Tuesday, August 7, 2012

Buy Bonds -- The New Cure for Government Excess

Markets and politicians are clamoring for the Fed and the ECB to buy sovereign bonds, presumably to make it easier for absurd debt levels to get to even more absurd levels.  Great policy.  It's almost reassuring to see Tim Geithner in support, since he has a perfect record -- he's never been right once regarding economic policy.

So what is the logic behind asking the Fed and ECB to buy sovereign debt?  Basically, to make it easier to sell more of that debt by increasing the demand.  Where will the Fed and ECB get the money to buy the debt?  Ah, that is the question.  How about -- out of thin air!  What we used to call the printing press.  In modern times, the printing press has been replaced by digital creation, but is there any real difference?

So Europe and the US are reduced to hoping that running the printing press to put more money into circulation will rescue their stagnant economies.  Let regulatory overkill, oppressive taxation, and massive government bureaucracy continue unabated.  Instead, let's just print dollars and euros.  That's the new policy for the Geithner-Obama-Monti-Draghi generation.

The only thing we know for sure is that inflation -- a lot of inflation -- is in our future.  For Europe, inflation will be accompanied by economic and political chaos reminiscent of the German situation in 1923.  For the US, it could be the same.  The US has an alternative available in November.  But, if that comes and goes, the US will follow the European route.

Re-instituting free markets and reducing the reach of government are the only tickets to economic expansion.  Printing money, as a cure-all, simply exposes the desperation of the modern politician who has run out of bullets.

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