You may have heard the news, the European Central Bank have started up the
printing press. They are soon to print upwards of €60 Billion a month. The
crowds of economic pundits have collectively cheered. The thing is it is
being sold as a low risk, one way bet. Worryingly there has been no talk of
the actual cost or the ramifications of his new measure.
So who pays? Someone has to, you can not just create money out of thin
air. The answer is “we do, you and I”, in the form of a devalued: currency,
diminished savings and devaluing pensions.
The ECB was always going to to launch Quantitative Easing whether it
wanted to our not. Once the Fed, BOJ, BOE launched their programs in 2008 it
was only a matter of time. We are in a era of global competitive currency
devaluation were desperate governments must devalue currencies in order to
spur domestic growth by improving the value of exports.
The problem with QE or money printing is it is a like a Pandora’s box.
Once it is opened it can never be put away again. There will, now, always be
an easy way out of every economic issue. All interested parties will now be
able to eye this short term financing tool as away of solving short term
issues. The Euro will likely morph into the Lira over time.
QE is not actually the creation of money, not in real terms. What it is is
the reallocation of the monetary pool from those that have a share to those
that do not. All they have done is to devalue the Euro’s held by duplicating
and allocating the new Euros to central banks. The Central Banks will in turn
buy junk assets off commercial banks and government bonds all in return for
cash.
The hope is that the banks will lend the new cash to businesses who will
employ people and in doing so add productivity and value to the economy,
increasing bank earnings and taxes and wealth.
But the banks will not do that. They will hold the money first to improve
their capital ratio’s then they will invest in the the stock market via funds
or other instruments.
The ECB also hope that the governments will have more money in the
treasury and be able to tax less, but they wont, rather they will allocate to
social partners such as Unions.
In short what we are seeing is the wholesale capture of the monetary
system by special interests and the mass confiscation of wealth from
pensioners and savers to governments and government proxies. I fear that we
have just passed a monetary Rubicon that may eventually undermine the very
basic social contract of our capitalist system: work hard and you will
prosper.
It will take time for the effects of this to be felt but the gates have
been well and truly opened and from now on we are only as strong as our
weakest political masters at their weakest moment.Those actors will surely
plunder this monetary tool.
This tragically could be the step that opens the gate to extreme political
entities who can canvass on the widest remit and promise everything to
everyone. Indeed the definition of “urgent need” will change by degrees over
time, until it will take very little to invoke a new round of money printing.
