Recently, reader Robert submitted a video clip analyzing the history of money printing and its recent acceleration. Take a look at it, and then we’ll discuss some of these issues:
http://www.youtube.com/get_player
Sure, long-term, there will be an inflationary effect, and I’ll comment more on that tomorrow. But what about the dollar? Will it be sharply devalued as the effects of reckless printing will filter down into the economy over the next few years?
I am not so sure. From my non-economist view, I think the video is too one sided, because it overlooks one critical aspect, which was never applicable to any degree in the past.
The bursting of this current credit bubble has affected all industrialized countries in all parts of the world. It may have started in the U.S., but it spread like a wildfire exempting no one along its destructive path. Over the past few months, the daily headlines have read like a “who’s who” by listing country after country implementing their own version of bailout and stimulus packages.
To me, here’s where it gets sticky. If all industrialized nations follow the same path of printing money to prop up their respective economies, will that not weaken their currencies as well?
Is it not true that, if only one country engages in the reckless printing of money, its currency will lose value only when compared to those countries with a more responsible monetary policy?
This is where I believe we have entered unchartered territory. All nations are doing the same thing, which does not make it right, but I am wondering if we, as a world community, will really be suffering from a bout of currency devaluation? Somehow I can’t see how, given these circumstances, we will all be devaluing when there is no longer a standard currency to peg to.
Let’s assume that magically a major country emerges that does not participate in these money creation efforts, was not effected by the global crisis and has otherwise proven to be fiscally responsible, then our dollar would slide against that super currency. However, in relation to all others, the effect should be minimal and vary only to a small degree.
I have not heard anyone addressing this issue with the global view in mind. If you have more information on this important topic, please post your comments.
Comments 6
I think your point is basically sound – and some countries do appear to be doing better than others. The Canadian dollar, for example, was less than $1US a year ago and is now running $1.20 or better. Not a “super currency” exactly but perhaps we’ll see some shifts in global economics as things settle out.
As for the video? IMHO A lot of huffing and puffing and not much substance.
As always thanks for the thoughts…
One of the four Saturday, Marth 14, 2009th, articles was titled “China Worried About U.S. Debt – Biggest Creditor Nation Demands A Guarantee,” by Anthony Faiola, Washington Post Staff Writer. Faiola writes that China is exerting its new influence, since it surpassed Japan, America’s largest holder of Treasury bonds. China wants a “guarantee of safety” of its $1 54illion of American bonds, writes Faiola, as the U.S. goes further into debt to combat the economic crisis. I recommend the article to your reading. It writes about the pros and cons of our stimulus packages, other nations’ stimulus packages, and the short and long term impact of the stimulus on inflation and possibly deflation. This article seems to be along the theme about which Ulli is writing.
Trillions of dollars has evaporated in the markets. It appears that since the value of practically everything was based upon leveraged assets, which in simple terms means that the real value never existed in the first place, it was imaginary. Printing money to fill this void of evaporated value will not necessarily create inflation or a weaker currency, since we are putting back what was assumed to be there in the first place. It will however create a redistribution of wealth, as this re-currency-isation (my new term)basically is taking wealth from the average investor and giving it to others (AIG, Citigroup, GM, and others).
However, it does have the potential to be a destructive force to the future of the country, since many previously middle-class Americans can no longer afford housing, and more importantly, can no longer afford to send their children to college. Retirement for the largest group in America, the Baby Boomer generation, has been cancelled for a good percentage of them, thus making the job market even tighter. Actual unemployment rate based on everyone that is actually looking is around 16%. The reported rate does not include those who are no longer receiving unemployment payments, but are still in need of employment.
How all this will turn out is anyones guess. I just know how it is currently affecting me and my family, and it is NOT good!
Brazil seems to be doing ok, but I’m not sure they’re printing money to prop up their economy?
Hi Ulli,
This is just a thought, as dumb as it may seem, why don’t the government just have a little covert operation and go in to the money printing press and secretly print enough money to pay off the national debt especially to all foreign countries, who would ever know? This is a joke sort of, wll maybe not actually.
If all nations follow the same path, then the dollar may not change much relative to other CURRENCIES, but you can’t eat currency! The price of all goods and services can still rise to astronomical levels, as in the 1920’s in Germany.