Bank of England Announces More Currency Destruction

“The debasement of paper money continues…”

That’s how our friend Detlev Schlichter signs off his weekly reports on his website, It’s appropriate. Now more than ever.

On Monday, we sent you Detlev’s latest on the continued debasement of the euro. We also reported on Bundesbank president Jens Weidmann’s opposition to further monetization of national debt via the European Central Bank. Detlev sent us his thoughts…

“Hi Gary,

“Weidmann’s position is understandable. He knows that this will lead to disaster. The Bundesbank is strongly opposed to the ECB’s buying of government bonds. I am pretty confident that concerns over this type of policy are also more widely shared, and more intensely felt, among the German public than in many other countries.

[Editor’s note: Germany’s recent history is real-world proof of the evils of monetizing government debt with newly created money. For a detailed account of hyperinflation in early 20th-century Germany, get a copy of When Money Dies here, for 20% off.]

“The President of Germany, Christian Wulff, has publicly opposed it, and two senior central bankers in Germany have resigned in protest: Axel Weber, who was a shoo-in to succeed Trichet as ECB president, and Jurgen Stark, who is still chief economist of the ECB, but will leave soon.

“But none of this will change the final outcome. These people are fighting a battle they have already lost. The ECB is already committed to supporting the euro-government bond market. The ECB had bought €160 billion in bonds a few weeks back but has since bought more Italian debt. I guess they must be close to €200 billion in total by now. The ECB is the single largest creditor to the Greek government. But what about the treaty, the ‘ban on monetary financing’? Rubbish. The ECB has simply argued that it is buying these bonds to allow a proper transfer of its monetary policy, to sustain orderly markets. And if need be, politicians will simply change the treaty. These people do as they please.

“The Bundesbank has two people on the ECB board. They can easily be outvoted. Those who left in protest will be replaced with more-compliant bureaucrats. While Weidmann was giving this interview to the Financial Times, the chief economist of Deutsche Bank was calling for unlimited purchases of Italian bonds by the ECB to keep yields below 5%!

“This thing will unfold as I predicted.

“Best wishes,


Just a few hours after getting Detlev’s response, we woke up to find the world rushing to unfold just as Detlev has been predicting. Not to be outdone by the Fed and the ECB, the Bank of England pours on the speed in the quantitative easing marathon. We read in the Financial Times:

“Bank of England Signals More Quantitative Easing”

“Economic activity will be ‘broadly flat’ until the middle of next year, the Bank of England warned in a gloomy inflation report which signalled that its monetary policy committee [MPC] will announce more quantitative easing in the coming months.

“Sir Mervyn King, the governor, said on Wednesday that ‘inflation is more likely to be below than above the target’ over the next two years, implying that the bank believes more asset purchases will be necessary. The report’s central forecast shows inflation falling to far below the Bank’s 2% inflation target toward the end of 2013, the forecast horizon the MPC considers when deciding whether or not to conduct further quantitative easing.

“The bank is due to finish buying the £75billion worth of asset purchases that the MPC announced in October by February. Analysts had already expected more quantitative easing to be announced at that point. But a further round of asset purchases could now be brought forward.

“Chris Williamson of Markit said: ‘Concerns over deflation have grown. If the situation in the eurozone fails to improve, then there is a good chance that the MPC could introduce more QE at its December meeting, though it is more likely to wait until the new year.'”

We remind our long-suffering readers every chance we get: Price deflation is a good thing. It’s the thing that free markets do best…turning luxuries into increasingly affordable everyday commodities.

That’s what happens in an environment of free enterprise, competition…and a stable form of money (and stable forms of money are exactly the kind that the markets pick when left to their own devices… without a “flexible” currency imposed on them by a central bank with the force of government law behind it)…

The modern economic myth is that “deflation” — falling prices — is the bogeyman, the killer of economic growth. This myth supports the existence of central banks, whose primary mandates include “price stability.”

Ha! “Price stability” means pumping the economy with more and more money to keep prices from falling.

This is always a bad idea. Because money supply inflation by the government-backed monopoly currency issuer is legalized counterfeiting. It transfers wealth from savers to the central bank…which then doles it out to its commercial bank stooges and eventually to underwater governments…

But the pursuit of so-called price stability is especially malicious during a depression, when falling prices would help the common man the most.

During an economic depression, one of the breadwinners in a household may lose his or her job. The other may not get a raise for two or three years…or ever worse, the remaining jobholder may get a pay cut. Is it better for such a household to have “stable” or rising prices for groceries and gas? Or would they be better off if prices came to reflect general economic conditions and, you know, actually declined?

