12.05.2011 0

To Print or Not to Print, That is the Question

EuroBy Bill Wilson — The global financial elite have finally taken off their masks and just flat out told the world that the solution to Europe’s debt woes is too simply turn on the European Central Bank’s (ECB) printing press to refinance the debts of Greece, Italy, and other sovereigns.  The Lisbon Treaty’s prohibition on doing so be damned.

In a Dec. 1 column, UK Telegraph writer Ambrose Evans-Pritchard boldly declared in his headline, “You are all wrong, printing money can halt Europe’s crisis”. Rarely is the establishment this brazen.

He has inadvertently admitted to a practice that classical economist Adam Smith called a “pretended payment” in the Wealth of Nations, adding that “The honour of a state is surely very poorly provided for, when, in order to cover the disgrace of a real bankruptcy, it has recourse to a juggling trick of this kind, so easily seen through, and at the same time so extremely pernicious.”

Evans-Pritchard apparently has no problems with pretending to pay, however.  He explained, “This crisis can be stopped very easily by monetary policy,” and called the provisions of the Lisbon Treaty a “fundamental design-flaw of monetary union.”

Never mind that the no-bailout clause of the treaty was included because it likely never would have been adopted without it.  It was even included practically verbatim from the first Treaty establishing a Constitution for Europe that failed to be adopted in 2005.  There clearly was a consensus at the time that a bailout prohibition remain included — to prevent exactly the situation that Europe today faces.

That consensus is now being openly challenged.  But for Germany, which, mindful of its own history in the Weimar Republic of printing money to pay debts, has taken a hard line against violating the prohibition.

Jens Eidmann, President of the Bundesbank and member of the ECB governing council was very specific last month that the central bank “must not be a lender of last resort for sovereigns because this would violate Article 123 of the EU treaty.”

Moreover, simply printing the money would create a perverse incentivize for governments to never to rein in their spending, as has occurred in the U.S., where the Federal Reserve holds over $1.6 trillion of the $15 trillion national debt.  Under every budget plan presented to Congress by both political parties, spending will increase every year on end.  The only substantive difference is by what degree those increases shall occur.

It’s so bad that ours is a system that never contemplates any repayment of the national debt, which is why in the U.S. it has grown every single year since 1957.  Why bother, when the central bank can constantly expand credit?

But, let it be said, Evans-Pritchard is right.

If one wishes to maintain this fiat currency Ponzi scheme with plush state pensions in Greece, failed investment banks being propped up in Ireland, and generally the perpetual boom-to-bust economic cycles that financial institutions profit handsomely from, then the central bank should just print the money to refinance the debts.  If one wants to have increasingly centralized government and constant expansions of spending, then a central bank is needed to prop up this house of cards, even if it means the loss of individual liberty and national sovereignty in the process.

Taxpayers on their own simply lack the resources to finance such schemes.  Printing the money really is the only engine that can make this soft form of authoritarianism work.  There is no other way to maintain these lavish welfare states in Europe, the U.S., and elsewhere.

But there is a high price for doing, particularly price inflation.  And there is no reason the German people — or any other sovereign nation — should have to lower their standards of living through money-printing just to subsidize the profligate lifestyles of Greeks, Italians, and others.

After all, there are limits to what the central bank can actually accomplish. There is only so much debt an economy can absorb before it becomes a major drag on output.  In fact, we are at the point where this fiat system has reached its logical conclusion.

In the U.S., just to keep the economy growing, it is anticipated that outstanding credit nationwide will need to rise by 100 percent to about $100 trillion from its current $52 trillion level.  Yet, credit expansion has remained flat for three years now after doubling every decade like clockwork, indicating that it has reached a natural ceiling.

For the Western world to get back on its feet and grow through real wealth creation, we need to move forward to a system of free markets and away from this ruinous debt system.  We need an honest economy based on the rule of law, and where money has real value. The alternative is a future very much like our present; low to zero growth, diminishing prospects, lower social mobility and a bleak rerun of the failed policies of the past.

Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.

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