Enough Money Printing, Let’s Build A Real Economy

Throughout its history, America has faced numerous challenges of every variety, and what has kept us great as a nation is our willingness to confront those challenges head-on. But when the market crashed in 2008, America’s confidence and resilience was shaken, and under Obama our government sought to hide from tough economic realities using unsustainable policies like bailouts and money printing. Now, as Obama’s “recovery” limps along, those cowardly economic policies are preventing us from actually moving forward.

The latest news from our economic “leaders” is yet another round of “quantitative easing,” the largest such money-printing binge yet attempted. With this program, the Federal Reserve will print money to purchase $40 billion worth of bonds each month, an exercise that could cost in excess of $1.7 trillion. And, at a time when government should be confronting its out-of-control spending, the Fed is purposely keeping quantitative easing spending uncapped. In short, we still have no idea how much this weak economic measure will cost taxpayers.

In the short term, printing money always sends markets rallying, just as feeding a child candy will send him into a hyperactive frenzy. But what happens when the rush is over? According to the Bank Of England, a similar program in the UK only benefitted the top 5% of income earners, making it one of the most regressive wealth redistribution policies ever enacted. Meanwhile, banks are not short on liquidity, so all you accomplish by printing money is higher prices… also known as inflation.

Inflation plus stagnant growth equals “stagflation,” last seen under Jimmy Carter. And the only way out of that mess was through tough monetary policy under Reagan. When the economy needs a down cycle, fighting it with funny money will only prolong the agony. Making tough choices, like not printing money, allows inefficiency to be worked out of the economy, setting the stage for a comeback. With Obama’s quantitative easing and bailouts, a Japanese-style “lost decade” seems to be the inevitable result.

Twice now, the government has printed stacks of money aimed at restarting hiring, and both times it’s simply been used to gamble on commodities and mortgages, inflating short-term bubbles, and driving up prices while doing nothing to fix the economy’s underlying problems. These were exactly the kinds of problems that led us into economic trouble in the first place, and with the real estate market struggling to find an equilibrium, the latest round of mortgage-backed-security buying, we’re even farther from getting real estate back to reality.

But not only will quantitative easing fail to have an economic impact in the short and medium term, it also exposes the taxpayers to a huge economic risk which in turn could derail a future recovery (if we ever get there). The problem with buying up mortgage-backed securities now is that the government will eventually have to sell them. Not only could this expose the government to a loss on this “investment,” it will also drive interest rates up just as they are starting to climb, creating another credit crunch just as we’re emerging from the wreckage of the last one.

Meanwhile, gambling with newly-printed money isn’t just dangerous and immoral, it keeps the government from actually addressing the real underlying economic problems in America: overtaxation, overregulation and fiscal profligacy. By creating the appearance that the Fed is fixing the economy with Monopoly Money, politicians want to take the pressure off themselves to fix these thorny problems. And if we ever want America’s economy to return to the vibrant dynamism of the past, we need to drop the short-term rushes and fix these structural issues.

Over the past few years, we’ve seen what happens when the government “rescues” the economy: big banks and the politically well-connected get their bailouts, while everyone else suffers. This latest round of quantitative easing fits the pattern: folks with big stock portfolios, and Wall Street traders get the sugar rush they want, while taxpayers pick up the bill and the economy continues to limp along unfixed. And that money doesn’t go towards anything more productive than gambling on various asset classes in ways that create bubbles which will eventually burst, bringing the economy down once again.

As Ronald Reagan taught us after the disaster of Jimmy Carter’s “stagflation,” breaking out of the economic circumstances we face today takes a strong dose of bitter medicine. Masking the pain with fiat money, bailouts and new bubbles keep the economy on its knees, while subsidizing the parasites who caused the problems in the first place. If we’re ever going to regain our economic strength, we need to break our addiction to Bernanke’s funny money, fix the underlying problems with our economy and be willing to endure a little pain.

After all, America’s finest moments have always come when we confront problems rather than hiding from them.

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7 Responses to Enough Money Printing, Let’s Build A Real Economy

  1. Terri Bashaw says:

    As a retiree, I’m now forced to find something riskier to invest my 401K money. Bonds are losing.

  2. Scott says:

    You must realize that Bill Clinton was responsible for sending our jobs overseas with favoured trade for China,and Nafta.We allow China to import at a tarriff rate of 2.6%,while we pay them a hefty 26%.Isn’t that a deal?
    Do you remember when we would measure our export deficits against what Japan imported to the U.S.?That is called a trade deficit.What happened to that conversation?Our trade deficits are now dwarfed by what we import.
    What about housing starts?Didn’t we once track them to measure growth in the economy? Well,that is history ,Now,since we have no economy,we don’t dare talk about the embarrassing issues we did to ourselves to destroy it.
    Do you know that petroleum exports are now our No.1 export from the U.S.?The media is not helping Americans gain the knowlege they need to figure out how we have been sold down the river,but,the President,the Left-wing Media,and Congress keep things stirred up enough to help people focus on lies and mis-information.Also,it seems folk’s memories are short.I remember when Jimmy Carter was President.His economy sucked,also.Ronald Reagan got it going,again,only because he didn’t give the jobs to China.Think about it.

  3. Scott says:

    The Keystone pipeline,connecting Canada to Houston,TX,is going to double our exports of petroleum to Europe.It won’t do one thing to help our dependence on foreign oil,as we are selling it off as we drill for it here.We ship coal to South Korea from Alaska,via cargo barge,from Seward,AK.
    We also ship a lot of coal to Europe from the Smoky Mountains.Why?Because it has too much sulfur for us to burn,but it is ok to burn it over there!We all breathe the same air,don’t we?
    All of our lightbulbs are going to be made in China,and they contain unbreathable amounts of mercury.Isn’t that grand?Why are we allowing this to happen?Greedy money!Anyone got a paddle I can borrow?

  4. jason says:

    Great article. Read meltdown by david e woods for more about this. The fed pays for this stuff with money created out of thin air, not paper and not earned money. That’s what quantitative easing is. This yanks money right out of the pockets of anyone who uses dollars as its value goes down as a direct result of QE and only gets compensated for people who own assets. The biggest looser from QE is the guy who only owns an agreement with his boss to work for minimum wage.

  5. Kyle says:

    Funny thing is that this is all explained on talk shows like Rush Limbaugh but nobody wants to hear him because he is *racist* and a *bigot* for standing up to big brother government and believing in the freedom of personal rights.

    If it’s on CNN it must be true since Fox lies!

  6. natty says:

    this money they are printing should be given to the american tax-payers – a tax refund for all (you might say) so we, the ones that spend it when we have it, can spend & boost the economy. some of us are in desperate need & can’t afford to be taxed anymore to make up another trillion or two in out of control spending (t.y.obama)

  7. Pingback: Printing Money doomsday effect

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