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.
FreedomCanuck said,
“In order to solve a crisis you have to understand it first”
Truer words were never spoken. Unfortunately I don’t think this is one you can put in the ‘understood’ column. The cause of this catastrophe and the many others that have preceeded it are gov’t intervention and money printing. Surprising then that these actions seem to be the core of your proposed solution.
The solution is just the opposite.
The unemployment you are striving to prevent is the cure that needs to take place in order for the economy to rebalance and for labour to be reallocated to productive segments of the economy. Printing money to keep people in malinvested activities is a page staright out of Mr. Keynes misguided writings.
Deflation is the best thing that can happen to an economy. It leaves savers in a better position and it makes goods more affordable for everyone. The losers in deflation are people who made malinvestments and poor business decisions. Inflation on the other hand (the cure you are proposing) punishes savers, increases the price of goods for everyone and allows people who have made poor decisions to get out from under them on everyone else’s dime.
Wishing for Helicopter Ben to unleash his special brand of magic on us is nothing short of evil. If you want your money devalued, your goods more expensive and to pay for people who made poor decisions that’s your business, but please don’t wish it on the rest of us.
Regards.
FreedomCanuck
Badtux said,
And another gold bug strikes, demonstrating once again that gold bugs have no understanding of money behavior at the zero bounds or, indeed, any understanding of money and its function in the economy. Sadly, they are more influential than people who have an actual understanding of the issues that occur at the zero bounds. It is as if the denizens of the mental asylum have been released and set to making policy.
In the real world, as vs. the bizarro world universe that they live in, we know that a measure of inflation is needed in order to drive money out from under mattresses and into the economy where it can contribute to meaningful economic activity. In the real world, as vs. the bizarro world universe that they live, we know that money under mattresses is just lumpy mattress stuffing insofar as its contribution to economic activity is concerned, and gold is just a shiny metal that has no magical properties insofar as its utility is concerned other than its usefulness in making dental fixtures and plating electronic connections (or as I’m fond of saying, “you can’t eat gold”). In the real world we know that the gold standard causes a positive feedback effect upon the natural up and down cycle of money supply caused by fractional reserve lending and its money multiplier effect, where bank lending expands and creates inflation during upturns and contracts and creates deflation in downturns, while the printing press can smooth out those wild inflation-deflation cycles that typified the 19th century economy and thereby actually create a more stable money supply than the gold standard did. In the real world we know that a modern economy cannot function without fractional reserve lending because that is how a modern economy marshalls current assets in order to create future assets in a much more nimble manner to meet demand than is possible in an economy without fractional reserve lending, where you must wait to slowly accumulate capital before you can make the capital investments needed to match supply to demand. But that is not the world that gold bugs live in. They live in a medieval world without fractional reserve lending, without a modern economy, and appear bound and determined to drag the rest of us there.
In the real world, we should not have to deal with delusional people who live in fictional universes of their own making and make unsupported (and unsupportable) statements of “facts” that have no data to support them. Those people should be relegated to the same status as that crazy guy beneath the freeway underpass who is pushing the shopping cart while wearing a bathrobe and fuzzy slippers and muttering to his invisible friend, because they have as much attachment to reality as that guy. Unfortunately, we have to keep explaining how things work in the real world as vs. in the fictional universe they’ve built inside their heads over and over again, because that fictional universe is *pretty* (oooh, gold, shiny shiny!) and has superficial plausibility to people who have never looked at the data and, indeed, lack the statistical expertise to properly evaluate the data. And unfortunately, some of these people appear to be our leaders. SIIIIIIIIIIGH!
Lawrence Bagshaw said,
Dear Mr Kamperman,
I would agree with the points made ny Freedomcanuck.
Do you not consider that advocating a money printing solution will only postpone the debt liquidation process ? I agree that time could be bought in this way but only at the expense of depreciated currencies and very high inflation.
Eventually if you keep printing money it will ultimately become worthless and no one will want to hold it ? By extension, via the printing of money, ultimately everybody loses. Whereas, if you allow the liqidation of debt to occur, only those in debt are adversely affected.
Why is it not a reasonable postion to take to realise that at some point you have to allow the costs of default to fall where they lie and let the economy regenerate from a true bottom ?
Yours faithfully,
Lawrence Bagshaw
FreedomCanuck said,
Wow Badtux…you’re angry. I don’t recall mentioning gold in my post. As for living in the real world, I’m happy to go about my business in bizarro world with my crazy ideas and cooky leanings. Funny thing is that you guys in favour of central banks and fiat currency won’t let me. I find it funny that you and I want the same thing and the only one standing in the way is you (central bank supporters). I will happily cease and desist from using helicopter ben’s paper and come to alternate arrangements with those with whom I exchange and you can keep using central banks notes and doing your thing. As I am sure you will accuse me of being oh so very impractical I ask only this. Why do you care if I’m impractical all on my own or with a bunch of other crazies in bizarro world? Why not just let us use whatever we want for currency, buttons, lollipops or rabbit’s feet and you can use FedRes notes. I have no problem with you using FedRes notes for currency the only issues I have is that you force me to do it too. You called me a bunch of names and accused me of the utmost naivety, but why? Why does it bother you so much that I want to do something different than you?
Regards.
FreedomCanuck