on fake and printed money. So problems caused by the lack of that basic printed money will have only one solution i.e. create (read print) more money, hence the measure central banks resort to.

I think its about time to start educating people that the whole financial and monetary system is/was based on fraud and the idea was to keep people in line and working hard and keep busy. At the sametime taking away their freedom by pushing them into debt.

DHS, FEMA, Police etc. can never enslave or control people, but only the thing that what they grew up chasing (money) was just a fake and they actually have nothing to live for.

Disenchanted's picture


Do tell...



Pimco and JPMorgan are holding off some vacations because of fears that's we could be into collapse any old time."

quote from Urban Survival . com  June 5, 2012 daily column


supposedly overheard at "an investment luncheon"

Madcow's picture

Markets just now realizing that the central bankers are out of tools, tricks and ideas - there's nothing they can do at this point.

" Poof " - its all gone. Game over.


mayhem_korner's picture



Was it over when the Germans bombed Pearl Harbor? 

Premature to declare "game over."  There's still the pre-election toga party...

ArrestBobRubin's picture

"Is this a "solution"? No. Is this sustainable? No"

Umm, what's your point Charlie? They've been doing it, just under different names. And they'll do more. Soon.

In the long run, if they want to keep Weekend at Bernie's going, they have no other option.