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Guest Post: What Is The Consequence Of Printing Money That Nobody Wants?

Tyler Durden's picture




 

Submitted by Tim Price, Director of PFP Wealth Management and Sovereign Man contributor

Guest Post: What Is The Consequence Of Printing Money That Nobody Wants?

In a week that saw Britain slide into its first double-dip recession since 1975, we quite fittingly also saw evidence of the sort of insular bigotry and protectionist narrow-mindedness that one associates with that same ugly, painful decade, when Barry Sheerman, Member of Parliament, said:

"I'm getting increasingly worried about the free movement of people across Europe. It's a very competitive world out there, and my constituents resent that."

The signs of unravelling are not confined to British shores. French voters in the presidential elections shocked markets by

(a) favouring the socialist Francois Hollande; and
(b) giving almost a fifth of their votes to the far-right extremist Marine Le Pen.

Meanwhile in another turn of the sovereign debt screw, Spain was downgraded toward reality. And the Dutch government collapsed altogether.

Amazingly, the people of Europe just don't seem that keen on austerity. Yet it's worth asking-- why hasn't the recession of today produced the same sense of crisis from the 1970s?

Chris Dillow of the Guardian newspaper suggests that average real wages are much higher now, so although standards of living are falling, they're falling from a much higher level that softens the pain (even though the real pain of austerity hasn't even really arrived yet).

But there is one outcome from the 1970s that is genuinely to be feared... the risk of which seems to be rising every day, if it has not indeed already arrived: Stagflation.

Stagflation-- the utterly painful combination of stagnating growth and steep inflation that marked the 1970s-- and will be the natural side effect of extended central bank quantitative easing during a period of widespread deleveraging.

In other words, stagflation is the consequence of printing money that nobody wants.

Moreover, an outbreak of serious stagflation will decimate conventionally managed debt and equity portfolios. And given that most people invest with the crowd, with conventional investments or conventionally managed portfolios, stagflation will wipe the savings and livelihoods from untold masses.

But, we live in strange times-- times, for example, that reward bankers handsomely for bankrupting the economy. This is why the likes of so many politicians and financial commentators are able to insist with impunity that central bankers should 'keep printing more money' despite never having provided a scintilla of evidence that such tactics work.

Case in point-- in a letter to the Financial Times from April 26, 2012, economist Roger Alford remarked:

"The utterly disparate time horizons and the very different experience and skills required... make it virtually impossible for any one person to have the experience and depth of understanding to provide effective leadership [as head of a major central bank]."

Intellectually constrained by his faux science "profession", Mr. Alford does not take this argument to its logical conclusion: if the institution is so difficult to govern and the role so difficult to effect, why have it in the first place ?

We know the answer to this question. Central banks exist to protect the banking system and to finance the government's debts at all costs... even if it means bankrupting the taxpayer and productive economy.

Yet the urgent need for austerity and an insoluble sovereign debt crisis make for uneasy bedfellows.

By definition, we cannot shrink our way back to the sort of growth required to service the West's accumulated debts. Something has to give.

That something will ultimately be social and political disorder on a continent-wide basis, particularly as the taxpayer becomes increasingly frustrated in his obligations to fund the rapidly growing and untenable costs of Big Government.

Such disorder is almost universally feared-- by politicians, by markets, by institutions. As the London-based marcoeconomic research consultancy Capital Economics recently commented:

"The last thing that the markets need right now is increased political uncertainty at the heart of Europe at a time when the economic outlook is already bleak..."

The only reasonable response to this is: tough. If social and political disorder is what it takes to shift an unsustainable status quo in which vampire banks and clueless bureaucrats suck the life out of the productive economy, bring it on.

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Mon, 04/30/2012 - 12:11 | 2385243 RacerX
RacerX's picture

Is this in the same vein as "if a tree falls and nobody is around to hear it.."?

Mon, 04/30/2012 - 12:24 | 2385269 battle axe
battle axe's picture

And ISRAEL/IRAN/USA/ETC ETC/WAR, has not even started yet, then you will see this slow moving death by a thousand cuts speed up. 

Mon, 04/30/2012 - 12:31 | 2385284 HarryM
HarryM's picture

Iran is just another card in the Feds hand - waiting to be played if so required.

