Tuesday, April 27, 2010

Printing Cash

The Chair of the Federal Reserve has apparently been caught on tape admitting that he has printed 1.3 trillion dollars in an effort to kick start the US economy. The idea was that the Fed would use the money to purchase Mortgage Backed Securities to help banks clear their backlog of useless "investments." A side effect of this purchase was to put the junk securities on the taxpayer's backs, but never mind that for the moment.
Fed Chair Ben Bernanke has been known as "Helicopter Ben" to some financial sceptics, who have long since expected the Federal Reserve to fly overhead and drop cash on the US economy. Now C-SPAN (Congress in Session, Public Access Network) has apparently shown the chair admitting to doing just that. The admission was reported by Greg Hunter on his site USAWatchdog and he is rather upset by the lack of attention this admission has provoked. Interestingly enough he draws a comparison between the health insurance reform bill and this financial bail out of the banks. The Health Reform plans might cost a trillion over a decade and Hunter asks, rhetorically of course, why not just print the cash and be done? It was the official plan for the mortgage investment garbage, so it might as well be used to pay for health care.

And guess what? Under Representative Ron Paul's questioning Bernanke pretty much confessed this same tactic of printing cash will be used to fund "mutual commitments " by the International Monetary Fund. The IMF is the world's lender of last resort and is expected to be called in to help out a whole raft of first world industrialized economies that are showing signs of economic stress- Greece, Portugal, Great Britain, and so forth for a start. So if this fund is to be augmented by several and various first world economies it seems likely that printing presses across the industrialized globe are going to be churning out money.

The Chair of the New York Fed, the Treasury Secretary's former job at the most powerful of the regional Federal Reserve Banks also told Representative Paul, a Federal Reserve sceptic of the highest order, that the fact that this nation's national debt is denominated in it's own currency is an enormous advantage. The main advantage of such a state of affairs is that it is technically possible to print one's way out of debt. So what Greg Hunter in his blog is suggesting is that we have been duly warned that helicoptering our way out of debt is the path chosen by our economic leaders. Which will debase the currency and that is provoking more talk of inflation. However one thing that surprises me is that if the Fed has already pumped 1.3 trillion into the banks to buy their mortgage securities and we've seen no easing of the credit crisis I am not at all sure inflation is on the cards.

Inflation is the undesirable state of affairs where a swelling supply of cash in the hands of businesses and consumers is chasing a steady supply of products and thus the costs of the products goes up to accommodate the increased cash flow, which in turn grows as wages rise to meet the increasing cost of the products being pursued by the cash. This becomes a problem as the vicious circle tends to spin out of control. Helicopter Ben seems to be trying to refill the coffers of the banks to enable them to lend once more but the tactic has failed. He's created 1.3 trillion dollars where there were none before and the money has had no visible effect on lending by the banks. That's not inflationary, that's just debasing the currency.

If we ignore the insistent talk of an economic recovery coming up very very soon, we must wonder what our currency will look like after our debts are paid and our national debt is current all thanks to the expedient of running the printing presses. Perhaps debasement versus inflation will just look like a semantic difference; it's likely the end result will be the same.


Anonymous said...

Is this the Poker Face of a man running the biggest bluff in history?

Conchscooter said...

I rather think so.

Milton's Freeman said...

... and if anyone calls the current Manchurian President on his lack of leadership, they're labeled a "Tea Bagger" or an obstructionist, etc.

When the Chinese say "no thanks" to buying more worthless U.S. debt, the party will be over.

Danette said...

According to Krugman more troubles with Greece and Portugal banks- he says, ""It's getting scary out there"


Conchscooter said...

China is cutting back on purchases and Krugman getting nervous makes me nervous. I've been thinking about iran as our way out of this mess (through War the great debt clearance scheme) but how Europe saves itself God knows.