Do you get it now? The money printing will NEVER end

Well, it is now official, something we’ve been warning about became reality yesterday. The era of never-ending money printing is now upon us thanks to Ben Bernanke and his central-planning mates at the Fed, is now OFFICIAL policy.

And it’s not as if we’ve only just started saying this recently, in fact we first started (in another forum) saying the money printing will never end all the way back in August 2009 in a piece titled “QE: Once you pop you can’t stop”:

Perhaps the main reason that the BoE announced the increase is that it had no choice. Put simply the BoE is staring down the barrel of a Gilts strike. If it announced that it was no longer going to show up at the (record) Gilt auctions, would anyone else? Take the safety net away of being able to hit the BoE bid and who is going to lend the UK money? A gilt strike would basically be a judgement from the market that the UK spending spree is out of control, and that the UK Government was heading into insolvency. If you put it this way, it would appear that the BoE had little choice.

All this money printing comes at a cost, and one that may be very expensive for the UK over the next couple of years. It puts all the weight on the currency.

When you just add noughts to a computer screen to lend to the Government, the newly created money has no wealth or ‘real’ value attached to it, it is a devaluation of the currency by stealth, and theft of wealth from the rest of the money in circulation.

But, here is the bitter irony of the QE scheme that apparently seems to be lost on the BoE. The more you devalue a currency the less attractive bonds become, after all a bond is simply a promise to pay at a future date in the country’s currency. So, the more valueless money that is created to buy Gilts, the less attractive they become to outside investors. Is it beyond imagination to think of a time when the only people to turn up to buy Government debt is the BoE themselves? We don’t think so, and if that happens the real financial crisis will just be getting started.

So what can we read into this decision regarding the FED? Well, they have comparable debt levels, and also have record bond auctions for this year. Will the FED follow the lead of the BoE? This decision makes it look more likely that it will, because if it doesn’t, with record Government bond sales and no Central Bank support, long term interest rates would shoot up, choking off any chance of recovery.

But again, the FED is in the same tight spot as the BoE, the more it announces printing money to keep long term interest rates low and to assist the US Governments massive deficit financing, the more the value of the dollar will drop, and the less appealing the bonds become.

The past few months we’ve heard of planned exit strategies for some of the FEDs financing schemes, and how they will be able to avert price inflation. But, we’ve not heard about QE, why? Because the moment the Central Bank removes that floor it’s game over.

Are the FED and BoE now at the beginning of a vicious spiral? The more QE it does, almost guarantees the more it will have to do in the future, and the more it devalues the currency the more people won’t want to hold Government debt, so more QE will be needed to plug the gap…and round we go again…

QE is much like eating a Pringle, once you pop, you can’t stop…

And we’ve been saying the same thing here on Gold Made Simple News for more than 2 years now – here’s a selection of them:

July 14th 2011:

There you go ladies and gents, these are the people in power at the moment, they are clueless about basic economics. You don’t need to bury your head in economic theory to work out just what bad shape we are in economically speaking – you just need to watch the below clip to realise that the people in power right now will not stop causing the damage they are until it completely and utterly blows up in their faces.

October 10th 2011:

This morning gold is up trading at $1660/£1061 as the world is slowly getting the joke that the central banks of the world will simply not stop printing.

February 9th 2012:

Sadly as we’ve being saying since our very first post the money printing will not stop – in fact it hasn’t just re-started it is now accelerating. This is very slippery path we’re now on and there is absolutely no desire to by the government of the BoE to change direction – instead they’ve just put their foot on the gas.

March 1st 2012:

He then warns Bernanke that if he continues his path the “Fed will self destruct” – meaning that they will not stop until the paper money stops working and they will “End the Fed” themselves.

March 29th 2012:

QE in the UK will not stop – that is inflation and will hammer company margins

April 2nd 2012:

Patience seems to be the key here at these levels and the bigger picture kept in mind. At the end of the day the great money printing be the world’s central banks will not stop. Just a cursory look at the maths around the sheer amount of borrowing the the western world governments are factoring in the coming years should tell you that the central banks will be forced to monetise that debt or risk exploding interest rates which would bankrupt those governments almost overnight.

June 1st 2012:

 Regular readers will know that we’ve been predicting (and been proved correct each and every time) that the money printing by the Bank of England (and the other main central banks for that matter) will not end…

… The day the people en-masse realise we’re right, and that the essence of everything we’ve ever written has been to try and warn people that the printing will never end, and then agree it won’t end themselves – it will end. Abruptly and in spectacular fashion.

So when we point out that the BoE are deliberately targeting higher inflation and that they will print as much money as is necessary to keep, and that the governor of the BoE has tacitly told you this, and that even a member of the MPC has overtly told you this, what we are trying to tell you is that this will never end until you realise that it will never end.

July 15th 2012:

Now, let us make this next statement as clearly and unambiguously as possible. THIS WILL NOT BE THE LAST TIME THE BOE PRINTS MONEY – THE MONEY PRINTING WILL NEVER END THIS SIDE OF “THE BIG RESET”.

We could go on but you get the point, we’ve saying in one way or another for more than 3 years now that the money printing will simply never end.

Now what you also have to bear in mind is that every-time we’ve said this we’ve always had to deal with people calling us ‘crazy’ and that of course this money printing will end, these measures are temporary, and we’ve had this every step of the way.

Well last night Ben Bernanke himself confirmed exactly what we’ve been warning about all this time.

