It Ain’t Money If I Can’t Print It!
I have been forecasting with near certainty that QE2 would not be the end of the Fed’s money-printing program. My suspicions were confirmed in both the Fed minutes on Tuesday and Fed Chairman Ben Bernanke’s semi-annual testimony to Congress yesterday. The former laid out the conditions upon which a new round of inflation would be launched, and the latter re-emphasized – in case anyone still doubted – that Mr. Bernanke has no regard for the principles of a sound currency.
Tuesday’s release of the Fed minutes contained the first indication that a third round of quantitative easing (QE3) is being considered. The notes described unanimous agreement that QE2 should be completed, along with the following comment: “depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run.” Since the unemployment situation is deteriorating, and by all accounts will continue to do so, the Fed is essentially pledging to keep the spigot turned on. The committee also decided to look only at current “overall inflation” in making their judgments, as opposed to “inflation trends.” Since new dollars take awhile to circulate around the economy and raise prices, this means the Fed is sure to be too late in tightening once inflation starts to run away, causing more dislocations in the American economy.
If anyone had lingering faith that Mr. Bernanke actually has a plan to end the US government’s addiction to cheap money, the Chairman’s semi-annual testimony to Congress should have washed it away. In addition to claiming that his money-printing has helped the US economy, Bernanke told Congress that gold is not money, people buying gold are not concerned about inflation, and the external value of the dollar has no influence on its domestic purchasing power. He even took a moment to stump for President Obama’s plan to raise the debt ceiling.
And now… the rest of the story. …..
Harold
The biggest problem with this whole thing is while the debt is a serious issue it is really only the symptom of the bigger problem. You hit the nail right on the head in that it is the “Quantitative Easing” – printing more money and quietly slipping it into the economy that is the problem.
We have inflated the amount of money in circulation over 20 times since 1972. In 1972 there was only about $500 billion of currency in circulation according to the St. Louis Fed. Today there is over $10 trillion again according to the St. Louis Fed. Many others say the amount is higher, some as much as $14 trillion. Estimates of the total amount of money held in derivatives, exceeds $1 quadrillion or one thousand million-million…
The debt is just the after-effect of the years of constantly increasing the currency regardless of the real value of the US’ assets. It was important to drive up housing as that is the tangible asset that banks use to leverage 10 to 1 against, under the fractional reserve system we and most European countries use.
The real problem is our assets are not worth the amount of money we have in circulation. If you project the amount of money we would have today using the growth rates prior to 1972 we should have an economy with about $4 trillion in total value not $10 to $16 trillion as we have.
Finally, I keep hearing that China holds most of our debt, but China actually holds about $1.1 trillion of our debt, and our total debt is between $14 and 16 trillion. Then how can China hold the majority if it is less than 6%? Who holds the rest? Some is other foreign debt totaling about 1/3 of the debt but the rest is the key point. Well the answer for the rest all of us – U.S. of A. taxpayers. Remember if you don’t pay taxes then you’re not responsible for the debt are you? And for most of the wealthy who invest in treasuries they are also the ones paying the taxes to pay the interest.
Clearly – a strange system to me!
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