This Is the First Time In History that All Central Banks Have Printed Money at the Same Time … And They’re Failing Miserably


Washington’s Blog
May 2, 2012

Simultaneous Global Printing Is Failing Miserably

Mainstream Keynesian economists argue that the failure of the European austerity measures to pull Europe out of the doldrums proves that more stimulus is needed, and that austerity is poison at this stage.

Indeed, most mainstream economists pretend that debt doesn’t exist … or believe that debt for its own sake is good and necessary.

But Martin Weiss noted last month:

Four of the world’s largest central banks have gone absolutely berserk, running the money printing presses like never before in history:

This Is the First Time In History that All Central Banks Have Printed Money at the Same Time … And They’re Failing Miserably  chart
Source: Chart lines — Pimco

The Bank of Japan (BOJ) had already been printing money like crazy ever since their bubble economy burst in the early 1990s.

So when the debt crisis struck in 2008, the size of their balance sheet assets, which measure the cumulative total of a central bank’s money printing operations, was alreadythe biggest in the world: About 20% of their economy.

Then, when the shock waves of the Lehman Brothers collapse struck Japan, what did they do?

They stepped up their money printing operations EVEN further — to about 30% of GDP. (See yellow line in chart above.)

Other than Brazil in the 1970s or Germany in the 1920s, no other major nation — or group of nations — on the planet had ever gone that far! (Until, that is, Europe, which I’ll get to in a moment.)

Meanwhile …

At the U.S. Federal Reserve, no Fed Chairman in history — not even notorious easy-money advocates like Arthur Burns or Allen Greenspan — had EVER run the money printing presses for any extended period of time.

But Fed Chairman Bernanke changed all that. Soon after the debt crisis hit in 2008, he nearly TRIPLED the size of the Fed’s balance sheet from about 6% of GDP to almost 17% of GDP.

And in the years since, he has pumped it up even further to about 20% of GDP! (Red line in chart.)

The Bank of England (BOE) has mostly been expanding its balance sheet in lock step with the Fed (green line).

But in the global race to print money, it’s the European Central Bank (ECB) which has been leading the pack in the past year or so, suddenly expanding their balance sheet from about 20% of GDP to close to 30% GDP (blue line).

This is absolutely massive!

Heck, in the 1990s and 2000s, just the money-printing operations by ONE central bank (the Bank of Japan) changed the world:

Global investors borrowed abundant amounts of cheap money in Japan and poured it into risky investments around the world, helping to create some of the largest bubbles — and busts — in history.

Now, imagine FOUR central banks doing the same thing at the same time!

Indeed, China and India have been printing as well, as shown by the last 2 of these 2011 charts:

The U.S. is printing lots of money…..

This Is the First Time In History that All Central Banks Have Printed Money at the Same Time … And They’re Failing Miserably  Chart1
Source, The St. Louis Fed

The Bank of England is printing lots of money…..

This Is the First Time In History that All Central Banks Have Printed Money at the Same Time … And They’re Failing Miserably  Chart2
Source: The BoE

The EU is printing lots of money….

This Is the First Time In History that All Central Banks Have Printed Money at the Same Time … And They’re Failing Miserably  Chart3
Source: The ECB

Japan is printing lots of money…..

This Is the First Time In History that All Central Banks Have Printed Money at the Same Time … And They’re Failing Miserably  Chart4
Source: The BoJ

China is printing lots of money…..

This Is the First Time In History that All Central Banks Have Printed Money at the Same Time … And They’re Failing Miserably  Chart5
Source: The People’s Bank of China

India is printing lots of money…..

This Is the First Time In History that All Central Banks Have Printed Money at the Same Time … And They’re Failing Miserably  Chart6
Source: Reserve Bank of India

Pimco CEO El-Erian warned last month that central banks might fail in their giant experiment to cure the world’s economic ills with paper money. See this and this.

Conservative economists argue that if war spending could get us out of our slump, it would have done so by now. They also point out that “more empires have fallen because of reckless finances than invasion”.

They also point out that the government has spent more in the last decade than in all of American history before that … to no avail:

The government has done more than during the Great Depression, but the economy is still stuck a pit.

***

The amount spent in emergency bailouts, loans and subsidies during this financial crisis arguably dwarfs the amount which the government spent during the New Deal.

For example, Casey Research wrote in 2008:

Paulson and Bernanke have embarked on the largest bailout program ever conceived …. a program which so far will cost taxpayers $8.5 trillion.

[The number is arguably much higher now. ]

So how does $8.5 trillion dollars compare with the cost of some of the major conflicts and programs initiated by the US government since its inception? To try and grasp the enormity of this figure, let’s look at some other financial commitments undertaken by our government in the past:

This Is the First Time In History that All Central Banks Have Printed Money at the Same Time … And They’re Failing Miserably  Chart%202%282%29

As illustrated above, one can see that in today’s dollar, we have already committed to spending levels that surpass the cumulative cost of all of the major wars and government initiatives since the American Revolution.

Recently, the Congressional Research Service estimated the cost of all of the major wars our country has fought in 2008 dollars. The chart above shows that the entire cost of WWII over four to five years was less than half the current pledges made by Paulson and Bernanke in the last three months!