Maybe as a last ditch Obama effort 

No one likes to change presidents in the middle of a war

Mon, 04/30/2012 - 12:40 | 2385308 hedgeless_horseman
hedgeless_horseman's picture

 

 

Yet the urgent need for austerity and an insoluble sovereign debt crisis make for uneasy bedfellows.

Urgent need?  Uneasy bedfellows?  I don't think you know what you are talking about.  Just read the headlines...

Mon, 04/30/2012 - 12:42 | 2385313 Pladizow
Pladizow's picture

What Is The Consequence Of Printing Money That Nobody Wants?

For Washington and Wall Street there are only positive consequences!

But the tax payer is FUCKED!

Mon, 04/30/2012 - 12:51 | 2385345 Canaduh
Canaduh's picture

What Is The Consequence Of Printing Money That Nobody Wants?

2. ?

3. Profit

Mon, 04/30/2012 - 14:25 | 2385806 odatruf
odatruf's picture

I'll take every dime the Fed wants to print and lend me at near zero rates. I won't even play some silly deposit spread. I'll put it to productive use in the economy.  At some point, there is a limit to what I could scale, but it would be in the hundreds of millions.  Try me.  :)

 

Mon, 04/30/2012 - 16:21 | 2386256 JW n FL
JW n FL's picture

 

 

                                                     The NEEDS! of the Many Outweigh the GREED! of the Few!

 

                                                                          Printing ONLY! Helps the Top 1%!

 

 

It is The Top 1% People Verse at Least 300 MILLION of US!

 

The Top 1% Stole 93% of ALL! Profits Last Year!!

 

The Top 1% Started the War against the Poor! They Started it!

 

Think about it.. $0.93 of EVERY! Dollar of Profit! Went into the pockets of Top 1%!

 

And 300 MILLION of us got to split 7% of the Profits!

 

Think about it.. $0.07 of EVERY! Dollar of Profit! Was Split by over 300 Million People in America!

 

How very civilized of them! The WAR!! The CLASS! WAR!! Has been going on for 40 PLUS Years Already! It is not starting now because the RICH! Should pay what the rest of us Pay! We pay 30% and so should they! Period! And then!! America has enough money to pay its debts and still send children to school and not ROB Grandma’s Social Security!

 

There is PLENTY OF MONEY!! But the Rich DO!! NOT!!! Pay what everyone else Pays!

 

And we Pay MORE!! On our $0.07 of EVERY Dollar of Profit!

 

WAKE! UP!!

 

WAKE! UP!!

 

WAKE! UP!!

 

WAKE! UP!!

 

America!! We can take the Top 1% Down! and the System that has provided them protection!

 

WE! Outnumber them! 300 Million PLUS! of US! Verse 400 of them!!

 

http://www.nakedcapitalism.com/2012/04/growth-of-income-inequality-is-worse-under-obama-than-bush.html

 

Mon, 04/30/2012 - 12:43 | 2385317 The Big Ching-aso
The Big Ching-aso's picture

 

 

"Printing Money Nobody Wants".............

TARPal Printer Syndrome?

Mon, 04/30/2012 - 21:00 | 2387064 StychoKiller
StychoKiller's picture

[quote]No one likes to change presidents in the middle of a war[/quote]

There's a first time for EVERYTHING!

Mon, 04/30/2012 - 12:31 | 2385288 Sudden Debt
Sudden Debt's picture

A bit like "if a nuclear reactor explodes in Japan 5000 miles away, should we care?"

Mon, 04/30/2012 - 12:47 | 2385333 spentCartridge
spentCartridge's picture

Four reactors.

Mon, 04/30/2012 - 12:29 | 2385246 q99x2
q99x2's picture

I don't know. But do you think Abby Cohen had to turn her head to cough in grammer school?

Hmmm must have said something wrong I'm getting the triple obama gang rape by the site ads today.

Mon, 04/30/2012 - 12:16 | 2385248 rosiescenario
rosiescenario's picture

"...stagflation of the 1970's..." and just as then, we are financing war....today multiple ones....Ron Paul is 100% correct and he stands no chance.

