Jeff D. Opdyke: Everybody’s doing it.
The Japanese do it so frequently you’d think they’d be tired of it by now. Europeans like to do it while the Germans watch, knowing they get so angry. The British do it, but with a stiff upper lip because it’s not something they really like doing at all. Chinese do it more than anyone else, but they don’t want you to know just how much they do it. The Americans do it, too — we just love to do it online and pretend like it’s not cheating that way.
Like I said, everybody’s doing it … they’re printing money as though money was going out of style.
And that will not end well for those who aren’t prepared for the reckoning.
Flooding Our World With Fiat Currency
Our world is awash in cash.
Central banks in the five most important economies — the U.S., Britain, the European Union, China and Japan — have cumulatively increased the supply of money by 81% in dollar terms. It’s the equivalent of nearly $24 trillion, roughly one-third the size of the entire global economy.
That’s an incomprehensibly large sum of money.
At this point you should be thinking that I’m now going to tell you about the inflation that’s baked into our cake at this point in our economic history. And, yes, inflation is a risk. Actually, it’s the end game of every central bank in those five leading economies. They want — how desperately they want! — inflation so that they might inflate away their debts, regardless of the damage it does to me and you and our spending power. People are never so important as a government’s lust for ensuring its own survival.
But I’m not here to tell you about the disaster of runaway inflation when the central banks screw it up … and one or more of the four central banks is bound to screw it up. History shows that the odds favor a fumble somewhere.
Instead, I’m here to tell you about the debt that the banks want to inflate away … and especially the interest rates on the debt.
As much as central bankers want inflation, they realize they can’t allow inflation to reach a level that pushes up interest rates more than a few fractional points. Rising rates drive up the cost of debt repayment. And if the rates rise goes too far or too fast, it can threaten the viability of a country’s fiscal and monetary system, leading to the same kinds of cataclysmic financial and social failures that befell Zimbabwe most recently, Sweden in the early 1990s and the Roman Empire of antiquity.
No central banker wants that.
Marching Toward a Currency Crisis
Bankers will do all that they can to keep interest rates low, even as they try to stoke some degree of inflation by printing gobs and gobs of money.
Just last week, Mario Draghi, who leads the European Central Bank, told the world — to the great consternation of Germans who fear a 1930s redux — that the bank would do whatever it takes to raise inflation, which implies dumping more euros into the Continental money supply.
China announced a new stimulus plan as well … and Japan is at a point where it might start sacrificing virgins atop Mt. Fuji to jump start an economy in which decades of money printing have done exactly bupkis to save the nation from its impending doom. And we all know what our own Federal Reserve has been doing for the last seven years.
Politicians and central bankers aren’t hurt by their actions. They operate in a theoretical space, moving chess pieces around in hopes that some monetary theory — tested or not — will get them out of this mess they’ve both had a hand in creating.