Printing Money to Save the World


The Dow rose 50 points on Friday. Gold rose too.

As we ended the week, the Dow was over 12,000…gold was over 1,400…and oil was over $100.

And all seemed to be headed up.

But there’s trouble afoot.

Housing in the US, the foundation of most household wealth in the country, has gone into a double dip…which could drag millions more homeowners underwater.

In other words, the speculative markets are moving one way. The economy is moving the other. The markets are going up. The economy is going down.

Oh…and you can imagine what this does to the poor householder. He’s caught in the middle. The real economy pushes the value of his main asset down…while the feds push up the cost of his most important supplies – food and energy.

“Don’t worry about it,” says Bernanke, Geithner et al. The economy is recovering. But is it?


It’s going to turn out very, very badly.

As predicted here, the feds’ easy money is making things much harder for most people. It’s pushing up costs…and prices. The feds can tell American households that the inflation rate is under 2%, but the poor consumer knows better. He knows that his real cost of living is going up at a rate probably more than 5%. Maybe, as John Williams tells us, more like 9%.

So, thanks to the feds’ pro-inflation policies, the consumer can’t buy as much stuff…so stores don’t sell as much stuff…and the economy weakens. And then, what do the feds do? They push even more inflation into the system.

This is not going to end well. Inflation is increasing…while inflation expectations are still low. Sometime in the future…inflation expectations will get ahead of inflation. And then, the Fed, if it is to get control of the situation, will have to put rates up above the real rate of inflation. In other words, the Fed will have to get ahead of inflation.

Is that going to happen? Not likely. Not in an economy that is slumping.

And more thoughts along the same line…

We love Japan. Yes. Count on the Japanese to do things that are both great and horrible at the same time.

To put the following news item in perspective, the Japanese are in even worse straits than Americans, at least in some ways. Their government debt equals 220% of GDP. Savings rates are falling to zero. The annual government budget dwarfs tax receipts. And the Japanese face a huge bill for rebuilding after the earthquake, the most expensive natural catastrophe in history.

Where are they going to get the money?

Well, there are two possibilities. The first is bad for Japan. The second is bad for the US.

Like the US, Japan can print its way out of the problem. Some Japanese officials are all for it. Others aren’t. Bloomberg has the report:

Bank of Japan Governor Masaaki Shirakawa is under fire for refusing to consider 1930s-style purchases of government bonds to fund reconstruction from the nation’s record earthquake.

Shirakawa repeatedly attempted to quash direct buying of government debt, a step allowed in extraordinary circumstances with the permission of the Diet, in appearances before lawmakers this week. The policy would undermine confidence in the yen and provoke a surge in consumer prices, he said at parliamentary fiscal and finance committee hearings.

“If this isn’t a special situation, what is?” Kozo Yamamoto, a Diet member with the opposition Liberal Democratic Party, said in an interview this week. Yamamoto advocated a 20 trillion yen ($247 billion) reconstruction program funded by BOJ debt purchases. A group of ruling-party lawmakers submitted a similar proposal to Finance Minister Yoshihiko Noda on March 18, according to a web log posting by DPJ member Yoichi Kaneko.

The debate parallels discussions last year in the US and Europe, where the Federal Reserve and European Central Bank adopted bond-buying programs.

The report mentions how Japan paid for its military build-up in the ’30s. It printed money! Eventually this led to runaway inflation…and economic as well as military disaster.

But what’s the choice?

Well, there’s another option: Japan should dip into its “rainy day fund,” say economists Carmen and Vincent Reinhart. While the Japanese bought Japanese government debt, the Japanese government bought the debt of other governments – primarily, the USA.

Now, it has about a trillion dollars’ worth of it. Why not just sell some of it in order to rebuild the country?

Well, yes… But then, you see the problem, don’t you, Dear Reader? What happens to the price of US government debt? It goes down, right?

And then the US has a hard time funding its deficits.

But wait. It can print money too.

Oh joy…we’re saved!


Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

Latest posts by Bill Bonner (see all)



  1. Eventually this led to runaway inflation…and economic as well as military disaster.

    Military disaster? I don’t think so, they were closer to winning the war than Americans realise or care to admit..