Governments and central banks don’t see it this way. FDR certainly didn’t when he did everything in his power to prop up food prices “to protect the farm industry” even as it became harder and harder for everyone to afford to eat.

And we haven’t even yet considered that central bank action is what makes the boom and its attendant bust possible in the first place. They cause the illness. Then they prevent the healing. When the condition of the economy worsens, they enthusiastically administer more of the virus.

The result? An increasingly weak economy. The politically well-connected make out just fine under such conditions. After all, they’re the ones who benefit from the inflation-wrought transfer of wealth!

The middle class, however, suffers. They slip into the ranks of the poor. And often, they have no idea why. The mainstream media aren’t exactly of much help in telling them either. In his article “Why the Old Media Ignore Ron Paul,” Thomas DiLorenzo explains why:

“All governments, Rothbard wrote, rely crucially on a set of myths and superstitions about its alleged greatness and benevolence, coupled with accompanying lies, myths and superstitions about the ‘evils’ of freedom, voluntarism, private enterprise and the civil society. These myths and superstitions are not spread by government bureaucrats as much as by various intellectual prostitutes in academe and in the media. The ‘court historians’ of academe spin tall tale after tall tale about the alleged need for more and more government (Keynesian economics would be a good example), while these ideas are spread about to the general public by pundits and journalists.

“This, too, is why the media ignore Ron Paul. There are a few exceptions, but for the most part, they have invested many years of schooling and work as propaganda mouthpieces for the state. They are as much a part of the state apparatus as is any government bureaucrat or any politician.

“They are the essential tool of the state in dumbing down the general population so that it will peacefully acquiesce in the never-ending expansion of the state and the financial enrichment of all its functionaries, while losing their own freedom and prosperity at the same time.

“They are the paid professional liars who repeat, over and over, such absurdities as ‘Higher taxes and more government spending will make us prosperous’…”recessions and depressions are caused by sudden outbursts of greed and animal spirits” (according to John Maynard Keynes); ‘capitalists get rich by selling people products that harm or even kill them’; and on and on and on.”

With this in mind, we cast our dubious, Whiskey-soaked eye upon an article in The New York Times with the headline:

“Middle-Class Areas Shrink as America Divides Into ‘Two-Tiered Society’ of Rich and Poor

“Study: 44% of families lived in middle-income neighborhoods in 2007, down from 65% in 1970.”

To be fair, the article didn’t prescribe the usual stuff — more regulations, more taxes on the productive, more redistribution. It just points out the growing gulf between the haves and have-nots, along with the social ramifications.

But it also failed to do what all the other articles from the mainstream media do. Like a cop on the take at a crime scene, it pretended not to notice the muddy footprints leading straight back to the perpetrator’s hideout.

The growing disparity in incomes started in the early 1970s. Despite nominal increases in their wages, working American families haven’t seen real increases in wages or purchasing power since around 1971.

Note, good patron, that was just after President Nixon severed the last ties of the U.S. dollar to gold. We’ve found our perp…and he’s still holding a smoking gun!

The world has been floating on a sea of unbacked currencies ever since. With the luxury of a flexible currency governments have been freer to rack up debts. The financial sector also benefited at the expense of manufacturing. And as Bill Bonner recently put it, “The fed’s funny money system caused the export of millions of good jobs to emerging markets.”

Wealth has been harder to build for the middle class, and now they’re falling hopelessly behind.

You won’t see the press or the academics talking about the damage wrought by unbacked fiat money, however. They’ll point you to the dangers of free trade…or the speculators…or the profit seekers.

They won’t tell you that the one thing that kept the state in check — the gold standard — was the only thing that could have prevented the collapse now unfolding across the world.

(For a more-thorough explanation of how the gold standard kept the state in check and provided the environment for economic progress, please read Congressman Ron Paul’s minority report, The Case for Gold.)

This catastrophe was inevitable. But all hope is not lost. Though the masses may find themselves falling into poverty — and while the mainstream media continue to mock gold and venerate central banking — those in the know have been taking the steps to protect themselves.

Step one is the ownership and continued purchasing of precious metals. Gold and silver are your very first line of defense as the central banks around the world continue to debase their currencies.

Sadly, gold and silver aren’t the bargains they used to be. As we mention from time to time, perhaps the world is slowly waking up to the nature of the problem. Sure, the media and benighted protesters around the world may call for more “help” from the state…but we get the sense that more and more people are figuring out the root of the problem. And they’re bidding up the prices of gold and silver.


Gary Gibson

The Daily Reckoning