Mon, 04/30/2012 - 12:29 | 2385271 j0nx
j0nx's picture

Look at Wisconsin for what happens to politicians who do the right thing. I see it every day in my travels. People don't want to hear the truth. You tell them the truth and you are crazy, racist or any other flavor of adjective that pops into their head. People just want to suck beer and watch Jersey Shore and be told that everything will be OK. 1 in 10 might actually be interested in hearing the truth before the eye rolls start or the looks of crackpotism being thrown your way. We are lost as a species.

Mon, 04/30/2012 - 12:33 | 2385293 LetThemEatRand
LetThemEatRand's picture

So being a prostitute to the Koch Brothers and their ilk is doing the "right thing?"   

Mon, 04/30/2012 - 13:28 | 2385504 CrockettAlmanac.com
CrockettAlmanac.com's picture

No. Free money for everybody is the right thing. Only a hater would think differently. When everyone is given an infinite amount of cash no one will be poor. It's a perfect and permanent fix for all social and economic problems.

Mon, 04/30/2012 - 13:29 | 2385520 LetThemEatRand
LetThemEatRand's picture

Of course, because I advocate free money for everyone, right?  Can't argue on the merits?  Make shit up.

Mon, 04/30/2012 - 13:59 | 2385632 CrockettAlmanac.com
CrockettAlmanac.com's picture

You are making shit up. I never said you advocated free money for everyone. I am advocating for everyone to get free money and I'm pointing out that haters like you are the only ones who want to hurt people by opposing it.

Why don't you stop hating or at least explain why you believe that unlimited free government money for everyone is not a good idea, Mr. Tea Party?

Mon, 04/30/2012 - 13:27 | 2385511 aerojet
aerojet's picture

Heh, I logged in to say almost exactly the same thing--what happened in Wisconsin went something like frying pan to fire.  You can't have unions sucking the life out of everything anymore than you can have the Koch's do it!  It was like when the Soviet Union fell apart and the people running certain key facilities became the new owners by default.  WTF?

Mon, 04/30/2012 - 13:39 | 2385594 crawldaddy
crawldaddy's picture

unions arent the problem dipshit

Mon, 04/30/2012 - 14:09 | 2385731 harleyjohn45
harleyjohn45's picture

So being a prostitute to the Koch Brothers and their ilk is doing the "right thing?"

No, voting for a Union that has bankrupted the state is the right thing to do,

 

Mon, 04/30/2012 - 15:24 | 2386038 LetThemEatRand
LetThemEatRand's picture

No matter how often you watch, Fox and Friends does not really consider you their friend.   

AP: Wisconsin Faces Shortfall "Due Largely To Anticipated Medicaid Expenses And A Court-Ordered Repayment To A Fund That Was Raided Four Years Ago," And Walker's Tax Policies "Actually Make The State's Ongoing Budget Problem Worse." 

It appears that you believe the answer to this country's problems is to shrink the middle class and pay people less.  The Koch brothers -- who inherited their wealth -- agree with you.  I don't.

Mon, 04/30/2012 - 21:06 | 2387076 StychoKiller
StychoKiller's picture

So, on one hand you want the Govt to tax the middle class less; on the other, continue to provide all the services (gleaned from yer previous posts)...check yer premises, you've reached an illogical position.

Mon, 04/30/2012 - 14:18 | 2385773 A Nanny Moose
A Nanny Moose's picture

Better than a prostitute for the State. The State has all the guns, and makes the rules. The Koch brothers do not.

Mon, 04/30/2012 - 12:47 | 2385336 Winston Churchill
Winston Churchill's picture

Evolutionary dead end.

Something will be digging up our bones in 60m years

and saying WTF.

Mon, 04/30/2012 - 13:29 | 2385516 aerojet
aerojet's picture

You may be right--our culture has become a total piece of shit.  Jersey Shore?  Reality TV that isn't reality?  Might as well call in the comet!

Mon, 04/30/2012 - 14:04 | 2385699 harleyjohn45
harleyjohn45's picture

We are lost as a species.

 

Not everyone is lost, people those who invested in precious metals 10-15 years ago, the ones who are debt free, the ones who maintain a store of food.  Sure they will have it rough, but at least they have a chance of surviving.  You are right about the majority, as evidenced in Wisconsin, they deserve what they get.  They will get it good and hard too.

