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Reality Check: Do Central Banks ‘Print’ Money?

August 2, 2012

No! No! No!  Central Banks now create ‘money’ OUT OF NOTHING!

Every day I read or listen to financial pundits who write or talk about the ‘printing’ of money by the Fed or other Central Banks. These pundits then espouse the view that this ‘printing’ is leading to inflation and eventually hyper-inflation. Is any of this mindset reality? or is this thinking a type of deception? What precisely are the Central Banks now doing as they ‘create’ new units of currency or money?

What Bernanke, King, and Draghi are doing to increase their System Open Market Accounts is NOT ‘printing’…but digitizing. What is ‘digitizing’? What happens is that the Desk at the Federal Reserve Bank in New York increases their banking account by merely ‘typing’ in new currency numbers (into their computer account). This ‘typing’ of new numbers via the computer keys allows their banking accounts to increase by the amount ‘typed’ into their account. Ron Paul and others call this ‘creating’ money out of ‘thin air’. I call this creating money units ‘out of nothing’ (the consciousness of the Central Bankers inner thoughts).

What does this process tell us about ‘money’, ‘credit’, and ‘lending’? When the Central Banks create money units ‘out of nothing’ they reveal that our ‘money’ is NOTHING (no thing)!  Today, our money units have evolved from physical commodities (gold/silver), to paper notes and coins (what we use at MacDonald’s), into today’s virtual/digital units (which now compose some 96% of all money transactions). Why is this change in how our Central Banks create our money important for discerning future trends?

First of all, most of the financial pundits who espouse that our Central Banks are ‘printing’ enormous quantities of new money units seem unaware that ‘digitizing’ of units creates a different result in the markets. Since there is no real ‘printing’ today, the new money units are NOT getting to the consumers to SPEND. All this ‘digitizing’ or creation of money units via the computer merely creates new liquidity in the System (without creating any real ‘price’ inflation). There is ‘no’ velocity (via credit/loan creation) today as borrowers are not borrowing and lenders are not lending. Also, all this new QE liquidity tends to increase the accounts of the large TBTF institutions who then invest these funds in ‘safe’ assets (which do not help our economy grow). GDP is not growing in ‘real’ terms!

 
The above graph clearly shows that if we adjust our GDP in terms of gold…there is really NO growth. What Bernanke and Company are doing is increasing the ‘wealth’ of the few (the 1%) in terms of imaginary/funny money units…but he is not helping our real material economy! If this process of ‘digitizing’ continues into 2013 and beyond, we could witness a complete breakdown of our credit/debt markets. Keynesian economics is based on DEMAND management and DEBT. This economic model is now obsolete and dysfunctional for today’s global markets. Our DEBT has reached a ‘threshold’ level where it minimizes and restricts real growth and entrepreneurship. Expect ‘deflation’ to emerge in the coming months and years (unless Ben decides to ‘PRINT’ new paper notes and then drop them over our cities via his ‘helicopter’).

What is now needed is a NEW economic model for today’s global markets. Centralizing all the markets can not create the prosperity we need for our future. Central planning merely allows the elite few to benefit at the expense of the blue-collar workers and the general public. American history has demonstrated that real WEALTH creation comes from free markets and free people (a decentralized market). The growth of the past 200 plus years under Classical Capitalism is now being stifled and restricted via Central Planning manipulations. Central Banks now control most finance and growth prospects. Will all these manipulations and counterfeit operations lead to real future growth and prosperity? I don’t think so!
One Comment leave one →
  1. August 3, 2012 9:54 am

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