Global Unemployment Crisis Requires Global Money Printing

Posted by Michael A. Kamperman on February 4, 2010

Today the Bank of England announced they are ending their quantitative easing program for the time being.  They will no longer print money and buy their own government bonds.  The Federal Reserve has already announced they will stop printing money and purchasing mortgages.  The Japanese Central Bank remains lost in translation.  The ECB remains clueless.  This week the Australian Central Bank back-pedaled and backed off raising interest rates, which shocked the markets since all 20 analysts predicted they would continue raising interest rates.  The Australians came to their senses and stopped the madness.  It is only a matter of time before the Federal Reserve, the Bank of England, the Japanese Central Bank, and yes even the European Central Bank begin to aggressively print money to stop the debt-induced deflationary depression in its tracks.  How long it takes and how much more global unemployment pain will be endured before they come to their senses is anybody’s guess.  There is no doubt this will happen, for there is no other way out.  The unemployment crisis, which will be highlighted by the U.S. unemployment report tomorrow, is a global crisis.  Unemployment rates in Spain are officially 19%, which are Great Depression levels.  Yet the ECB and the bond vigilantes are demanding that Spain join Greece and initiate significant cutbacks in government spending including firing more government workers and cutting wages.  Even Herbert Hoover increased federal government spending in the 1930’s, though not by much.  Cutting government spending will lead to a decline in aggregate demand which will further depress the global economy leading to more firings of private sector workers.  The time for euphemisms like “layoffs” is over.  Workers are being told to hit the streets.  The global economy is suffering from a lack of demand due to ridiculously tight credit conditions for consumers and small businesses.  Tight credit conditions have once again spread to corporate borrowers and now they are being inflicted on sovereign nations.  The world is still in the midst of global deleveraging because there is simply not enough money in the world to support all of the debts.

 

The nations in the euro will either share their debts or they will be forced to break the euro up and return to their own currencies.  My advice to the Europeans is to have all 15 nations in the euro guarantee the debts of all other 15 nations, true monetary integration.  While this was not part of their original treaty it either gets added now or they can kiss the euro goodbye.  Then, the ECB should embark on an aggressive quantitative easing program to make sure the debts do not require cutbacks in government services and do not fall on the backs of the taxpayers.  The only risk would be the euro might depreciate against other currencies.  If this happened it would only make European exports much more competitive improving their balance of trade.

 

What is needed now is global leadership, sadly it is lacking.  A money printing solution to the economic crisis exists and yet politicians are cowered by false prophets preaching the limits of money creation and the anachronistic worship of gold.  Those concerned about high unemployment rates need to understand those rates will trend higher and higher unless and until the world central banks come to their senses and re-inflate the money supply.  Helicopter Ben needs to rev up the engines or forever sacrifice his reputation as having avoided another Great Depression.  In order to solve a crisis you have to understand it first.