Tuesday, February 07, 2012

QUOTE OF THE DAY: Printing money is not sustainable [updated]

Morons like Bernard Hickey have been beating the drum for our Reserve Bank to do what every other Reserve Bank in the world has been doing: to cross their fingers and print money like there’s no tomorrow.

_Quote_Idiot[Other governments’] print and hope strategies look set to leave anyone who doesn't print and hope sprawling in the dust [says Hickey]. 
The last one to print and devalue is the loser.

As I’ve said before, Bernard Hickey is a moron.  If anyone in authority listens to him, we will be the losers.

As if we should put our heads in the oven just because everyone else is! As if propping up share markets and bankers’ profits by faking reality is somehow a sound policy. As if  the printing of more coloured pieces of paper can somehow bring new resources into existence.  As if printing these new bits of paper doesn’t destroy your savings and devalue every existing piece of paper in your pocket. As if printing ever increasing tranches of this bailout crack (just another hit, please Doc!) isn’t like taking a tiger by the tail. As if the creation of new credit “out of the ether” is all it takes to create a sustainable boom…

“The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market. But it could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion of circulation credit. It would lead to the crack-up boom and the breakdown of the whole monetary system.”
            - Ludwig von Mises, “Interest, Credit Expansion & the Trade Cycle,” Chapter 20 of Human Action

[Hat tip Foundation for Economic Growth]

UPDATE: From Detlev Schlicter’s Paper Money Collapse blog:

    …the public believes it was greedy bankers and ‘unfettered capitalism’ that brought us down. But cheap credit through state fiat money and the systematic subsidization of the housing market are not features of the free market but of politics. The present mess is the result of decades of institutionalized monetary debasement and the accumulation of public debt. These policies have left us with bankrupt welfare states and overstretched banks, yet none of this has diminished the enthusiasm of politicians and bureaucrats to give us more of their medicine…
Prosperity through money printing?
   
The persistent debasement of money in the modern state fiat money system is an obstacle to the smooth operation of the market, the production of wealth and the growth in prosperity. It keeps the middle class in bondage as its efforts to save and gain financial independence are constantly undermined by the official policy of inflationism.
   But the central planners and central bankers and their apologists among journalists and economists tell us that it is exactly the other way round: “Prosperity through monetary debasement” is Big Brother’s slogan, and he has spokespeople with outstanding academic credentials to explain this absurdity to the masses. In November 2010, MIT and Princeton man Ben Bernanke, the U.S. government’s money-printer-in-chief, wrote this in the Washington Post when explaining to the less educated why creating $600 billion out of thin air and messaging yields on government debt down was a clever policy:

_Quote_IdiotEasier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

Well, that was 14 months ago. As it turns out, manipulating the economy by artificially lowering rates (lowering rates not by saving but by simply printing money) has not started a virtuous circle. Such manipulations come with nasty unintended consequences, and after a few decades of such a policy the accumulated unintended consequences far outweigh whatever short –lived growth blip money debasement may have manufactured otherwise. None of this has anything to do with healthy growth and a functioning free market economy.
    But it is important that those in positions of authority do not admit that they are clueless. They never make mistakes. Their policy is never wrong. They simply need to do more of the same – and then even more. As I write this, the Fed is, of course, preparing another round of quantitative easing, and so is the Bank of England. And the ‘economists’ on Wall Street and the City of London cheer them on.
    The debasement of paper money certainly continues.

And the morons (and those who get first use of the new printing) stand by and cheer.

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7 Comments:

Anonymous Mark Hubbard said...

Great post.

Rob Hosking at NBR put a post up this morning called, 'When, not if NZ dollar falls', with the article predominantly about NZD/USD cross.

http://www.nbr.co.nz/article/when-not-if-nz-dollar-falls-rh-p-109057

I put up the following comment, to which he's not replied:

'I'd be interested in your opinion Rob.

Do you think the US has any chance at getting it's deficit under control?

In absence of this, and given its existing level of debt, the servicing of which it would seem unrealistic to be covered by tax alone, (ever) thus, quantitative easing the only solution other than default, why won't the USD simply continue to slide over the long term against currencies like the NZD?



What's your opinion on that Peter?

