Printing money cannot make people wealthier - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 10 April 2013
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Gualfin, Argentina

Nothing much to say today. Stocks still going up. Gold still dilly dallying. Gold is waiting to see what happens. Japan and the US are pumping up the money fast. But the ECB has let its base money decline.

Result: slightly less global paper money ...and a slightly lower gold price. Seems logical. Sensible. Gold is the world's alternative money. That and Bitcoins. The supply of paper money goes up...and you get more paper for each unit of gold. That's just what you'd expect.

But the pundits are sure the end of the gold bull market is at hand. Who knows? Maybe they're right. But it seems more likely that when the Japanese get their presses running hot the price of gold will resume its upward climb.

Or, looking at the big picture, the central banks of the world have decided that money printing is the solution to low growth and high unemployment. Unless something happens to stop them, they'll probably keep increasing the money supply. And the price of gold will probably keep going up.

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But we're still laughing at the Japanese...and Ben Bernanke...and economists and central bankers everywhere.

And at ourselves! We all do the damnest things.

Remember the dot.com bubble? People thought they could be rich by buying companies with no earnings...no assets...and no business plan that had ever been tested. They invested billions of dollars in these companies.

And when we pointed out that the whole thing was loony...they said we 'didn't get it.'

As it turned out, we were happy not to get it.

Then, remember the bubble in housing? People thought they could rich by buying houses. They thought that some magic force was making houses more and more valuable...and that all they had to do was to buy the biggest, most expensive house they could afford. Then, it was just a matter of time until they were wealthy.

Again, we didn't get it. How could an inanimate object...that needed constant maintenance and attention...increase your wealth? Houses were consumer items...not capital investments.

And again, it turned out that not getting it was a big advantage.

So you're probably wondering...what is it that we don't get now?

We'll tell you. We don't get how printing money can make people wealthier. It never did in the past. Instead, it just led to higher inflation, bankruptcies, riots, revolutions...and disappointment.

Not that we have a closed mind about it. If someone could explain how printing up pieces of paper make us more prosperous we'd be all for it. We'd want more of it. Heck, if one or two trillion makes you wealthier...why not print up 10 quazillion?

Wait a minute. Didn't Argentina try that in the '80s? Didn't Brazil give it a whirl in the '90s...and Zimbabwe in the '00s?

We don't remember any of them getting richer. Instead, they got poorer. So, what's the magic that Ben Bernanke and the Japanese have discovered? What's the secret?

There may be one. Anything's possible. But what is it?

Until we get a good answer...we're going to keep laughing.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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1 Responses to "Printing money cannot make people wealthier"

narayana prasad

Apr 10, 2013

Printing makes you poorer when you print your own money. When you print others money you make more. For eg when you sell 1 pound your family jewels and make $1000, you have become poorer by one pound of jewel and instead richer by 1000 bucks in cash. If you sell your neighbours 1 pound jewel and make $1000. You have become richer by 1000 bucks without becoming poorer by 1 pound of gold.

Bernanke and his friends at the BOJ are basically monetising their neighbours savings. US is monetising the chinese savings because the chinese supply everything at lower prices inspite of the drop in value of USD thereby making it appear that USD is stable. The Chinese are workaholics and will even pay you a few $ if you buy their stuff.

The japanese are monetising the trust of the whole world about their ability to repay debts.

The problem will start when chinese realise that they are working in pollution and sweatshops and get nothing in return while the US is a lazy goose and gets every thing it wants free of cost.

In other words, when chinese govt and people realise that they are lending money to US who is busy inflating it to peanuts. But the problem is that the chinese govt is communist so it will see only money and not the welfare of its people and will therefore keep them busy by doing this.

The end game would be when US finally decides to start manufacturing merchandise within the US. The chinese and the japanese would be left sucking their thumbs while the US simply starts another cycle of growth.

The lifetime savings of japan and china would have been inflated away into thin air and basically worthless.

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