    March 29, 2011
  2. StillGotShoeson? – Just what planet’s history are you quoting? Despite 6 months of rapid victories over the (mostly) unprepared allies, they came nowhere close to winning the war as you claim. To win they would have had to miltarily defeat the USA, Chinese & British Commonwealth (and later the USSR). For a country that in those days was an economic minnow this was impossible – despite their undoubted military prowess.
    I don’t think anyone with even a primary school knowledge of history could deny that WW2 ended in utter distater for Japan. 2 Cities atom bombed, the rest of their cities turned into wastelands from conventional bombing, their navy obliterated, their airforce only capable of limited kamakaze raids – otherwise destroyed, their only remaining intact army destroyed by the red army in Manchuria and the rest of their armies cut off and starving throughout the islands of the Pacific – I’d say that’s a pretty good definition of military disaster.
    Even the Japanese acknowledge it!!

    David Bode
    March 29, 2011
  3. Bill Bonner lumps the money printing in with Japans loss at WWII which is incorrect.

    If Hitler had not attacked Russia (as he originally promised Russia) the war in Europe would have ended with a much different result.

    The Japanese did not capitalise on the early victories against as you say an unprepared United States.

    A couple of tactical errors on the part of the Japanese and some (acknowledged by the US Forces) luck for the allies the war in the Pacific would also had a different result. They never would have been able to get “the bombs” any where near Japan had the Japanese taking advantage.

    March 29, 2011
  4. Maybe I need to revise my WWII history too Shoes? But for now my impression remains that Japan was doing it real tough given the embargoes on oil and whatever, looking down the barrel of an ignoble retreat from China, but with good old Adolf giving the nasty Russkies lots of stick, pretty much just went for broke in a ‘do or die’ effort to break out to the south in the hope of securing the resources they required to ‘achieve their rightful place in the world’ – Or whatever? (With LOTS of others having done so successfully before them of course.)

  5. “If Hitler had not attacked Russia (as he originally promised Russia) the war in Europe would have ended with a much different result.”

    Yes, working from memory admitedly: Given that as Germany had a pop of about 80m going into WWII, poor old Adolf never was able to scrape up a force of any more than about 6 or 8m effectives (a few of whom Winnie C and shore patrol duties kept amused even after they’d conquered the European mainland), the fact that the nasty Russkies took about 1m of Adolf’s effectives in the single battle of Stalingrad, must have been a bit of a setback … :D

  6. Just did some google/wiki research (will bastardise links to attempt to get comment through):

    Germany => pop of 69m in 1939 (though add in Austria etc to get 84m)
    German military casualties 1939 to 1945 (where casualties means “dead” rather than “Oh dear I grazed my knee” apparently?) = 5.5m

    Source: +++++ World_War_II_casualties

    Battle of Stalingrad:

    “Various scholars have estimated the Axis suffered from 500,000-850,000 casualties (killed, disabled, captured) among all branches of the German armed forces and its allies, many of them POWs who died in Soviet captivity between 1943 and 1955. Of the 91,000 German POWs taken at Stalingrad, 27,000 died within weeks and only 6,000 returned to Germany in 1955. The remainder of the POWs died in Soviet captivity”

    So at 1m I was bit high on that one.

    Source: +++++ Battle_of_Stalingrad

    Though battles like Kursk and a few others were bits of downers for Adolf as well:

    Greater Germany military losses on the Eastern Front during World War II =>
    4.3m dead
    3.3m POWs

    Source: +++++ Eastern_Front_%28World_War_II%29

    Aren’t sure where my figure of 6 to 8m effectives at any one time came from? In some ways it still sounds reasonable given poor old Adolf’s limited supply of cannon fodder? But maybe not given the actual numbers of his troops the nasty Russkies actually pinged?!?! :D

    Either which way, even though I’m no military historian, I’ve got a real good idea who crushed Hitler.

  7. “But wait. It can print money too.

    Oh joy…we’re saved!”

    I think Bill is saying that this sounds inflationary? (To the sucker nations that cop the fallout of all the QE anyway ?!?) :)

  8. Comment by Ned S on 30 March 2011:

    Either which way, even though I’m no military historian, I’ve got a real good idea who crushed Hitler.