The importance of yesterday’s announcement was probably lost on many, but we can not overstate enough just how different and serious yesterday’s announcement was.

You see every other time there has been an announcement about money printing (deliberately called Quantative Easing to confuse you) it has been for a fixed amount and fixed period of time.

The first from of ‘QE’ came by way of the Federal reserve printing money out of thin-air to buy up mortgage back securities back in October 2008. From the Fed minutes:

The Federal Reserve also announced on November 25 that, to help reduce the cost and increase the availability of residential mortgage credit, it would initiate a pro- gram to purchase up to $100 billion in direct obliga- tions of housing-related government-sponsored enter- prises (GSEs) and up to $500 billion in MBS backed by Fannie Mae, Freddie Mac, and Ginnie Mae.

So we can see that the announcement was for a fixed amount – $600bn in total.

Then came QE2, again using money created by tapping numbers onto a computer screen, a year later in October 2010. From the Fed minutes:

To increase its securities holdings, the Committee decided to continue its existing policy of reinvesting principal payments from its securities holdings into longer-term Treasury securities and intended to pur- chase a further $600 billion of longer-term Treasury securities at a pace of about $75 billion per month through the second quarter of 2011

Again, this round of money printing had a fixed amount ($600bn) and also had an end date when the money printing would end (Q2 2011).

Then came Operation Twist, essentially named so as to hide what it really was (QE3) – it got dubbed QE Lite. From the Fed minutes:

by the end of June 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion.

The reason it got dubbed QE Lite was because this time the purchases of $400bn in government debt would be paid for by selling short dated securities (less than 3 years) rather than being paid for using money created out of thin air.

This is what is known in central bank circles as ‘sterilized’ monetary purchases, because it doesn’t (apparently) increase the money supply.

But again look, this form of QE was for a fixed amount ($400bn) and for a fixed amount of time (end of 2012)

So up until yesterday every form of QE that had been announced crucially had an ending, both in $ amount and time.

But yesterday we got something completely different out of the Fed, and it is for this reason that we (and many others) have dubbed this latest round of money printing ‘QE Infinity”. From yesterday’s release:

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month

So just like QE1 this latest QE is all about buying mortgage debt with money created out of thin-air, but with two very crucial differences, the Fed didn’t say how much or for how long this money printing will continue for, the Fed themselves have called the purchases ‘open-ended’.

Now, if something is ‘open-ended’ it means that it doesn’t have an end. So basically the Fed is saying that there is now no limit to the amount the can and will print, there is no total fixed amount to stop them, nor is there an end date. Rather the Fed will print $40bn per month until, well, until forever because the didn’t say.

What the Fed did say is that when they ‘feel’ unemployment has improved enough they will end the money printing, but crucially they didn’t give a target for unemployment to fall to before the printing ends, like say 6%. Again just underling the very open-ended and opaque nature of the announcement.

And here is the biggest rub of all, and one that tells you for sure that the money printing now can not end. And it is reason why all the unemployment is there in the first place. It is there precisely and because of all the money printing. The very root cause of the malaise comes from a centrally planned and centrally printed economy.

The problem is the massive debt burden and there is no way on earth that the unemployment rate will normalize this side of a massive (and now very painful) debt liquidation across the board. But this can never happen because every-time the Fed prints money it increases the debt load in the system. This is because we operate under the insane system where money is debt and debt is money. So the more money they print the more debt there is.

So there is absolutely no chance that unemployment will improve whilst the Fed continues to print. And if the Fed continues to print waiting for unemployment to improve it simply means that we’ve now officially entered the never-ending money printing phase.

You see the Fed sees money printing as the cure when in fact it is the very cause of all the problems in the first place.

So we’ve now entered a very worrying, and final, phase of this financial crisis, and one that we’ve predicating for years. The open admission that the printing will not end.

What it really shows is the Fed crumbling and panicking (just like Ron Paul said yesterday), and admitting that all their previous rounds of money printing haven’t fixed the problem at all.

It also tells you that they really are going to see this through to the end and print every step of the way.

So what happens when this latest round of money printing turns out to have not improved unemployment at all? Why they’ll just up the monthly amounts of additionally money printing and add new types of things to be purchased, but we’ll never EVER ask ourselves whether they will print, after yesterday the answer to that is always going to be a resounding YES.

So what to do about this infinite money printing, now officially confirmed by the Fed themselves?

Back when first wrote that the QE was never-ending the price of gold was $900/£560 – today it’s $1777/£1100, that’s a near 100% in just 3 years. You don’t need us to tell you what gold will do now official never-ending money printing is here over the next 3 years.

But the ‘what to do’ question, aside from the obvious wealth protection of buying gold appeared a few months back in probably the most important article we’ve published. It can be found here and we strongly urge all readers take a look, it explains how you can stop this madness of money printing – and the answer is surprisingly easy.

Related posts:

1. UK Government calls for more money printing by the BoE
2. Money printing trifecta complete: ex-BoE Blanchflower calls for more QE
3. IMF now calling for more UK money printing
4. British Chambers of Commerce slashes UK GDP and calls for more money printing by the BoE
5. Osborne green lights more money printing by the BoE

Link to this article: : http://www.goldmadesimplenews.com/gold/do-you-get-it-now-the-money-printing-will-never-end-7933/

Posted by Thomas Paterson on Sep 14 2012. Filed under Gold News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.