Understanding the True Implications of Central Bank Money Printing

Big news out of the gate today is that the central banks of the world are about to do more. More what, you ask? More of what central banks do best, of course…more money printing!

They don’t call it that, obviously. They call it “swapping” or “easing” or “recapitalizing” or “saving us from the abyss.” Or they call it “bolstering financial markets,” as The New York Times breathlessly explains…

“The Federal Reserve, the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank all moved to bolster financial markets by increasing the availability of dollars outside the United States.”

And some forgotten voice, somewhere up in the peanut gallery groans, “We’re all Keynesians now.”

But never mind all that. The markets are up. The Dow stacked on 400 points before lunch. There’s no time to think, Fellow Reckoner. No time to wonder on the whys and whatfors. The money is coming! There’s celebrating to do! Hooray!

If only we’d worked this out years ago. Can you imagine? Whenever there was a crisis, we’d just add more liquidity to the system and hey, presto…problem solved!

Unless, that is, the problem has to do with solvency and not liquidity. Broke individuals usually don’t benefit much from extended lines of credit. Not in the long run. They are broke because they have a tendency to overindulge, to consume more than they produce. They need to kick their nasty habit…not reinvigorate it. They need to pay their debts, not put them off, accruing interest in the process.

To switch metaphors for a second, the last thing a man in a hole needs is a shovel. But here are the feds…ready to beat him over the head with it and fill his grave in over the top.

Joel Bowman
for The Daily Reckoning