Where did the 489 billion euros come from?

Dec 23, 2011

Baltimore, Maryland

Today, we doff our caps to the folks at the European Central Bank. They've pulled off the perfect heist.

The euro-feds have opened the valves...turned on the spigots...and let nearly half a trillion euros worth of liquidity flow directly into the very same banks that have proven they can't be trusted with a penny.

But that's how a zombie system works. The living give. The monsters get.

And since, at this stage of the credit cycle, the living don't have much to give, the feds turn on the printing presses.

Then, from whom does the money come?

Gotta come from someone, no?

That's right... When you borrow it, it comes from the people who lend it. When you tax it, it comes from the taxpayers. But whom does it come from when you just print it up?

Well, at first it appears to come from no one. Nobody reaches in his pocket and finds fewer dollars. Nobody's pocket has been picked. But how could that be? Nothing comes from nothing. You add a zero to a zero and you still have a zero.

And yet, the zombie banks now have 489 billion more euros in their vaults. That's what it said in yesterday's Financial Times.

"Banks snap up 489 billion euros in ECB loan offer."

This money certainly seems real. The banks can lend it. Spend it. Toss it out the window or down the drain. They can light cigars with it. They can use it to wrap gold coins before sending them out as Christmas presents.

Let's see, we saw an ad. Mercedes Benz CL class 2011-2012 autos are selling, in round numbers, for $100,000. With this money, you could buy about 6 million of them. Which is probably more or less what will happen to the money.

But what concerns us today is not where it goes but where it came from. Did it come from space? From another galaxy? No? Then, isn't all wealth on earth owned by someone? Yes? Then, it must have come from some humans somewhere on Earth.

But who?

Here's an answer: Each unit of currency represents a claim on resources. Now, there are enough new units to claim 6 million new Mercedes. We infer that people who had claims on them previously have less of a claim now, because there are only so many new Mercedes available. And since those claims arose from the value of the currency they earned and saved, we further infer that the value of the new money must have been stolen out of the value of the old money. What else can you call it but theft? People who had euros previously now have less purchasing power (at least theoretically). They never agreed to let their money be clipped. They never even knew what was happening to them.

But since we're in a Great Correction ...and since Europe is entering a recession...and since recessions and corrections are basically deflationary (prices fall as demand eases)... the old currency holders aren't likely to notice...or raise a stink about it.

It may be larceny, but its grand larceny. Heck, it's great larceny. The perfect heist. The poor victims don't even know they are victims. They have as much money in their pockets and bank accounts on Friday as they had on Monday. And if prices rise slightly, not one in a hundred will blame the ECB. ---------------------------------------- Have an enriching Saturday! ----------------------------------------

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*** Meanwhile, over in the USA, the criminal gangs can't seem to get organized.

Late yesterday came a report that a deal had been struck to extend the payroll tax by 2 months. But a bigger problem is coming up. Just wait 'til next year. Here's Bloomberg with a full report: Payroll Tax Tiff Times 25 Awaits Congress in 'Utter Dysfunction'

Dec. 22 (Bloomberg) -- The brinksmanship in Congress over a payroll tax-cut extension may end up looking like a quaint disagreement by next December, when lawmakers must grapple with a fiscal policy debate at least 25 times more costly.

Unless Congress acts by the end of 2012, income tax cuts will expire, automatic reductions in defense and domestic spending will start and the alternative minimum tax will ensnare millions more taxpayers. The same Congress that can't find a way to extend the widely supported payroll tax cut beyond Dec. 31 will be seeking to bridge long-held ideological differences.

"The prospects are bleak," said Leonard Burman, a former Treasury Department official who teaches public affairs at Syracuse University in New York. "I've never seen such a high level of dysfunction in the 25 years or so that I've been paying attention to government."

The year-end 2012 series of deadlines on tax and spending policy stems from Congress's tendency to push problems into the future with temporary solutions. This year alone, lawmakers have flirted with a federal government shutdown three times, almost defaulted on the U.S. debt for the first time in history and allowed aviation taxes to lapse for two weeks.

Trillions at Stake

The $4 trillion in expiring tax cuts and $1.2 trillion in potential spending cuts dwarf the $200 billion at stake in the current fight over the payroll tax cut and other provisions, including expanded unemployment insurance. Those items, if extended for another year, would expire at the end of 2012.

*** A theory should explain something without reference to something else. That is, a metaphor doesn't work. It's just a description. If you say that government is a kind of 'social contract,' you are merely describing how it seems to you...or what you think it might be comparable to.

Our theory is that government is a natural phenomenon, an expression of power relationships, in which some people seek to dominate others by force. These dominators gather 'insiders' together so that they can take money, power and status away from other people, the 'outsiders.'

Many people think that government provides some service. That is true, but it is incidental. Governments often deliver the mail. But they don't have to. They would still be governments even if they didn't control the Post Office. And what if they didn't have a department of inland fisheries, or a program to teach retarded democrats to count to 20? They would still be in the government business...and still have their helicopters, chauffeurs and expense accounts. But if they lost control of the police or the army it would be an entirely different matter. Force is the essence of government, not a decorative details. Without armies and police, they would no longer be governments. It is "from the barrel of a gun," as Mao put it, that political power projects itself.

At the end of the 19th century, people were asked what they thought the new century would bring. Almost universally they predicted that government would grow smaller. Why? Because people were becoming much richer and better educated. The thinkers of the time thought there would be less need for government. People who were rich and well-educated had no use for government, they believed.

It didn't turn out that way. Because the thinkers misunderstood what government really is. They had the wrong theory. Government is not an organization that provides benefits and services, and therefore shrinks as the need subsides. Governments grew tremendously in the 20th century. Because they are essentially parasitic luxuries. As a society grows richer it can afford more illusions, more waste, more re-distribution of wealth, more regulation, higher taxes, and more unproductive government employees.

The outsiders take more, because there is more to take.

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

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4 Responses to "Where did the 489 billion euros come from?"

Hasit Hemani

Dec 23, 2011

In 20th century government employees have become parasite on society.Like termites their only activity is to eat up any thing and everything wherever they pop up.They live on society and enjoy the life of white elephant but live the life of a white ant.This is the biggest challenge to the scholars and theoreticians of political science.At least a constant watchdog type of institution to monitor the size and optimum function of various government departments is essential.


Rick Stone

Dec 23, 2011

Your column is the best and I read it faithfully when recieved. You certainly have this economy down pat. Thank you for keeping me informed this past year and keep up your outstanding writing.



Dec 23, 2011

I would like to share with you videos and articles of a person Sheik Imran Hosein who talks about monetary and economic systems of today. Very similar views to yours.



Dec 23, 2011

The article is very good.Pl keep it
Chandak C.K.

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