The Trouble With Printing Money – QE3 Reflects A Colossal Failure To Address Our Predicament by Chris Martenson
It is against the larger backdrop of borrowing and spending well beyond our means that we need to interpret this most recent effort by the Fed to print our way back to prosperity.
One way to look at the $40 billion per month in new printing is to compare it to individuals and households. Remember, money only comes into your life through effort, and that’s why it has value and can function as a store of value. Once upon a time you could make the choice as to whether to work to find money (by mining gold or silver) or work to earn money by farming or practicing a trade, craft, or service. Note that work was always involved.
What does it mean that the Fed can just up and print $40 billion per month indefinitely without performing any work whatsoever?
Well, let’s put that in context. If an individual earns $50,000 per year, then each month the Fed is effectively printing up the yearly output of 800,000 such individuals. Said another way, if you earn $50k, then you’d have to work for 800,000 years to earn the same amount of money the Fed prints each month.
Given that the median household income is ~$50k, this means that after one year of MBS purchases, the Fed will have printed up as much money as 9,600,000 households will have earned. Presto! Just like that, the Fed is effectively creating the exact same purchasing power as nearly 10 million US households, or 25 million people (I’m rounding a bit here).
And nobody had to do anything except push a key on a computer a couple of times.
While the Fed can wrap this magic act in all sorts of covering language about dual mandates, maximum employment, and price stability, the simple fact remains that money printed out of thin air cannot, has not, and will not ever lead to prosperity. How could it? It arises without any effort at all, no work performed, no goods transformed or lives improved, no land planted and tended well, no services rendered, and no capital formed. It is just conjured into existence.
It is just new money tossed after bad debts, with both remaining to work their different insidious effects on the economy and our daily lives. If printed money could lead to prosperity, trust me – some culture would have worked it out long ago, because people every bit as clever and determined as those alive today (and with the same DNA software installed) have tried it again and again.
If it could work, then we should just print every household up a nice $1,000,000 check each year and let everybody stay home, take vacations, and drive nice cars. It’s just an absurd notion, and this is why you should keep a journal – you live in absurd times.
How does all this end? Like it has every other time in history, with a final destruction of the currencies involved. That’s my best guess.