The United States Federal Reserve System has ceased its aggressive quantitative easing program – for now. Although the U.S. central bank has temporarily suspended or minimized money-printing operations – it did create more than $4 trillion of new money in the past few years – other central banks are ramping up the money-printing schemes.
The Bank of Japan (BOJ), the European Central Bank (ECB), the Bank of Spain and other central banks cite low inflation, a paucity of economic growth and the threats of deflation as reasons for instituting such a monetary policy initiative. However, whether they want to admit it or not, money-printing is a form of weakening a currency, and countries all over the world are endorsing this policy.
Haruhiko Kuroda, Mario Draghi or Luis Maria Linde are undertaking a monetary policy of extreme inflation. The BOJ will increase its purchases of government bonds and other assets by as much as 20 trillion yen ($181 billion) for a total of 80 trillion yen ($725 billion) every year. The ECB’s asset-buying program climbed to $16 billion. The Bank of Spain wants to explode a $400 billion stimulus program to produce business investment.
Indeed, these nations and central banks have already increased price inflation levels. They believe, however, that a great number of new euros, dollars and yen in the economy will spur consumer spending, business investment and less savings. How can consumers spend when their currency’s value has significantly weakened?
A currency war – no matter how much the elite, establishment and status quo will expostulate – is the only reasonable term to describe the current endeavors being embarked upon by Draghi, Kuroda and even Janet Yellen. This Keynesian mantra of money creation and near-zero interest rates is a destructive path to a full-blown currency war that will only hurt its citizens and benefit the wealthiest of people.
Here is what economist Henry Hazlitt eloquently wrote on the subject of inflation:
“Let us see what happens under inflation, and why it happens. When the supply of money is increased, people have more money to offer for goods. If the supply of goods does not increase — or does not increase as much as the supply of money — then the prices of goods will go up. Each individual dollar becomes less valuable because there are more dollars. Therefore more of them will be offered against, say, a pair of shoes or a hundred bushels of wheat than before. A ‘price’ is an exchange ratio between a dollar and a unit of goods. When people have more dollars, they value each dollar less. Goods then rise in price, not because goods are scarcer than before, but because dollars are more abundant.”
Here is a snapshot of price inflation transpiring in the U.S. and Japan:
As David Stockman, former Reagan budget director, recently wrote in a blog post, this Keynesian doctrine is eroding capitalist prosperity in all corners of the globe, which is what happens when the government and central banks attempt to incite fiscal measures that make the process of generating wealth unsustainable all in the name of a higher gross domestic product.
Let the currency war begin, and like any other war, investors and citizens must take cover.
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