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So Why-Exactly- Can't We Print Our Way To Prosperity?

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I think I get the logic of the idea behind QE et al. It involves the Central Banks creating spending power ex nihilo and using this conjured spending power to purchase various assets thus 'injecting' money into the economy. This injected money then enters the world looking and behaving exactly as any other kind of money in that it can be lent out to finance investment or consumption and thus becomes a self fulfilling prophecy by inverting the normal causal relationship between reality and abstraction wherein the abstraction of pseudo prosperity in the form of 'printed money' leads to the generation of wealth and prosperity in the real world.


And it's perfectly true to say that credit-an abstraction- can lead to the creation of real prosperity if that credit is used to fund the creation of socially useful and desirable things. So an entrepreneur with a good idea can borrow and invest in a new business that then generates real profit by creating real products and services. And as a by product of this activity jobs are created which provides more spending power from which more demand is created ect ect.


And this all sounds really good and entirely sensible- it really does seem possible to begin with an abstraction-called credit- and from that most diaphanous of raw materials create solidly tangible wealth in the real world- it's an almost magical process that actually seems to both work and be empirically demonstrated to work.


So-given that it seems to work- why-exactly- can't we print our way to prosperity? Or- more precisely perhaps- why should this process of transforming abstract credit into real products, services and jobs ever have limit?


The curious thing is this: once you buy into the notion that the ex nihilo creation of credit can generate real prosperity then what you have done is create the financial version of a perpetual motion machine because the supply of credit is infinite- you can never run out of credit and thus you can have never ending prosperity.


(Ok- one obvious caveat here- resource constraints- eventually physical reality itself will impose a hard limit on prosperity but this limit has not yet been reached and certainly in the past it was not lack of physical resources that caused events like the great depression- they were destroying crops in the 30's to prop up prices.)


I guess my contention is this- if you take the view that simply by providing credit at a low enough price genuine lasting prosperity will be the result you are adopting a view that is not just optimistic but is wildly utopian- so those who accuse Central Bankers of being cynical in their outlook are in fact wrong- to be a Central Banker who believes in QE is to be someone who has embraced a special kind of magical thinking.


The magical part being this- if QE as a strategy ever worked- even once- it would have no real limit until the physical resource barrier was reached- given that credit is in infinite supply the outcome of permanent prosperity would be a given until we literally consumed the physical resources required to maintain it.


However this does raise a question- if this is true why in the long history of credit and money has this infinite source of wealth creation remained undiscovered? Are the Central Bankers of the early 21st century really so much smarter than all who have gone before them? Or is there some flaw in their thinking that they have yet to find?





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I'm sorry I didn't read the post, its too long for me.

Anyway, if you print money and pay off everyone's debts, the banks then make no money, this causes the real economy to collapse.

Not only that, but your currency becomes worthless leading to a large rise in import costs. Government borrowing rates also go higher until they can't borrow and the whole of society collapses. Apart from that it could work.

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Zimbabwe.

Do you see any hyperinflation as a result of QE? At present the problem seems to be the opposite- the central banks are struggling to meet their self imposed 2% inflation target.

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Do you see any hyperinflation as a result of QE? At present the problem seems to be the opposite- the central banks are struggling to meet their self imposed 2% inflation target.

errrr....

UK_real_wages_1862_2014.jpg

Stop looking at nominal inflation, and look at real inflation (purchasing power). In the period 2010-2014 people look to have lost 10% of their purchasing power.

I don't care what nominal inflation is. It could be -10%. If purchasing power is decreasing more, there is too much credit bidding up prices.

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Money is a product of labour, printing money does not produce labour. That is the real be all end all of it. The only people that actually benefit from money printing are those who are in the business of making money from money alone.