    Germany dominated the war from 1939 till 1942
    1941 They invaded Russia..

    “Stats” of dead and wounded do not highlight the loss of resources also displaced into the Russian campaign.
    Those resources directed at the original warzone (non Russia) would have mande a difference.. How much a difference is open to debate..It’s an unknown.
    It is not unfair nor unreasonable to think the the outcome could have been different.

    The Russian girl I met and dated for a while was from Kursk.. We met at JFK airport, she was standing near the Bus ticketing area when I walked out into the same area from arrivals. She was all alone and looking lost, I walked past her to the bus place to get a ticket into NYC, gave her a smile she gave one back. Had 45 minutes till next shuttle to NYC so I got a drink and walked past her again.. bit of small talk and she comes out with “My name is Daria, I am from Russia and my English is not very good and I am not sure where to go”
    I replied “I’m from Ireland, my English is not much better, but I know where I need to go”
    As it turned out we were on the same shuttle. I was staying on West 65th near Central Park, She was going to W110th to stay with her Auntie.
    In discussion she said she was from a town in Russia, I would probably not know it.. Kursk. I said I know of Kursk it was the scene of the largest tank battle in WWII. Her aunt was a real estate broker (mega dollars) This was back in 1989. We broke up as I would not move to the USA. She got sick of me going back home and then coming back to the US..

    March 30, 2011
  9. My grandad was a Ukranian and fought with the germans against the Russians early in the war. He basically said that when the Americans joined the war in late 1941 everyone who was in the know realised that it was over for Germany. The resoures of the US coupled with the disaster that was the Russian campaign pretty well sealed their fate.

  10. German armour was superior to the US armour until 1943. The British retro fitted their 17 pounder gun to the US M10 Tank and the US fitted a bigger gun to the Sherman making them more of a match against the more heavily armoured German Tanks.

    There was a lot of “anti” war in Europe sentiment in the US had those troops and armour that were sent into Russia been used against the Allies instead US losses would have been far greater, maybe enough to turn sentiment back home against the battle in Europe..

    Germany sent and lost a significant number of Tanks in Russia. Russian field guns and the T34 decimated the German Tanks

    March 30, 2011
  11. Interesting experience to have spent time in a Russian city of a million people established back in the 1500s Shoes and finally realise that there pretty much isn’t a single building in the whole joint that pre-dates 1945. (Except a rotunda that wasn’t totally trashed in the fighting that they left standing with a few holes in it as a memorial/reminder.) Bugger war – I’m a pacifist! :D

  12. Steve is happy that we are all going to go on a first home buyers strike and will all be refusing to pay ridiculous prices for Australian properties :D

  13. I also think we should all hold a big rally about the issue like they did in regards to the carbon tax except get alot more people that would be good

  14. You’re so economical, Steve. No-one else can compress so many sentences into one! Four Gold Stars for that… . ;)

    Suggest that your role in The Big Strike could be: 1.) Lock your bedroom door and stay confined to your room; 2.) Refuse to pay Mum board; 3.) Don’t help with the dishes; 4.) Hold your breath until you turn bright blue… ;
    5.) Decline drinking water at all costs… and refuse food:

    “Biker Property is a NEED everyone VAULES it, just like I VALUE oxygen, just like I VALUE food, just like I VALUE water.”


    The opinions that Jack Marx expresses in this piece pretty much sums up my opinions of you Biker a @#&+.

  16. Kiss your mother with that mouth Steve? Real class act for sure.

  17. Comment by Ned S on 30 March 2011:

    Bugger war –

    A necessary evil at times.

    My Grandfather and his brother (mothers side) were both killed in WWII.
    My Grandfather around Normandy/Bocage (exact date is not known) His brother was killed later when the ship he was being evacuated on was torpedoed.
    It is only fairly recently that my mother found out.. she had long suspected her father was not her real dad. Her mum told her where to find out all she needs to know on her death bed.

    March 31, 2011
  18. Like I said Steve – you are all about class. Take your potty mouth somewhere else please.

