Ambrose Evans-Pritchard Bravely Calls on Bernanke to Print More Money
Posted by Michael A. Kamperman on March 1, 2010
This man is now my hero. He is the first highly respected financial commentator to recognize the seriousness of the current debt-induced deflationary depression. At risk to his reputation he has manned-up and called on Ben Bernanke to resume quantitative easing. When it comes to quantitative easing ignorance reigns. Many people have left comments on his column that the way to get out of debt is not to take on more debt. They are confusing borrowing and spending with printing. In the U.S. quantitative easing involves the Federal Reserve creating money out of thin air (printing) and purchasing assets. When the Fed purchases U.S. Treasury bonds with printed money the U.S. debt is reduced, not increased. This gives the federal government the leeway to maintain or increase spending without raising taxes or increasing the national debt. The economy desperately needs support. Increasing federal spending is the only way to stabilize the economy. As Evans-Pritchard points out the state of Illinois is running a $13 billion budget deficit on a total budget of $28 billion. Basically, Illinois needs to double state tax revenues or cut state spending in half. Many other states are in similar dire predicaments. The states cannot print, the Fed can. It must fulfill its duel mandate of price stability and full employment. Likewise, the federal government must fulfill its moral obligation to support the states.
Evans-Pritchard points out “the Fed’s Monetary Multiplier dropped to an all-time low of 0.809 last week.” Money is not circulating as it should. He also points out that “the M3 money supply has fallen at a 5.6pc rate since September.” Additionally, he highlights that ”the contraction of eurozone bank credit to firms accelerated to 2.7pc in January, while eurozone M3 fell by a further €55bn. Japan’s GDP deflator has dropped to a record low of -3pc. He claims “these are epic warning signals, with echoes of 1931. Yet the Fed has just raised the Discount Rate. It is winding up liquidity operations, and preparing to reverse QE, even though the housing market has tipped over again. New home sales fell 11pc in January to 309,000 units, the lowest since data began, and 24pc of mortgages are in negative equity.” He is so right!
Evans-Pritchard quotes the Bank of England’s Head Governor Mervyn King as saying “”I was struck by the mood at the G7, where several of the major economies around the world said quite openly that they were relying on external demand growth to generate growth. That can’t be true of everybody,” he said. We already know Larry Summers is advising President Obama to pursue just such a strategy. He believes we can spend less in America and save more, all the while growing our economy by selling more to others just like China does. As King states we can’t all run an import/export surplus. Meanwhile the British Pound is getting pounded by currency markets limiting the ability of the Bank of England to aggressively print money and revive its economy. It is up to Ben Bernanke and the Federal Reserve to aggressively print more money thereby providing cover to Britain, Japan, and the European Central Bank to pursue their own quantitative easing programs. Fed Vice Chair Donald Kohn retired today. This means President Obama now has three openings on the Fed. His appointments will decide the course the Fed ultimately takes. Hopefully someone in the Whitehouse is pointing out Evans-Pritchard’s comments to him.