2/07/2012 03:24:00 pm  
Anonymous Mark Hubbard said...

Oh, the word for Kim Jong Hickey that seems to roll off the tongue next to moron is mercantilist.

Although 'one big contradiction' seems to sum up much of his writing.

Mind you, he's probably got more clues than Obama ;)

2/07/2012 03:43:00 pm  
Blogger PC said...

@MArk: "Do you think the US has any chance at getting it's deficit under control?"

Not a shit show. Check out DebtClock.org to see how unrealistic that notion is.

The only possible outcome is default. The only question is how that default is carried out, and whether forced or voluntary.

Further:

* Quantitative easing is not an alternative to default, just another form of default--one that steals from the middle classes, and if continued will potentially destroy them.
* "Why won't the USD simply continue to slide over the long term against currencies like the NZD?"
Because the tradition has existed for a long time that the US dollar is a safe harbour. It might take some time for that delusion to vanish.
Equally (though for a much shorter time) the NZ dollar has been seen as a volatile currency to play with during good times. And while the fundamentals of the NZ dollar may be sound, and its value as a "commodity currency" recognised, once a crack-up boom happens money both hot, cold and lukewarm will quickly disappear from here.

2/07/2012 03:47:00 pm  
Anonymous Pro-Capitalist said...

My original comment here, which I have re-pasted below:

Mr Hickey is both dumb and dangerous. (according to commentator, Ruth).

Ruth's comment was spot-on there.

It is sad that there are lots of economics' illiterates who follow Hickey's words blindly as some sort of words of Gospel, God or Jesus Christ.

Part of the reason no doubt is that Hickey suffers from the pundit’s curse – the need to say something original, something different, regardless of how relevant/irrelevant.

This moron should at least try to educate himself, like updating his economics knowledge by reading tons of books in economics, but I suspect that he doesn't. He prefers to be in a state of suffering from pundit's curse.

2/07/2012 09:25:00 pm  
Anonymous Riko Stevens said...

@PC - Did you mean: http://www.usdebtclock.org/ instead?

2/07/2012 10:05:00 pm  
Anonymous Mort said...

QE is a transfer of wealth from those holding the fiat currency to those holding real assets like productive land/ property, commodities like oil, metals, coal, foodstuffs, potash/fertiliser, timber, protein etc.
The West is on a dangerous path that is defrauding the middle classes of their wealth and transferring it to the class of people who set up and own the Federal Reserve.
The US has 1 chance to actually turn things around without debasing their middle class, and forcing the country down the road of Empire complete with praetorian guard in the guise of homeland security and martial law, and that is if they can become a net energy exporter. If they can wean themselves off Arabian oil they will save $2B a day, and go a long ways towards meeting the balance of payments deficit they have currently. Then by exporting LNG to Europe or Asia they could actually wipe out the deficit totally.
It would mean some pretty radical policies, like converting all the trucks in the country to run off CNG or LPG, have half the fleet of cars doing the same. Converting all the oil heaters/ furnaces to gas. The technology and the reserves of unconventional gas is present in the US to allow them to meet their energy needs for the next 150 years with gas, but it is going to take a pretty bold step to make it happen. Will Obama have the nous to pull it off?
A bit of austerity would help a lot too. Starting with slashing the military bases and homeland security, not to mention the corporate welfare.

2/08/2012 01:14:00 am  
Anonymous Pro-Capitalist said...

The reason the society is dumb in general is because MSM prefer to propagate the bullshit opinions of airhead dumbfuckers like Bernard Kim Jong Hickey, Matt McCarten, Green Party MPs, Martin Bradbury Bomber, David Farrar, etc,...

MSM don't like to spread the insightful opinions of the likes of you PC (including many others of course)?

When there's something of the news that the MSM want to bring in the so called opinions, the first port of call for them is to ring air heard dumbfuckers as like Bernard Kim Jong Hickey, Matt McCarten, Green Party MPs, Martin Bradbury Bomber, David Farrar and the likes. So, the general public in general think that the opinions of those dumbfuckers is what the world should conform to. As a result, the general population in general is being kept dumb from consuming nonsense from those dumbfuckers.

2/09/2012 10:23:00 am  

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