What Would You Do?

Suppose you had the technical ability and raw materials to print up counterfeit dollars, euros or yen that were identical to the real things. Assume you could spend them as fast as you could create them with no fear of any repercussions.

Would you prudently print up only as much fresh currency as you needed for your current lifestyle? Would you create just a bit more than that to help relatives or those in need?

It is most likely you’d have your printing press running 24 hours a day, seven days a week. Becoming the richest person in the world would confer great power upon you.

You could rationalize this action because you plan to use the money for good purposes. Imagine the warm feeling you’d get by giving every person in America one million dollars, no strings attached.

Then think about what would occur almost immediately afterwards.

The “easy come-easy go” principle would take effect. Car dealer inventories would be cleaned out instantly. Wal-Mart, Target, Kohl’s, Nordstrom, even high-end Saks Fifth Avenue and Neiman Marcus would have nothing left to sell.

SOLD OUT - image

 

Smart manufacturers and merchants would withhold inventory because they knew the abundance of money, with no new extra supply of goods, would drive prices through the roof.

The people controlling today’s currency issuance are well aware of this. That is why newly minted funds from QE (quantitative easing, A.K.A legalized counterfeiting) programs never reach the general population.

Immediate distribution of wads of money to everybody would quickly destroy the financial system.

Doing it gradually, under the average person’s radar while keeping the benefits contained to a small group (politicians and bankers) allows favored individuals to add great wealth withoutimmediately noticeable damage.

Before 2008’s crisis Central Banks did not believe they could get away with simply conjuring money out of thin air. The ‘bond vigilantes’ would have demanded higher and higher interest rates on government debt, busting budgets around the world.

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Disclosure: Short UPS Jan. 2017, $90 puts, Long BBBY shares, short BBBY Jan. 2017, $70 & $75 puts.

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Joe Economy 4 years ago Member's comment

The US govt tried QE a number of times in the past. In November 2008, the Fed announced a $600 billion quantitative easing program, and another $1.8 trillion four months later. Eventually the economy recovered but at what cost. Some of the many disadvantages of QE are:

1. It causes the dollar value to decrease

2. Leads to inflation raising prices of consumer goods hurting the people QE was supposed to help.

3. Diminished value of the dollar decreases the ability of the US govt to borrow money from other govts because the dollar buying power is hurt.

4. Can ultimately lead to a consumer war (perhaps this is where we are closest to heading right now after the Swiss abandoned its cap on the Swiss Franc that sent its value surging). Which country is next to head down the same road as Switzerland?