This Time Money Printing Is Gonna Be Different!

CENTRAL BANKS TOLD TO “MAKE IT RAIN” 

Last November we took editorial notice of a column appearing in The Wall Street Journal  written by one Andrew Huszar – a former official with the Federal Reserve who executed the central bank’s first round of QE (“quantitative easing” or “money printing”).

“The central bank continues to spin QE as a tool for helping Main Street,” Huszar wrote. “But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.”

Indeed … not to mention the greatest redistribution of wealth from the poor and middle class to the rich ever .

“Spread the wealth around?”  You betcha … although what we’ve witnessed has been precisely the reverse of what Barack Obama suggested to Joe The Plumber during the 2008 campaign.  Go figure.

For those of you keeping score at home, the first round of quantitative easing, known as “QE1,” took place from November 25, 2008 through March 31, 2010.  Over that period, the Federal Reserve added $1.7 trillion to its balance sheet ($300 billion in Treasuries, $1.2 trillion in mortgage backed securities and $175 billion in agency bonds).  The second round, dubbed “QE2,” took place from November 3, 2010 through July 1, 2011.  Over that period, the Fed added $600 billion in Treasuries to its balance sheet.

Another so-called stimulus plan offsetting longer term securities with the sale of short-term debt (a.k.a. “Operation Twist”) began in September 2011 – and was extended in June of 2012.

And of course in September 2012, the Fed began its latest and greatest round of money printing – an open-ended commitment to create $85 billion in new assets each month.  In January 2014, the Fed began to “taper” this commitment – reducing its money-printing by $10 billion a month.

Currently, $35 billion in new assets are being created on a monthly basis.

What has been the result of all these printed trillions (not to mention the trillions spent and lent by government during its ongoing “stimulus)?  Easy: The weakest “recovery” ever.

How come? That’s also easy: When you channel your “stimulus” to the one percent (at the expense of regular people), you weaken the consumer economy upon which the global free market depends.

Anyway, years after their hand-wringing and “something must be done” rhetoric, it seems the world’s money printers have finally figured it out.

Earlier this week Foreign Affairs – the official publication of the uber-powerful Council on Foreign Relations – ran an item entitled “Print Less, Transfer More.”  The gist of the piece?  First it acknowledges the obvious: That the massive Keynesian intervention foisted on the America taxpayer has failed.

“Such policies have only fed a damaging cycle of booms and busts, warping incentives and distorting asset prices, and now economic growth is stagnating while inequality gets worse,” the article states.  “To some extent, low inflation reflects intense competition in an increasingly globalized economy. But it also occurs when people and businesses are too hesitant to spend their money, which keeps unemployment high and wage growth low.”

The answer?

“Make it rain,” authors Mark Blyth and Eric Lonergan suggest.

“Governments must do better,” Blyth and Lonergan continue. “Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.”

Catch that?  Having printed trillions of dollars for the super rich, central banks are now being advised to print money for the rest of us.

Do we support such a policy?  No.

Don’t get us wrong: We believe government welfare (to the extent it should be provided at all) ought to be granted directly to recipients in the form of vouchers – but that’s spending money, not printing it.

Truly empowering consumers means letting them keep more of what they earn – and removing barriers to their employment, innovation and profit-generating potential – not artificially creating additional assets that devalue what they earn.