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I think I get the logic of the idea behind QE et al. It involves the Central Banks creating spending power ex nihilo and using this conjured spending power to purchase various assets thus 'injecting' money into the economy. This injected money then enters the world looking and behaving exactly as any other kind of money in that it can be lent out to finance investment or consumption and thus becomes a self fulfilling prophecy by inverting the normal causal relationship between reality and abstraction wherein the abstraction of pseudo prosperity in the form of 'printed money' leads to the generation of wealth and prosperity in the real world.
And it's perfectly true to say that credit-an abstraction- can lead to the creation of real prosperity if that credit is used to fund the creation of socially useful and desirable things. So an entrepreneur with a good idea can borrow and invest in a new business that then generates real profit by creating real products and services. And as a by product of this activity jobs are created which provides more spending power from which more demand is created ect ect.
And this all sounds really good and entirely sensible- it really does seem possible to begin with an abstraction-called credit- and from that most diaphanous of raw materials create solidly tangible wealth in the real world- it's an almost magical process that actually seems to both work and be empirically demonstrated to work.
So-given that it seems to work- why-exactly- can't we print our way to prosperity? Or- more precisely perhaps- why should this process of transforming abstract credit into real products, services and jobs ever have limit?
The curious thing is this: once you buy into the notion that the ex nihilo creation of credit can generate real prosperity then what you have done is create the financial version of a perpetual motion machine because the supply of credit is infinite- you can never run out of credit and thus you can have never ending prosperity.
(Ok- one obvious caveat here- resource constraints- eventually physical reality itself will impose a hard limit on prosperity but this limit has not yet been reached and certainly in the past it was not lack of physical resources that caused events like the great depression- they were destroying crops in the 30's to prop up prices.)
I guess my contention is this- if you take the view that simply by providing credit at a low enough price genuine lasting prosperity will be the result you are adopting a view that is not just optimistic but is wildly utopian- so those who accuse Central Bankers of being cynical in their outlook are in fact wrong- to be a Central Banker who believes in QE is to be someone who has embraced a special kind of magical thinking.
The magical part being this- if QE as a strategy ever worked- even once- it would have no real limit until the physical resource barrier was reached- given that credit is in infinite supply the outcome of permanent prosperity would be a given until we literally consumed the physical resources required to maintain it.
However this does raise a question- if this is true why in the long history of credit and money has this infinite source of wealth creation remained undiscovered? Are the Central Bankers of the early 21st century really so much smarter than all who have gone before them? Or is there some flaw in their thinking that they have yet to find?

Did anyone ever actually claim that we could print our way to prosperity with QE ?

it's a macroeconomic tool, no more no less. When it's used there will be winners and losers, just like when tax rates rise and fall.

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Printng money is just cutting the cake into smaller and smaller pieces.

If you want to create wealth then you have bake a bigger cake.

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Zimbabwe.

No. Hyperinflation in Zimbabwe was a symptom of the problems caused when productive farming land was taken back by the state and redistributed to those who were incapable of working it. The resulting shortage of food caused an increase in prices that the government tried to counteract by printing money. So the hyperinflation was not caused by money printing.

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The two related flaws are that:

1. The conjured spending power is in fact stolen spending power.

2. Central planning doesn't work.

No it's not stolen, it's simply invented. But the real magic is this; by borrowing this invented money and using it to create a business that in turn creates real profit from which you pay that money back wealth has been created from nothing. This at least seems to be the idea behind QE.

QE is not central planning-it's an attempt to stimulate the free market.

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I'm sorry I didn't read the post, its too long for me.

Anyway, if you print money and pay off everyone's debts, the banks then make no money, this causes the real economy to collapse.

Not only that, but your currency becomes worthless leading to a large rise in import costs. Government borrowing rates also go higher until they can't borrow and the whole of society collapses. Apart from that it could work.

Not reading the post puts you at a disadvantage when it comes to understanding the arguments it contains- but rest assured that at no point does the post assert that QE represents an attempt to pay down debt.

In fact QE is an attempt to restore a debt based system by making debt cheaper and more available.

Nor is QE a crude exercise in increasing the currency supply- but I'll stop at this point to avoid making the post too long.

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You only have to look at the stock market and for that matter local housing markets to see where the created currency has gone. Just waiting for a auto HTB 50% gov down payment scheme

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Printng money is just cutting the cake into smaller and smaller pieces.

If you want to create wealth then you have bake a bigger cake.

I don't really agree with this. A lot of the rationale behind QE is actually about preserving the wealth of the wealthy. The trouble is that by increasing money supply by issuing more bank credit then more debt arises and asset prices are kept high.

What would actually fix things is if the Government/BoE turn round, and gave every taxpayer. £100k, on the condition it was used to pay off debts. We could then jack up interest rates to keep asset prices in check, and the economy would get back on its feet as people wages would go further.

The above is really a kind of debt jubilee. But of course they won't do that, as it is really a hair cut for the rich, as it would inflate the wealth of the poor relative to the rich, and would bring down asset prices at the same time.

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Prices increase because of inflation. The world has been deliberately bastardized. If inflation was pricesincreases why not just call it that. Restricted supply causes prices to rise. But that is not really inflation. Inflate "blow a bubble" the money supply and that is inflation. Deliberate misuse of the word keeps the sheeple blinded"

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No it's not stolen, it's simply invented. But the real magic is this; by borrowing this invented money and using it to create a business that in turn creates real profit from which you pay that money back wealth has been created from nothing. This at least seems to be the idea behind QE.

QE is not central planning-it's an attempt to stimulate the free market.

It is stolen, because in printing the new money they've reduced the value of the existing money that was already in circulation.

The recipients of the printed money are richer, and I'm poorer as a consequence.

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It is stolen, because in printing the new money they've reduced the value of the existing money that was already in circulation.

The recipients of the printed money are richer, and I'm poorer as a consequence.

That's not really true. In normal circumstances, fiat money is not conserved. It's being created and destroyed at the same time. Leveraging makes changes in the money supply very rapid, as does the business cycle. In a recession money/credit is being destroyed faster than it can be created and distributed into the economy. Money/credit production by central banks is an attempt to arrest the collapse of the money supply, first and foremost.

