Interesting commentary in the UK on QE:

“The truth is, though, that we have been living in an economic La La Land, induced by perhaps the biggest policy undertaken during the Labour Government’s period in office: printing money, or quantitative easing, to use its economically correct but unlovely name.

The way QE works is like this. The Bank of England is owned by Her Majesty’s Government and the Chancellor has given it permission to create £200 billion of what is known as “central bank money”. Rather than physically print the notes at its works in Debden in Essex, it has simply been buying up Government bonds, or gilts, from investors and crediting electronically the accounts of their bankers.

What happens now? At times like these, history can be a useful guide and I am afraid the precedents are rather scary. Printing money has been used before as an emergency monetary policy: during the Napoleonic Wars; in the 1820s; and during the First World War. On two out of three of those occasions the authorities overdid it and the result was inflation, followed by a second crash, when the printing presses were turned off rather clumsily.”

Worth perusing . . .

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Source:
Printing money is a game with potentially dangerous results
George Trefgarne
Telegraph, 14AM GMT 30 Dec 2009
http://www.telegraph.co.uk/finance/financetopics/recession/6909897/Printing-money-is-a-game-with-potentially-dangerous-results.html

Category: Bailouts, Currency

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

7 Responses to “The Dangers of Wanton Money Printing”

  1. call me ahab says:

    come on BR admit it- you are a closet Keynesian- it’s ok- I hear there is a 12 step program- but you must believe in a power higher than the Federal Reserve bank-

    anyway-

    re the article- QE and ZIRP- I find personally repugnant- an empire on its last legs- grasping at straws trying to keep it all together-

    how can we be a strong nation- really- when we must resort to these policies- it obviously is representative of a country that is morally and financially bankrupt-

    America- once a great nation

  2. As I have noted in this space repeatedly, I will use anything that works at the appropriate time — whether thats valuation or sentiment, technicals or trend, tax cuts or stimulus — if it has a positive outcome, I am willing to put it inot my tool box.

    Only the Jihadists and idealogues refuse to use what works if it is philosophically unpure.

  3. Blurtman says:

    This time it’s different.

  4. Tom Hickey says:

    This kind of analysis betrays lack of knowledge about how a modern monetary system actually operates. It is based on the gold standard thinking of convertible currencies and fixed exchange rates, when we are now using non-convertible flexible exchange rate currencies, where different rules apply. Moreover, it assumes a quantity of money theory that economists pitched overboard ten years ago. People in the markets who are buying into these hyperinflation-tomorrow arguments are going to get burned.

    To understand how the modern monetary system works, see L Randall Wray, Understanding Modern Money (1998), available at Google Books. Wray, Bill Mitchell, Warren Mosler, Scott Fulwiler, Winterspeak, and Marshall Auerback regularly blog about this, too. JHK, who is very knowledgeable in finance, comments on many of these posts. There are also many working papers by a number of economists working in this field available at The Levy Economic Institute of Baird College. It’s a real eye-opener. Changed my life.

  5. No sir, it is not possible “people in the markets who are buying into these hyperinflation-tomorrow arguments are going to get burned.” You simply cannot increase monetary aggregates while at the same time collapse the physical asset base and arrive at any other outcome.

  6. stevenstevo says:

    Um, yeah, tell us something we don’t know. So writing a check or using a debit card is the same thing as withdrawing cash and then paying in cash.

    Such commentary states the obvious to such a degree that it is insulting to my intelligence–as if we thought the government could create money out of thin air and thereby avoid the dangers associated with the literal printing of money. Rest assured that the UK government (as are we all) is cognizant of the fact that an electronic balance represents money denominated in amounts that are equivalent to currency in the same amount. It’s the same thing here in the US–no one denies the federal government has been pumping out money, and certainly no one has claimed that such expansionary monetary policy is any different from physically printing money and handing it over. Rather, the UK government and the US government believes that increasing the money supply was necessary in order to prevent a depression. Further, everyone knows such a monetary policy could have serious repercussions. If not, then that would imply that we think that we should just pump as much money into the economy as possible at all times, given there are no consequences. Whether or not our economy is better off from such bail outs is a different discussion, and certainly one for debate. What is not up for debate is whether or not we can avoid the problems of printing money by electronically transferring money instead.

  7. johnny says:

    not to mention the greenback Lincoln created to fund the northern half of the civil war. Creditors wanted 25 to 30% on the war loans he said thanks but no thanks.

    I am all in favor of bringing back the greenback as debtless money. Something of this nature would be a powerful unforeseen endgame scenario for our Grand Financial Crisis. Our current money system where the treasury is given permission to print by posting bonds with the fed, the greenback would not have that hidden debt attached to it. With our current money system not only are we combating inflation, there is debt to pay for its existence so it’s a two fold compound perpetual devaluation built into the system, not to mention the leverage. If bank go asking for loot next year, I will personally lobby Washington to bring back the greenback and abandon our current money system.

    The grand bernanke experiment, will fail miserably as we are only creating a bigger problem in the not so distance future. Who will be buying our 2.3 trillion in debt next year? That is the 1 million pound gorilla in the room let alone another two or three 500,000 pound gorillas. Observe how pimco has been positioning itself because we all know there is always a buyer when risk/reward, price/value are in check. This is the balancing act fiscal policy is currently engaged, how to hurt as few players as possible. Since PIMCO manages a 1 trillion dollar portfolio, you can rest damn sure they are in the inner circles of US fiscal policy. We remember FRANNIE, PIMCO was one to the largest beneficiaries to our repatriation of those broken organizations.

    If we are truly in a deflation phase of the “business cycle” (personally I subscribe to KA-POOM theory) then it is impossible for a mega bond fund to continue to post outsized returns relative to the overall market. I consider even 2 or 3% return to be outsized in this environment. So those who have sought the safety of bond funds in this malaise will be getting a rude awakening next year as the 28 year bull in debt will be abruptly correcting as did everything else. Period end of story. If the master minds of financial engineering, or financial manipulation are at work, a stock market crash must be imminent in order to scare even more money into the safety of bonds and the dollar. This may explain the divergence between Merrill and GS forecasts on the ten year note: Merrill says 5.5% GS says 3.5%. That’s huge. To me this indicates one group is discounting the fear induced by perpetuating the crisis and there is no flashier way to do it than a stock market crash.