This message is one of a series. It began when Mario Draghi, former Goldman man and now head of the European Central Bank, promised to do “whatever it takes” to save Euroland.
The issue on the table: whatever does it take to bring a real recovery?
First, whatever it takes, Mario Draghi didn’t seem to have it. Or maybe he did. The situation in Europe is so complicated it’s hard to tell. So, investors have been fearful one day and cheerful the next. At the beginning of last week they thought all was lost. Then, by the end of the week, stocks were rallying again. The Dow rose more than 200 points on Friday. Yesterday, it still had some forward momentum…going up another 21 points.
What does Mr. Draghi have? This report from the Telegraph, which has been hard on the story from the beginning, suggests that at least Mr. Draghi has something:
Mr. Draghi has secured a mandate for “unlimited open-market operations”, a far cry from the half-hearted and self-defeating bond purchases of the last two years. The ECB at last has a license to act with overwhelming force, like the US Federal Reserve.
‘Overwelming force’ is what Ben Bernanke has, which is thought to be the same as ‘whatever it takes.’ But is that enough? What force do central bankers really have? All they can do is provide the markets with more cash and credit. And even if they give it all they’ve got that still won’t be enough to cause a real recovery. Because you can’t cure a debt crisis with more debt. If you could, no one would ever bother with austerity.
Households, governments, businesses — faced with too many debts and not enough money — sooner or later have to straighten up, reduce spending and reckon with their bad debt.
On the other hand, we’ve never heard of a counterfeiter who failed to pay his debts. And since the bank of Ben Bernanke has the power to print money, investors are inclined to give him and the US some slack. That’s because he has ‘whatever it takes.’ At least, they give him more slack than they give to, say, Greece. When Greece is in a pinch, it defaults. That’s what it has done many times. Half its history since independence in 1828 has been spent in default. But when the US is in a pinch, it prints!
That’s the Big Bazooka Theory in a nutshell, where it belongs. And here’s a forecast, too. Readers take note: this is not a formula for a healthy economy. Nor does it bring a recovery. It’s only a formula for blasting the can so far down the road that most investors and savers can’t see it, and therefore don’t worry about it.
As for Mario Draghi, we don’t know. He may have the power to use unlimited force. Or he may not.
According to the theory, you’re bazooka can’t be just big, it has to be infinitely big. Because, the only way you can hold off a default is by promising to print an infinite quantity of cash. And you have to mean it. If you just print up a few hundred billion, speculators take out their calculators. If they see you’re a little short, they sell your bonds, fearing that you will default. Then, other speculators buy them at low prices, betting that you will print more of whatever it takes. Then, when you do print more, prices soar and the speculator sells the bonds back into the market…
….and the whole process repeats itself…until you finally default.
As long as the amount you print is limited, speculators can look ahead and see when it runs out. The only way to end this speculation against your bonds is to say: ‘don’t bother selling my bonds, I’ll print an infinite amount to protect them.’
Then, the whole drama goes away. Savers and investors just want to know they’ll get their money back. Your willingness to print, completely unrestrained by law or common sense, reassures them.
In fact, in today’s world, they’ll buy so many of your bonds that your interest rates will fall below the level of consumer price inflation (which is usually falling too)…making the real yield actually negative! In other words, if you agree to act like a damned fool, they’ll lend you money and ask for no real yield.
That’s because you will have ‘whatever it takes.’
All of which is passing strange. But very amusing.
But it still leaves us with the question: whatever does it take to bring a real recovery?
Bill Bonnerfor The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
All nations will print causing worldwide inflation. The economy will eventually expand and all of that funny money with push prices up and up. Savings will be inadequate. Governments and debtors will gain; savers will lose.
“whatever does it take to bring a real recovery?”
more workers. but the working population is decreasing. so no recovery there.
fewer non-workers. but non-workers are multiplying. so no recovery there.
more work done. but everyone is maxed out as it is, taxes are too high and will never be lowered, fiat ponzi sucks up ever-increasing amounts of work product, and “more work” often means more automation and more under/un-employment and thus fewer consumers. so no recovery there.
jubilee. but bankers infestors and others who live off of the labor of others will NEVER accept this. so no recovery there.
end fiat fractional reserve currency. but that is how the entire system works and there is no replacement either theoretical or operational. so no recovery there.
so. no recovery.
of course everything is local. bankers are always at the top of the food chain, and some lucky infestors will scoop up a few extra workers, and some lucky workers may be more valued than the vast herds. such may feel THEY are in recovery and that everyone else is simply inferior. but overall the system has only one direction – down.
The ungrateful gman bites the hand that feeds
gman and all of us have capitalism and including “banksters” and “infestors” to thank for his and our wonderfuil standards of living.
But gman is ungrateful and bites the hand that feeds.
But that’s okay, it’s a (sort of) free country and gman is free to share his delusions.
How to Cure a Debt Problem
Problem: Federal government and millions of Americans had too much debt, especially mortgage debt.
Federal Reserve Bank buys bonds issued by Federal Treasury using printed money. Treasury’s Debt is canceled. (Though it may technically still be recorded as debt it has effectively been canceled).Yeah. This lowers interest rates. Homeoners refinance at lower rates. Mortgage investors lose out when this happens. Savers see lower returns. Wealth is transferred from savers to debtors. Economy recovers.
Ben Bernanke may be onto something afterall.
Without savers there is no capital formation. Without capital formation there is no productivity gain. Without productivity gain there is no real economic growth. Without growth the people become impoverished. This leads to war, starvation, or revolution. Take your pick. The CDC is prepared with the “casket liners”, so the elite know all this.
The CDC is prepared with the “casket liners”, so the elite know all this.
Yes, of course we do, it was brought up at a recent seceret meeting of all the elites of the world. I could tell you more… but then I would have to… (well you know)
Fiat Money versus Gold Money
Evil fiat money is not backed by Gold. Just the (rather useful) ability to exchange it for any product or service in this world. It’s enough for me.
America dollar used to be backed by Gold. Then it wasn’t.
See, there are no absolute guarantees in this life.
Don’t whine about fiat American dollars, just collect ‘em.
“But gman is ungrateful and bites the hand that feeds.”
I invite everyone to consider just who feeds who what.
“please mr. bernanke, I want some more debt.”
I’m reminded of that line in that ancient greek play. “no-one cares who bakes the cake. they only care about who hands it to them.”
This unlimited power to print seems to rise to the status of god-like.
And, I thought that God was One.
“But it still leaves us with the question: whatever does it take to bring a real recovery?”
A return to real ‘money’, backed by something in limited supply that cannot be created out of thin air! I agree with Bill, the great correction continues. We’ll get there in the end!
“That’s the Big Bazooka Theory in a nutshell, where it belongs.”
…hahaha! blasted me right in the can there, bill!!!
thx! i needed that!
One weekend in the future, gold will be priced by the large holders at $ 10,000 per oz and we shall be back to a semi gold standard.
“A return to real ‘money’, backed by something in limited supply that cannot be created out of thin air!”
the problem with non-fiat money is …
“One weekend in the future, gold will be priced by the large holders at $ 10,000 per oz and we shall be back to a semi gold standard.”
Obvious strategy….devalue debt by inflation. Always been. Always will be.
The fools play God. Its easy to print and drop.Maybe they can just drop some rain.
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