Friday, September 28, 2012
The Trouble with Printing Money
The Fed’s most recent announcement concerning QE3 was a laundry list that really meant, ‘we will do whatever it takes.’ Will it work? That depends on how you define ‘work.’
Here’s the trouble with money printing: assuming a median US household income of $50,000, after one year of mortgage-backed securities purchases at $40 billion per month, the Fed will have printed as much money as 9,600,000 households have earned. Just like that, the Fed is effectively creating the exact same purchasing power as nearly 10 million US households, or 25 million people (rounded up).
And nobody had to do anything except push a key on a computer a couple of times.
Money printed out of thin air cannot lead to prosperity. It occurs without any effort, no work, no goods produced or lives improved, no land planted and tended, no services rendered and no capital formed. It is just conjured into existence.
It is new money tossed after bad debts, with both remaining to work their different insidious effects on the economy. If printed money could lead to prosperity, some culture would have worked it out long ago, because people every bit as clever and determined as those alive today have tried it again and again.
If it could work, then we should just print every household a nice $1,000,000 check each year and let everybody stay home, take vacations, and drive nice cars. It's an absurd notion.
“How does all this end? Like it has every other time in history, with a final destruction of the currencies involved. That's my best guess,” writes Martenson. “This is why I view all of the QE efforts to date, and those that will certainly follow, not only with suspicion but as a series of unforgivably narrowly conceived efforts that will combine into one of the most colossal failures ever experienced by modern man.
Posted by Unknown at 11:33 AM