Mon, 04/30/2012 - 18:02 | 2386637 fiddy pence haf...
fiddy pence haff pound's picture

nonono

just 20 more 3-month plans and we'll be free of financial problems.

CTRL-P CTRL-P

It's like in order to make the TCrookedTF banks whole again,

they're ready to starve or kill several billion people.

rotsa ruck.

Mon, 04/30/2012 - 12:26 | 2385275 HarryM
HarryM's picture

If Obama wins, it will be Rand Paul in 2016

 

 

Mon, 04/30/2012 - 12:33 | 2385298 Ancona
Ancona's picture

If Obama wins.......there may not be a 2016 election.

Mon, 04/30/2012 - 13:16 | 2385435 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

If Romney wins..........there may not be a 2016 election. What the hell's the difference?

Mon, 04/30/2012 - 13:30 | 2385527 aerojet
aerojet's picture

They will always hold elections, they just won't mean anything--just like, well, now. 

Mon, 04/30/2012 - 13:18 | 2385455 AnAnomalous
AnAnomalous's picture

USA erections much overlated --- much better as having one-party dictatorship like we are in Communist China, where Party decides all.

Mon, 04/30/2012 - 13:29 | 2385531 CrockettAlmanac.com
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But what about American citizenism?

Mon, 04/30/2012 - 13:36 | 2385566 AnAnomalous
AnAnomalous's picture

USA American citizenism will fall to ground in soon fashion, like feces on roadside from good patriotic Chinese citizen.

Mon, 04/30/2012 - 21:08 | 2387083 StychoKiller
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'Tis a blobbing devoutly to be wished... :>D

Mon, 04/30/2012 - 14:21 | 2385790 A Nanny Moose
A Nanny Moose's picture

Tide was turning in 2008 when China had Orympics. USA had Erections.

Mon, 04/30/2012 - 14:16 | 2385761 A Nanny Moose
A Nanny Moose's picture

The guy draw crowds by the thousands, even in liberal california (LA/SF). People are willing to stand in the rain to hear him speak. Rombomneybot cannot even fill a conference room. Past the primary beauty contests, Paul is picking up delegates, and winning entire states. Yet they expect us to believe people will not vote for him?

Mon, 04/30/2012 - 14:46 | 2385899 Bastiat
Bastiat's picture

Ya gotta have DOPES.

Mon, 04/30/2012 - 16:18 | 2386263 skepticCarl
skepticCarl's picture

"The guy draw crowds by the thousands"

In a nation of millions, that's .1%

Mon, 04/30/2012 - 21:09 | 2387086 StychoKiller
StychoKiller's picture

The couch and cheese doodles awaits...do I have to spiel it out to ya?

Mon, 04/30/2012 - 12:16 | 2385249 YesWeKahn
YesWeKahn's picture

How does Bernanke answer this question?

Mon, 04/30/2012 - 12:20 | 2385261 Robslob
Robslob's picture

"CTL-P"

Mon, 04/30/2012 - 12:53 | 2385352 flacon
flacon's picture

"CTRL-ALT-DEL"

Mon, 04/30/2012 - 13:35 | 2385536 gdogus erectus
gdogus erectus's picture

Between the lack of time that I have and my swolen prostate, that's hard for me to do at my age. (I know, I'm ripping off someone's joke from a few weeks ago on ZH but maybe not everyone read it.)

Mon, 04/30/2012 - 12:28 | 2385277 HarryM
HarryM's picture

The only way he knows

Mon, 04/30/2012 - 13:17 | 2385440 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Using taxpayer and sheeple's money.

Mon, 04/30/2012 - 12:20 | 2385259 jpmrwb
jpmrwb's picture

Thanks Tyler for a great article. I now know why Valium was so big in the 60's. I would suggest we buy some of the stock and make a mint.

Mon, 04/30/2012 - 14:31 | 2385837 CrashisOptimistic
CrashisOptimistic's picture

A very poor article that brought nothing to the table.

The title suggested that it would examine the concept of QE and what happens when the money used to purchase the bonds stays in banks and is not loaned.

It never touched that at all.

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