In spite of years of conflict, the Vietnam and the Iraq wars have each cost less than the bailout package that was approved by Congress in two weeks. The Civil War that devastated our country had a total price tag (for both the Union and Confederacy) of $60.4 billion, while the Revolutionary War was fought for a mere $1.8 billion.

In its fifty or so years of existence, NASA has only managed to spend $885 billion – a figure which got us to the moon and beyond.

The New Deal had a price tag of only $500 billion. The Marshall Plan that enabled the reconstruction of Europe following WWII for $13 billion, comes out to approximately $125 billion in 2008 dollars. The cost of fixing the S&L crisis was $235 billion.

CNBC confirms that the New Deal cost about $500 billion (and the S&L crisis cost around$256 billion) in inflation adjusted dollars.

So even though the government’s spending on the “war” on the economic crisis dwarfs the amount spent on the New Deal, our economy is still stuck in the mud.

“Deficit hawks” like top economic historian Niall Ferguson says that America’s debt will drive it into a debt crisis, and that any more quantitative easing will lead our creditors to pull the plug. See this, this andthis. Indeed, PhD economist Michael Hudson says (starting around 4:00 into video):

If the problem that is grinding the economy to a halt is too much debt, and if no one in the government – in either party – is looking at solving the debt problem, then … we’re going to go into a depression as far as the eye can see.

Yet the U.S. hasn’t reined in its profligate spending. While modern economic theory shows that debts do matter (and see this), the U.S. is spending on guns and butter, and American debt has risen to more than 100% of GDP.

As PhD economist Dean Baker points out, the IMF is cracking down on the once-proud America like a naughty third world developing country. (As I’ve repeatedly noted, the IMF performed a complete audit of the whole US financial system during Bush’s last term in office – something which they have only previously done to broke third world nations.)

Indeed, economics professor and former Senior Economist for the President’s Council of Economic Advisers Laurence Kotlikoff wrote in 2010:

Let’s get real. The U.S. is bankrupt.

***

Last month, the International Monetary Fund released its annual review of U.S. economic policy…. The IMF has effectively pronounced the U.S. bankrupt.

***

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt.

***

This is what happens when you run a massive Ponzi scheme for six decades straight….

***

Bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

Indeed, despite all of the global money printing, we’re still in a Depression. And see see this.

False Debate: More Stimulus Or More Austerity

In fact, the whole stimulus-versus-austerity debate is a false one (as we noted last year). Let’s examine an analogy to get beyond the rhetoric and see what’s really going on …

The blood pressure of the patient in the emergency room drops precipitously.

The ER docs have already given 15 pints of blood over the course of many hours. But the patient is still on the verge of dying.

Medical rules and regulations say that more than 15 pints of blood should never be given, as too much transfusion can cause other fatal problems.

The “liberal” doctors want to give the patient more blood. After all, this is a life-or-death emergency … and if they can just buy more time, they might be able to figure out a way to save the patient.

The “conservative” doctors want to stop with the transfusions. After all, giving too much blood could kill the patient … and maybe he’ll be able to pull out of it on his own.

Who is right?

Well, the “liberal” and “conservative” doctors are so busy arguing their point of view that they haven’t noticed that one of the patient’s legs has been half chewed off. He’s bleeding out through the huge open wound.

Unless the doctors suture up the wound, the patient will bleed out no matter how much blood they give him.

The government isn’t even stimulating in an effective way …. it isn’t spending money on the types of stimulus that will have the most bang for the buck. And giving money to the little guy helps stimulate the economy much more than giving it to the big financial players.

But while D.C. has thrown a couple billion dollars at jobs and the states – it is a tiny drop in the bucket compared to the many tens of trillions of dollars in handouts to the giant banks.

Whether or not Keynesian stimulus could help in our climate of all-pervading debt, Washington has already shot America’s wad in propping up the big banks and other oligarchs.

More important still, Keynes implemented his New Deal stimulus at the same time that Glass-Steagall and many other measures were implemented to plug the holes in a corrupt financial system. The gaming of the financial system was decreased somewhat, the amount of funny business which the powers-that-be could engage in was reined in to some extent.

As such, the economy had a chance to recover (even with the massive stimulus of World War II, unless some basic level of trust had been restored in the economy, the economy would not have recovered).

Today, however, politicians haven’t fixed any of the major structural defects in the economy ( and seethis).

So even if Keynesianism were the answer, it cannot work without the implementation of structural reforms to the financial system.

A little extra water in the plumbing can’t fix pipes that have been corroded and are thoroughly rotten. The government hasn’t even tried to replace the leaking sections of pipe in our economy.

Bailouts, money-printing and lose monetary policy can’t patch a financial system with giant holes in it.

What are the giant holes?

Some of the biggest are:

  • Focusing on policy objectives other than reducing unemployment (which has the net effect of actuallyincreasing unemployment)

Of course, the loss of America’s manufacturing base, encouraging jobs to be shipped abroad, out of control derivatives and other shenanigans are giant holes as well. And the government has been throwing money at the big banks instead of the little guy, which – as Steve Keen as demonstrated – is not an effective way to stimulate the economy.

