Thursday, June 4, 2009

Looking for Good Sense in All the Wrong Places

It appears to be back to the 1960s and 1970s in Britain, laboring under the delusion that printing money can revive prosperity more than briefly, as noted tonight on in King’s BOE May Keep Up Money-Printing Plan as Economy Revives. Here is the opening of the article:

The Bank of England may keep up the pace of bond purchases today as officials weigh whether they are already printing enough money to revive the British economy. (Emph. added: hard to believe people are saying this sort of stuff.)

Governor Mervyn King’s forecasts last month showed it needs to spend 125 billion pounds ($207 billion) of newly printed money in U.K. debt markets to fight off the recession.

In the U. S., you have Mish leading me to this "marvelous" quote from MarketWatch in It's your problem, Bernanke tells Congress:

For its part, the Fed also faces having to make some tough choices. The U.S. central bank has lowered interest rates substantially and has expanded its balance sheet by about $1.2 trillion, effectively flooding the banking system with cash to keep the economy from collapse.

Once the economy can stand on its own, all that cash will have to be drained away.

Everyone knows this and accepts it in principle -- but in practice, it will come down to knowing when to let go.

DoctoRx here. Where does MarketWatch acquire the right to assert that "everyone" accepts "it" in principle? Forgetting the grammatical question of what "it" precisely refers to, I for one disagree that "cash" was in fact infused into the banking system or any other system. Credit hardly cash, and the wholesale granting of credit by the Fed to insolvent, poorly run companies was a mistake. Also, the lowering of consumer interest rates to virtually zero is unfair and another mistake, as it encourages speculation.

In interpreting the above, please remember that the Bank of Japan has not prevented chronic deflation and recurrent recessions despite buying massive amounts of Japanese Government bonds. The more our and the British Governments demonstrate both incompetence and unfair favoritism toward bankers, more and more people will lose faith in the future and may emulate the Japanese people and become more and more desirous of preserving their capital in the bank.

Copyright (C) Long Lake LLC 2009

No comments:

Post a Comment