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Money printing – what’s wrong with it?

04/07/2015

As it appears, monetary policy of quantitative easing, which in practical terms mean printing new money, implemented by the Federal Reserve bank since the economic crisis in the US, and more recently by the ECB in the Eurozone, did not bring economic catastrophes as some predicted. If so why not to do it even in wider range? Why not make our citizens rich by dropping on them US Dollar and Euro bills out of the helicopter?
Of course there are many problems with this policy.
1. The newly printed money is channeled in certain way, and through certain financial institutions. For example if the newly printed money is used to purchase government securities, their price will rise, and this means lower interest rates. Then the monetary investors, mainly pension funds and small investors, who try to preserve the value of their life savings for the hard times are impoverished, while the economically active entrepreneurs, who base their economic activities on credit are enriched. This enlargement of gap of income, we see everywhere. It causes social and political disruptions, but also negatively influences the aggregative demand, since the top rich have limited capacity for demand, so it has deflationary influences too.
2. The newly printed money is channeled to the economy through financial institutions, mainly banks, and the top managers of these banks, who use some of this money for their own enrichment, and even worse, to buy political influence. This phenomena even more impoverishes those who are out of the circle of the few on the top. More damaging than this is the monopolization of resources in the economy, that is direct result of concentrated financial power in the hands of view.
As example i would bring the mining industry of most of the basic raw material production like oil, ore and even fertilizers concentrated in very few hands. This has negative effect on both, the price level for the users, and the consumers, who are forced to pay higher prices, who are again the masses not connected to the top. But monopolization in the economy is not just in the resources. It is in the financial world too. No one can compete the very few biggest US, European and the Swiss banks, behind them are the three most worldwide used currencies, which are the basis and the point of reference to most of the other currencies in the world.
3. Excessive money printing will eventually make the money very abundant. Abundance of some item makes it cheap, (like glass crystal compared to diamond crystal). It means the money necessarily will lose its value. Or in other words the inflation is a necessary outcome of such a policy. Inflation did not occur yet, because the banks, following the 2008 meltdown needed to build up reserves to save themselves. Also new International regulatory framework for banks called Basel III, introduced by Basel Committee on Banking Supervision since the economic crisis, forced the banks to squeeze the credit. This era of stabilization of the banking system is coming close to its goals, and probably the monetary squeeze the banks caused will end. All these occurrences will bring instability to the world economy.
4. While the monetary policy strongly influences the aggregative demand, it has relatively little direct influence on the aggregative supply. Its direct influence on supply is mainly through the interest rate.
The aggregative supply is more influenced by technological development, and/or by limited resources which can have different nature. The main limited factor in last years has been the negative environmental impact of the economic activity. At first it forced the producers to introduce expensive equipments and cleaning systems into the production processes. Now the new events are more intensive and catastrophic. It is caused more often by natural disasters caused by changes in the world environments. (as example i would use the Fukushima nuclear disaster, even if not caused directly by the human activity, it could have such an immense consequences, because of the concentration of nuclear power plants in one, not very appropriate spot, due to lack of alternative more appropriate locations. All these economic events have limiting influence on the supply side if the economy. Of course these limiting factors are mostly balanced and even overbalanced by the technological developments, but as well known, technologic development is unpredictable, so is its economic, political and social influence.
5. What the recent economic history teaches us is that monetary policy on the global scale is able to moderate economic imbalances between the countries, and also on the time scale between the present and the future. But it is doing it through the tool of borrowing from those who accumulate assets in monetary form as savings, to those who accumulate it in physical form as investments in economic assets, be it tangible or intangible assets (knowhow, good will, etc.). Then when the day of repayment comes, and it doesn’t come in a smooth flowing way, but rather in big chunks the whole system tends to collapse. The collapse is not good for those who saved their money, and not to those who borrowed it with a perspective of future income and profits. The only one who can gain from this collapse are the financial sharks, who know how to react to any new financial circumstances, and who are close enough to the events to be the first to react. And as to my opinion their impact on the economy is mostly if not entirely only negative.

6 Comments
  1. Rösler’s crowing aside, the Germany is building on the flesh and blood of its neighbors and its citizens. In a brilliant campaign, reminiscent of the American .1% income group’s campaign to impoverish the U.S. middle- and lower classes, Germany has convinced the world its success is based on “budget consolidation” and “solid finances.”

    A growing Gross Domestic Product requires a growing supply of money. In the case of Monetarily Sovereign nations, like the U.S., Canada, China, Australia et al, that money can be created ad hoc by their sovereign governments.

