Debt Monetization: Legal Counterfeiting

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(July 2012)

Whether we call it Quantitative Easing, money printing, debt monetization, monetary stimulus, or some other sterilized euphemism, it is all basically the same – printing more money, feeding it into the economy, and selling the story that it is both good and necessary. However, when criminals do the same and print new $100 bills, it is called counterfeiting and is aggressively prosecuted. In World War II, it was considered a weapon of war to counterfeit the paper currency of enemy nations and to flood their economy with the counterfeit money, thereby driving prices higher and weakening the enemy economy.

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Steve Saville discusses debt monetization and answers the counterfeiting question in his article on The cons and cons of debt monetisation. His explanation is simple and elegant. It takes only a few minutes to read as he explains what monetization is, why it is done, who benefits, and the inevitable result.

The Quick Summary

“…what debt monetization is: a means of transferring wealth from some people to other people.” The result is: bankers and politicians collect the newly printed currency, and the people using the newly counterfeited currency unwittingly pay through higher prices and lower interest yields on their savings.

And the Solution

  • The real solution (in my opinion and in the opinion of many others) is that governments should only spend what they collect in revenue, use honest accounting, not borrow to finance deficits, abolish Central Banks, and back the currency with something tangible and real, like gold, silver, or oil.
  • Knowing that the above is not on the horizon of likely alternatives, one of the best available solutions (in the current monetary and fiscal environment) is to invest savings in gold and silver and minimize exposure to fiat currencies (fiat currency is paper backed by nothing but faith in the government – which is every currency in today’s world).

Consider the following from Bill Buckler, Gold This Week… 14 July 2012:

“The case for Gold (and silver) is even more obvious. Gold and silver are money that is nobody’s liability and which cannot be created by a keystroke on a computer. They are the alternative to modern fiat and backed by government debt money. Any rise in their purchasing power as compared to what is used as money casts what is used as money into increasing disrepute. Obviously, those in charge of that money don’t want to see Gold and silver rising in “price”. Therefore, the price of Gold and silver is manipulated. It has ALWAYS been manipulated and will be until the day comes when it regains its function as money.”

Conclusion

  • Governments are printing money to bail out bankers and to cover the deficits between what they collect and spend.
  • Ultimately, this reduces the value of the currency and increases consumer prices.
  • Jim Sinclair calls this “currency induced cost-push inflation.”
  • Tangible wealth, such as gold, silver, real estate, and rental property, helps to preserve purchasing power while the dollars, euros, and yen all seem to buy less and less.
  • Even though our currencies are being debased, there are many vested interests that support continued monetization of debts, increased government spending and deficits, and more of the same failed economic policies.
  • It seems unlikely that we can solve an excess debt problem with more debt, but the politicians and bankers seem determined to try.
  • We should expect continued loss of purchasing power in our dollars, euros, and yen.
  • These policies will continue until they can’t.


GE Christenson
aka Deviant Investor

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