The Democrats Finally Embrace Money Printing

Quantitative Easing is no longer just a palliative Federal Reserve policy—it has just become a political issue. Which is why it will get bigger—and worse.

If you’ve been following American political theater since the start of the Global Financial Crisis in 2008, you’ve probably noticed how many (but not all) Republicans line up on the side of fiscal austerity and tight-money policies so as to limit the fiscal deficit and reduce the government debt (at least when it comes to non-military spending. And non-law enforcement spending. And non-bank-saving spending.)—

Who says the Dems don’t like money?

—whereas the Democrats have insisted that the government needs to take on more debt, and spend its way back to prosperity. In the Dems’ worldview, deficits and debt don’t matter: What matters to them is how much is the government going to spend in order to “save the economy”. (“Paging Professor Krugman!”)

But last Thursday, during the testimony Federal Reserve Chairman Ben Bernanke gave to the Senate Banking committee, Democratic senators questioned why Bernanke was thinking of tapering off the bond purchasing programs of Quantitative Easing (QE). They wondered out loud if maybe QE should continue “until the economy further improves”.

In other words, the Democrats have finally realized that not only does QE mean they don’t have to rein in the deficit—QE also means that they can expand the deficit, confident that additional debt will be bought and paid for by the Federal Reserve. Confident that additional debt will be monetized by the Federal Reserve—because after all, that’s what QE is: Debt monetization, and everybody knows it.

(What, you really think that the Fed is gonna one day unwind its QE position? Sterilize all that money printing and rein in its balance sheet to less than $1 trillion, as per the status quo ante the Global Financial Crisis? Hue’ón, you buy that, then open your wallet, ‘cause I got a bridge to sell you.)

Which means that, with their calls for more QE, it’s clear that the Democrats have finally embraced flat-out money-printing.

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My Dog, Claire

My dog, Claire, in the kitchen at home. 

I got my dog, Claire, back in March of 1999—over fourteen years ago. She was a nine week-old puppy back then. And since then, I’ve spent more hours of my waking life with her than with any person—even my parents when I was growing up.

Think about it: I work at home, so she’s always hanging around—either napping directly behind my chair, or stepping out onto the balcony and watching the world go by. Even during the years when I worked in an office with other people, I would bring Claire along. (I could get away with that, of course, because I owned the businesses.) I once even had a fairly tense meeting with some investment bankers in my office, and Claire was there. No one noticed her: She lay under a corner table, watching everything without making a sound, the squad of banksters completely oblivious to her presence.

Claire was probably wondering, What are these crazy humans up to?

Claire isn’t my child, by the way:
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Gold is a Crap Investment—Unless...

About gold as an investment, Barry Ritholz said it best:

This is not to say gold is not affected by Macro issues. But that is very different than saying Gld has a fundamental value, an intrinsic worth. It does not. [. . .] Gold is not, and can never be, an investment. It has no true intrinsic value, no cash flow, no earnings, no coupon[,] no yield. What people call fundamentals are nothing more than broad macro analysis (and how have your macro funds done lately?). Gold is the ultimate greater fool trade, with many of its owners part of a collective belief theory rife with cognitive errors and bias. [bold emphasis in the original]

Ritholz is absolutely right: Gold does not have cash flow, earnings, coupons, or yields. Unlike, say, a factory, or a piece of land, gold cannot produce anything; gold just sits there, inert. Though it has a handful of industrial applications, and of course can be used for decoration, gold has no practical use. You can’t eat gold. You get caught in the middle of the Sahara with a ton of gold and not a drop of water? You’ll be the richest corpse in no time.

So just like Ritholz says, gold is not an investment—unless.

Unless what? Unless the fiat currency itself becomes worthless.

It is this possibility—that the novel, experimental and reckless measures being taken by the central banks of the major reserve currencies might well end up debasing the dollar, the euro and the yen to the point where they are as worthless as Weimar-era Deutsche marks—that makes mincemeat out of Ritholz’s perfectly sensible analysis.

The central banks’ screwing with the fundamentals of fiat currency is why gold is a good investment. At this time, in this era of “heroic central bank measures”, gold is probably an essential investment, considering the general direction the global economy is headed in.
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If You Are A Baby Boomer, You Will Go Bankrupt—If You Stay In America

Recently (drum roll, please) I had a tooth removed (cymbal crash!).

Unlike us, he’s got no worries—
he can afford a good gerontologist. 

But I live in Chile. So I wound up paying $62 for the extraction of a cracked rear molar, and an additional $450 for a state-of-the-art implant with a porcelain crown that ought to last me the rest of my life. This was done at a fancy-pants private dental clinic, with the latest equipment and some very hot nurses, lemme tell ya. I practically looked forward to going! (Don’t tell my wife. Please.)

Meanwhile, a friend in Texas, with nearly the identical problem, wound up paying $2,000 for the implant, and an additional $1,500 for the crown—almost 8 times what I paid. I told her it would have been cheaper—substantially cheaper—for her to fly down to Chile, stay at a nice hotel, and get the procedure done here. She thought I was kidding—until she compared the costs of the procedure, added the airfare and hotel costs, and then realized that I was right. (If you don’t believe me, check out the American Airlines website and the Holiday Inn website for yourself, then do the math.)

Another example: My 89 year-old grandmother has senile dementia, so she requires round-the-clock nursing care. Her cost? Here in Chile it’s about $1,500 per month—and this is private nursing care through a professional agency, with fully acredited RN’s taking care of her day and night in her own home. In the U.S.? The cost for the same quality of care would be between 5 and 10 times as expensive, if not more.

Now, I’m not bringing up these examples because I’m working for the Chilean ministry for tourism—I’m not. I’m giving these examples in order to highlight something crucial about globalization.

Globalization has meant that labor costs are much cheaper outside the developed world. A factory in China will produce a doodad at a small fraction of what it would cost to produce in America or Europe. Which is great, if you want to buy that doodad.

But globalization has also meant that the care and services required for older people are much cheaper outside the developed world—and prohibitively expensive in the U.S. and Europe.

Which is a disaster for retirees in America. Because if you are a retiree—or if you are a Baby Boomer who will soon be retiring—then you live on a fixed income: Be it a pension or Social Security checks or an annuity or some combination thereof. So if you live on a fixed income, and the price of health care (or health insurance) is continuously rising, then it is a certainty that you will go bankrupt before you die.

Pretty much sucks, yeah? Here’s why.
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