Another useful analogy is that of parasite and host. As we wrote in 2009:

Why isn’t the economy getting better, even though the government is pumping trillions of dollars into bailouts and stimulus packages and intervening in markets left and right?

Because the government is treating the wrong patient.

Let’s say you travel to the tropics and pick up a parasite. You go to your doctor who gives you very powerful drugs that make you sick. You go back to the doctor, he looks you over, and then adds more potent drugs to your prescription.

You go back a third time and say “Doctor, I’m getting sicker and sicker, why isn’t it working?”

He responds “Oh, I thought the parasite was the patient. The drugs are making it healthier”.

***

The real economy is:

(1) People making things or providing real, useful services

(2) People saving money

and

(3) People investing the money they saved into productive businesses which will make more things or provide needed services.

According to top federal reserve officials and economists, the government’s actions will encourage big financial players to make even riskier gambles in the future.

Indeed, the government is in the process of giving hundreds of billions – if not trillions – of dollars and guarantees to hedge funds (hedge funds are some of the biggest speculators of all). Indeed, the various bailout programs are giving huge sums to companies that make money by pushing paper around without actually producing any useful goods or services.

The heads of the big banks and financial companies are also getting huge bonuses even though they have driven their companies so far into the ditch that they need government bailouts. Even Paul Volcker says the incentive system is broken. Indeed, the government is making the CEOs richer by giving them billions of dollars of bailout money with which to feather their own nests.

And credit derivatives [at least to the extent they are naked, unregulated and opaque] act as a parasite on the real economy: credit default swap buyers bet that the referenced company will go down the tubes (see this and this). And yet the government is allowing the credit default swap trades to increase, driving CDS spreads against many companies and governments to reach all-time highs.

***

Not only is the parasite being boosted by government actions, but the patient – the real economy – is being poisoned.

Manufacturing has been shipped out of America for decades, and the government is stillactively encouraging companies to move manufacturing abroad.

Taxpayers will be on the hook for trillions of dollars of obligations through taxes/or inflation (even Bernanke has admitted that inflation is a tax, because people have less money in their pockets after buying necessities). So Americans will be able to save less.

And government has not only failed to require that companies accurately report their finances – so that investors can know which companies are stable and productive – but it has actually thwarted such accuracy. For example:

  • A government agency prevented the SEC from investigating multi-billion dollar Ponzi-schemer Stanford
  • As of 2006:

    “President George W. Bush has bestowed on his intelligence czar … broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations.”

The government has been strengthening the parasite and poisoning the real economy. No wonder the patient is getting worse.

We noted a couple of months later:

Michael Hudson is a highly-regarded economist. He is a Distinguished Research Professor at the University of Missouri, Kansas City, who has advised the U.S., Canadian, Mexican and Latvian governments as well as the United Nations Institute for Training and Research. He is a former Wall Street economist at Chase Manhattan Bank who also helped establish the world’s first sovereign debt fund.

Hudson has frequently described Wall Street as “parasitic”. For example, in a 2003 interview, Hudson said:

The problem with parasites is not merely that they siphon off the food and nourishment of their host, crippling its reproductive power, but that they take over the host’s brain as well. The parasite tricks the host into thinking that it is feeding itself.

Something like this is happening today as the financial sector is devouring the industrial sector. Finance capital pretends that its growth is that of industrial capital formation. That is why the financial bubble is called “wealth creation,” as if it were what progressive economic reformers envisioned a century ago. They condemned rent and monopoly profit, but never dreamed that the financiers would end up devouring landlord and industrialist alike. Emperors of Finance have trumped Barons of Property and Captains of Industry.

More recently, Hudson said:

You can think of the financial sector as being wrapped around the real economy, almost like a parasite, and that’s why it’s been called parasitic for so long. The financial sector extracts interest from the economy, the property sector extracts economic rent, as do monopolies. Now the key thing about parasites, is that it’s not simply that they extract nourishment from the host. The parasite takes over the
host’s brain, to make it think it’s part of the economy, to make it think
it’s part of the host’s own body, and, in fact, that’s it almost like a child of the host, to be protected. And that’s what the financial sector has done today.

You have Obama coming out and saying, “We have to save the banks in order to save the real economy”. The fact is, you can’t serve both the parasite and the host.

And see this.

On August 10th, Hudson went even further. Specifically, he said:

  • The giant financial institutions have already killed their host – the real American economy
  • Since they realize that the American economy is dead, they are trying to suck as much blood out of America as possible while the corpse is still warm
  • Because the American economy is dead, their plan is to soon jump to another host. They will ship all of their money overseas

To come back to my original analogy, the dying patient has a horde of leeches inside the gaping wound in his leg, and the transfused blood has done nothing but fed the leeches. [Sorry for the gross analogy.]

The doctors have been helping the parasites, not the patient. Pumping in more blood – at least by itself – isn’t the answer.

Unless the doctors clean out the parasites and close the gaping wound, the patient has no chance.

 


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