  19. Consensus in the US banks is now a return to a 20% deposit down for house borrowing. The HSBC Chairman has just named his 80 banks in the world that he considers “strategically significant”. Don’t worry about BIS and governments catching the 4 pillars on this, the competitors unable to get out of the net will see them given no wriggle room. The state of US housing playing out before the muni cuts and way befiore the Federal government get a balanced budget amendment (this muted “federal shutdown” is so unlikely to happen) is :

    Our 4 pillars will not be able to service their existing long lending (housing) let alone grow the loan book under SIFI. We might have to go the way of small banking like the US because the bodgy distribution model (capturing the old securitisers like RAMS and Aussie and introducing new brands like Bank of Melbourne etc won’t stand up under the new regime)

    It is worth looking back at that actuality of RAMS and Aussie and how the Foghorns and Aussie Johns made their money. As Symonds said openly the big banks could have smashed him at any time of their choosing on the funding cost differentials (4 pillar power in the US securitisation markets) even as they grew. They were separately owned and put up the veneer that they were “competing” but they were tap dancing to an anti competitive tune and while taking a small enough market share and not pushing too hard on rates, they could take a sufficient personal clip to build in Point Piper while guaranteeing that the big banks could maintain their fat margins by what was really feaux market diversity.

    The local wholesaling and releveraging funding into what are now reselling subsidiaries directly under the 4 pillar wings also goes by the wayside under the new regime.

    The US still has it’s need to privately replace the funding of Fannie and Freddie if they want to shut them down.

    All told it looks like a return to 70’s risk pricing and hence wholesale funding pricing. We can still run out of bank funding like we did before deregulation because the wholesale rollovers are so large. The other day wonder boy no. 3 from the Reserve Bank said all hands were on keeping up with the housing funding – and under these circumstances it will be just like the Fraser years coming into the 80’s when business couldn’t borrow a cent from our private banks (they were balance sheet extinguished on old long fixed rate loans and new high cost short term funding pricing) and neither would foreign bond holders allow government to borrow any more.

  20. His choice of language may tell us a little about Steve’s Sydney neighbourhood. No wonder he’s keen to move out and up.

    Your comments about oxygen*, water and food are understandable, Steve; given they were made at the time you were requesting we _give_ you a property.

    With that in mind, may I suggest your strike placard should read:

    “GIVE me a house, now!~”

    A ‘please’ added to the sign would probably do no harm… .

    * Are you in poor health, mate? Most of us breathe air.

  21. “Bugger war –

    A necessary evil at times.”

    And I’d put WWII in that class. (Though fully expect the Germans and Japanese did as well at the time.)

    Lots of others, like WWI and Vietnam and our most recent efforts, I just shake my head and say What the hell were/are we thinking.

  22. Yeah biker I live in the badlands of Sydney, not many white folk around except me.

    Yes I am all class Don, no need to bring my mother into this thank you very much…

  23. @Ross

    My position on banks is to short them, has not changed in some time.

    March 31, 2011
  24. Jeez Steve, my impression of the ‘badlands’ of Sydney is that they are the bits where ONLY the white folks live now? ;)

    But either way, have you done your sums/given lots of thought to what you might see as an acceptable buy-in point? Even for a bear that’s a pretty necessary thing to do I’d suggest.

  25. Ned unless you are thinking of places like bidwill, plumpton, shalvey, dharruk, tregear etc
    you can buy a house there for 200k, and live next to a true westie with two teeth left and a vb in his hands, his wife Shazza who gets around the neighbourhood too, you can get lucky easily with her…

  26. Shaz – Yep, that was the name of my acquaintance’s missus alright!!! (Though I personally thought their eldest daughter was considerably cuter than her ma … :D )

    But as I said, I’m still hoping you’ve been giving lots of thought to your buy-in point.


    This will have an impact on retailers and those whom are finding the going tough now, if it comes to pass…

    Many FHB’s in Melbourne bought in the Northern and Western fringes, poor public transport… A price hike in fuel costs of this size will be a bad news for many of them that are struggling already.

    March 31, 2011
  28. RP Data report came out today. It was ‘bad’ for Darwin in particular. And ‘good’ for nowhere in particular.


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