When at first printing money doesn't succeed, should Fed really try again?

Fed easing hasn't worked any better than it did in Japan in the '90s. It makes little sense for Bernanke to fire up the money printing presses.

By , Guest blogger

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    United States money printing plates are seen at the Museum of American Finance in New York Oct. 15. The US dollar hit its lowest in more than eight months against the euro on Friday, while the Australian dollar surged above parity versus the greenback after Federal Reserve Chairman Ben Bernanke reinforced expectations of further monetary policy easing.
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Now…back to our miserable beat…back to lies and vanity and foolishness. Back to the financial world!

If you could really make a society prosperous just by inflating the currency, Zimbabwe would be richer than Switzerland…and the Argentines would all be driving Mercedes. They’ve got 25% inflation right now. But they’re not getting rich. They’re not driving Mercedes. They’re just looking for ways not to get robbed, by buying apartments and opening offshore bank accounts.

And yet, everyone seems ready to believe that monetary inflation will make things better. Even the most illustrious thinkers in the financial world.

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Here is George Soros, in The Financial Times:

“What America needs is stimulus…”

“Without a bailout,” he says, re-treading some familiar ground, “the financial system would have remained paralyzed.”

Really? What makes him think so? It looks to us as if the bailouts themselves are the source of the paralysis. Rather than let the chips fall where they may, the bailouts left the chips more or less where they were. Failed bankers still run failed banks. Failed auto executives still run failed automakers. Failed regulators and policymakers regulate even more…and as for making policy…well, we now have QE!

Printing up extra money – with no backing – used to be the sort of thing only counterfeiters did. Now it is done by the central bankers and Treasury Secretaries themselves. They don’t apologize for it. They don’t hang their heads and contemplate blowing their brains out. Instead, they’re proud of it…announcing that they “saved civilization,” or some such claptrap.

It is all so amazing…it leaves us gasping for air… Everyone seems to think he knows better what people should do with their money than the people who own it. Businesses are building up liquidity, says Soros; they should invest. Consumers are paying down debt; they should spend, says Krugman.

What? They don’t want to spend or invest? Then, we’ll steal the money from them, via inflation, and make them want to get rid of it.

This makes no sense in theory. Why should people do anything with their money other than what they want to? What is an economy for, if not to serve the interests of the people in it?

But the economic busybodies think they know better. They think an economy is supposed serve them – by doing as they demand. They want it to produce full employment, consumer price increases and positive GDP numbers – all the time. And they think they can get these things by increasing the supply of notional “money.”

It is swamp gas in theory…but maybe it works in practice? But where is the evidence? When has it ever worked?

It hasn’t. It never will.

But it sure can touch off a fire-show in the market…before it blows up the economy completely.

Enjoy your weekend.

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