    But for monetarily non-sovereign nations, which have no sovereign currency and so the total supply cannot be increased, each nation must try to steal euros from the others, in a nationalistic riot of mutual cannibalism.

    When the other euro nations finally surrender to the eventuality that they either return to Monetary Sovereignty and re-adopt their own currency, or merge into a financial version of a United States of Europe, Germany will run out of blood donors.

    At that point, German citizens will begin to suffer so much they will seek out a strong, ruthless leader, who will identify and persecute scapegoats, then renounce the euro, so as to finance a war, just like the one Hitler did.

    During the chaos, the German uber-reich will feed off the dying German populace, as salaries are diverted to taxes and the focus turns to saving the government. Soon there will be but two classes: The very wealthy and the very poor. The gap will be complete.”
    From Mitchell predicted two years ago, in

    http://mythfighter.com/2013/03/13/germany-eat-our-neighbors-then-kill-our-citizens-wwii-revisit

    It is best to make up Greece’s debt and think of becoming like USA, a UNE for United Nations of Europe, and establish a European Central Bank to finance all Europe and create euros under federal control. Get rid of all private banks. prosperity will follow promptly.
    Partha

    • Hopefully your prediction of future will not be fulfilled. As to United States of Europe I am more then for. But this means also one federal budget, one taxation, one planned deficit, and finally one Eurobonds. Europe unfortunately is still very far from it. If it happens this also would mean that Greece can’t continue with its irresponsible budget and taxation policy. If I understand correctly the German position to Greece this is exactly what they actually wanted to achieve, by squeezing the Greeks. So actually German economic policy is more for United Europe than Greeks. Now that the Greeks finally understood that they can’t be in and out in Euro Zone at he same time, they will have to give up another inch of their sovereignty, and so will have to do all the others. So at end of the day, the Greek tragedy became a good lesson to those, who planned just to take from the reservoir and nothing to add to it. If EU and mainly Germany has any moral obligation to any country, so those would be the Eastern European countries, including Ukraine and Belarus, that as consequence to WWII suffered additional 40 repression from USSR, and economically are still far behind the rest of Europe. Until now they hardly enjoyed the wellbeing created in EU.
      Greece will have to return to it’s right size as to it’s real economy ( without borrowings). If in the future the new young Greek generation will be maybe more capable and productive than their fathers. Then they will get back the lost paradise, and hopefully it will be a real paradise and not a fatamorgana.

    • Other thing, I read Michael Mitchell’s article and I definitely wouldn’t take him as my economic or intellectual supervisor. The only correct think he wrote is that the penalty for ignorance is slavery. And this saying is also correct only if to be a president of US, as the ignorant Bush was is equivalent to slavery. To be short Michael Mitchell is a provocateur, who tries to be funny and witty.

  2. Grest article and a grest blog 🙂 For me i feel we have become adicted to money and the creators are like drug pushers. I think that we should build resilience into our culture that it relies on money less, so that the small amount of people who control its suply have less power over our lives ? Which is why I made this : The Moneyless Manifesto by Mark Boyle: https://youtu.be/OVB-5Br5pVU

    • Nice clip, nice words, but saying nothing except of negativity of rghe money. It is like saying arguments are negative, yet can you live without them? Anyway you should read my book,
      http://www.amazon.com/gp/aw/d/B00FLXJ5NE?ie=UTF8&redirectFromSS=1&pc_redir=T1&noEncodingTag=1&fp=1
      It is explaining the function of money in funny way.

    • James hi again. I watched again your film and I found it professionally very good. I even agree with what Mark Boyle says about the money, just I don’t see how his doings (and I saw even his Ted performance and some other stuff) is helping to create a world without it. Modern society needs exchange of goods and services, and money helps this to happen. An individual like Mark Boyle can probably for some time live without it in England, with free health care and highly developed social services, but he can’t rise family etc. in such a way. His doing is great to bring awareness to someone, how dangerous sometime the pursue of money can be. But then some alternative economic system has to be invented, where the exchange of goods and services will still prevail.

      To my opinion the question how to prevent from money to create all this evil it creates, while still to preserve its function as goods and services exchange catalyst is the more interesting question. To me it seems, as technology advances, and some major services and goods are becoming available free of charge, money will lose its importance gradually as the blood of our society and economy. Yet until there are limitations on consumers items, and not everyone can get whatever he wants free of charge, there will be need for money.

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