Thursday, March 19, 2009

Cry havoc, and let slip the printing presses of doom [update 2]

So, the US Federal Reserve Bank’s Ben Bernanke announces he’s going to print money – another $300 billion to add to the doubling of the money supply they’ve effected over the last few months.  That’s another $300 billion to add to that enormous, and historic, spike you see here:

Ouch

Can anyone spell hyperinflation?

Meanwhile, straight after that news, gold prices take a jump. . .

GoldPrice 

You think by any chance these things might be connected?

You remember ‘Helicopter’ Bernanke saying back in 2002 “The US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes...” ? 

He meant it.

UPDATE 1: Notice, by the way, that when central banks hyperinflate their currency they like to do it in concert, as Bernard Hickey notes:

The US Federal Reserve has announced plans to buy back US$300 billion worth of Treasury bonds and to lend an extra US$750 billion in its Term Asset Backed Securities Loan Facility (TALF) to kick start car loans, student loans and mortgage lending.

The Bank of Japan also announced plans overnight to buy up to US$18.3 billion a month of Japanese government bonds. The Bank of England has already started its gilt-buying programme.

This is money printing on a grand scale that threatens to create a “very nasty” inflation problem in a year or two, according to Alan Bollard last week in his parliamentary appearance after he cut the Official Cash Rate by a less-than-expected 50 bps to 3%.

UPDATE 2: Of course, the $300 billion of banknotes roaring off the presses to buy bonds will be accompanied by another $700 billion of electronic counterfeit capital to buy mortgage securities, making a grand total (to use arithmetic even Ben Bernanke could understand)  of over $1 trillion of pumped into the “financial system.”

Naturally, most commentators have noted only the “surprise and enthusiasm” of the holders of bonds and mortgage securities, as if they’d be a reliable standard by which to judge the wisdom of a move that basically sees them winning the Government’s lottery, at the expense of savers and creditors and everyone whose dollars in their pocket have just been diluted by nearly a third.

You’d think that this avalanche of  unbacked paper money and the smiles of those in whose hands its being put would cause even the braindead commentators who pass for economic experts today would notice that this might give them cause to reconsider their notions about the non-neutrality of money?

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8 Comments:

Blogger teh steve said...

So I guess now's the time to purchase some shares in wheelbarrow manufacturers.

3/19/2009 12:31:00 pm  
Blogger Mark Hubbard said...

Sort of related, here's a great - ironic -article that ably demonstrates the huge morass the US has fallen into (link from an Austrian site, but can't remember which):

http://www.foxnews.com/story/0,2933,509584,00.html

Quote:

"A Massachusetts bank that has defied the odds and remained free of bad loans amid the economic crisis is now being criticized by the Federal Deposit Insurance Corp. for the cautious business practices that caused its rare success.

The secret behind East Bridgewater Savings Bank's accomplishments is the careful approach of 62-year-old chief executive Joseph Petrucelli.

"We’re paranoid about credit quality," he told the Boston Business Journal.

That paranoia has allowed East Bridgewater Savings Bank to stand out among a flurry a failing banks, with no delinquent loans or foreclosures on its books, the Journal reported. East Bridgewater Savings didn’t even need to set aside in money in 2008 for anticipated loan losses.

But rather than reward Petrucelli's tactics, the FDIC recently criticized his bank for not lending enough, slapping it with a "needs to improve" rating under the Community Reinvestment Act, the Journal reported."


Ya gotta laugh ... I guess.

3/19/2009 02:48:00 pm  
Blogger mexaguil said...

I say, bring on the Keynesian spending orgy, there is nothing like hyperinflation to expose the viciousness of fiat currency.

3/19/2009 08:15:00 pm  
Blogger Lee S. said...

Interesting stuff. I own physical gold and silver as a hedge and I follow Ludwig Von Mises and despise the central banking/fractional reserve system but I'm still unconvinced that precious metals are going to the moon any time soon. And I've read about 35 trillion articles saying they will.

Has anyone read "Jaguar Inflation" by Robert Prechter? I think it's on mises.org.

I went and heard Prechter talk in 2004 at the Symond's Street bookshop that was owned by the American Jim what's his name and have followed Prechter's Elliot Wave Theorist ever since.

I tend to agree with him that we're going to experience a period of prolonged deflation before any major inflation kicks in. He has some very good arguments as to why this may be so. Cheers.

3/19/2009 10:14:00 pm  
Anonymous LGM said...

And yesterday evening the markets responded. NZ dollar up against the US. Bank economists starting to discuss what the Fed is doing to the US dollar and what that might actualy mean.


BTW did anyone notice that Obama is talking about introducing a 100% tax on bonuses and other components of remuneration received by AIG executives. Exercise of power for grabs like that have got to be getting people thinking about the nature of the Obama regime...


LGM

3/20/2009 07:15:00 am  
Anonymous LGM said...

Lee S

Yes. I read the Jaguar article. It's a good explanation, similar to Libertarian Sus's bar example.

It's interesting that poor old Jaguar seems to get used in stories such as that. There was another article (by Wendell Cox) in which was critical of a public transport boondoggle in the USA. In the article a simple economic analysis demonstrated that it would have been cheaper to give each transit passenger a new Jaguar XJ rather than build the rail.

LGM

3/20/2009 07:23:00 am  
Blogger PC said...

Hi Lee,

Yes, the Jaguar Inflation piece is very good.

Regarding your comment on deflation, let's remember that falling prices are not deflation, but are actually the antidote to deflation.

To put it another way: Don't be afraid of falling prices.

The 'demand' problem so frequently cited as the problem to be fixed with truckloads of fake money not in fact a lack of demand at all.

It'a a lack of demand AT THE PRICES PRESENTLY BEING CHARGED.

Prices need to drop (and remember too that one man's prices are another man's costs). Yet to the extent the Fed's inflationary injection has any effect, it will be to keep prices UP.

Thus, at the very time when prices (and therefore costs) need to fall, Helicopter Ben and the Folk at the Fed are doing all they can to effect the opposite.

3/20/2009 01:58:00 pm  
Blogger Lee S. said...

Isn't it amazing how little people in general understand about money and economics (and I include myself in that) yet they're so fundamental to our lives in so many ways.

3/20/2009 07:39:00 pm  

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