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Prices increase because of inflation. The world has been deliberately bastardized. If inflation was pricesincreases why not just call it that. Restricted supply causes prices to rise. But that is not really inflation. Inflate "blow a bubble" the money supply and that is inflation. Deliberate misuse of the word keeps the sheeple blinded"

I can't agree with your assertion. Inflation is a symptom not a cause. An explanation put forward on "Khan Academy" is that inflation is caused by demand being greater than supply. The lack of capacity allows price to be bid up by those who want the goods or service. In a free market what will happen is that capital will be redeployed to take advantage of the higher prices to increase supply. Thus supply and demand will return to balance and prices will fall.

As we don't seem to have free markets government intervention, regulation and barriers to entry conspire to prevent supply and demand balancing.

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I can't agree with your assertion. Inflation is a symptom not a cause. An explanation put forward on "Khan Academy" is that inflation is caused by demand being greater than supply. The lack of capacity allows price to be bid up by those who want the goods or service. In a free market what will happen is that capital will be redeployed to take advantage of the higher prices to increase supply. Thus supply and demand will return to balance and prices will fall.

As we don't seem to have free markets government intervention, regulation and barriers to entry conspire to prevent supply and demand balancing.

That's where you've been fed the modern version of inflation. Proper inflation, before those who wanted the sheeple to become dormant changed it's definition by repeating that it was to do with the price of goods, is actually an expansion of the money supply.

The world controllers have got the majority of the populace so dosile now that not only have they successfully changed what inflation means, resulting in folk thinking it means rising prices, but they can actually have MSM state as clear as day every day that inflation needs to rise. AKA they want us to pay more to live and we should be fookin grateful.

QE is a huge problem added to a normal problem by people that don't want to lose money cos they're shit at their job in the first place. The original normal problem would have been righted if capitalism was allowed to do it's thing. Once QE is started, that's it. It can't stop until fatal OD.

The QE system isn't boom and bust. It's boom..

bu...QE......QE.......QE......QE..............BUUUUUST.

If we need new definitions, we'll see a new definition of 'bust'.

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That's not really true. In normal circumstances, fiat money is not conserved. It's being created and destroyed at the same time. Leveraging makes changes in the money supply very rapid, as does the business cycle. In a recession money/credit is being destroyed faster than it can be created and distributed into the economy. Money/credit production by central banks is an attempt to arrest the collapse of the money supply, first and foremost.

So why are they seeking to arrest the collapse of the money supply (what outcomes are they seeking to avoid), and what would happen to the money in my possession if they didn't take that action?

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Have you see the london house prices ?

Yes- but will the ultimate outcome of HPI be hyperinflation or deflation? If the housing bubble bursts the result will not be a decline in the value of fiat but an increase in it's value as 'wealth' is destroyed on an epic scale and money become more scarce- so unsustainable asset price increases are ultimately a deflationary not an inflationary force.

No amount of HPI will ever lead to hyperinflation except in the very unlikely scenario that vast numbers of people suddenly decided to liquidate their housing assets and simply spend the money rather than buy another house.

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It is stolen, because in printing the new money they've reduced the value of the existing money that was already in circulation.

The recipients of the printed money are richer, and I'm poorer as a consequence.

What about this scenario- The Central Bank buys assets from a Bank with printed money then the Bank lends that money to you- you then invest that money in a business and make a profit and then pay the bank back. Was the money you used to repay the bank real money?

If it was real money then is it not true to say that the consequence of creating that money to lend to you was that the pie got bigger? Without that invented money you borrowed, the value your business created would never have existed.

So it's not correct to argue that the Central Banks magic money resulted in the same pie being cut into more slices since you used that money to create a bigger pie.

The very concept of borrowing to invest hangs on the idea that it's possible to create more wealth than the borrowed sum- after all the fact that interest is charged is an implicit assumption that the borrower will create more money than he borrows. Without this baseline assumption lending money to start a business would make no sense.

The interesting question is why this process should ever stop. If we all agree that it's possible to take something that is infinite- bank credit- and turn it into real wealth why do we not have permanent global prosperity?

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What about this scenario- The Central Bank buys assets from a Bank with printed money then the Bank lends that money to you- you then invest that money in a business and make a profit and then pay the bank back. Was the money you used to repay the bank real money?

If it was real money then is it not true to say that the consequence of creating that money to lend to you was that the pie got bigger? Without that invented money you borrowed, the value your business created would never have existed.

So it's not correct to argue that the Central Banks magic money resulted in the same pie being cut into more slices since you used that money to create a bigger pie.

The very concept of borrowing to invest hangs on the idea that it's possible to create more wealth than the borrowed sum- after all the fact that interest is charged is an implicit assumption that the borrower will create more money than he borrows. Without this baseline assumption lending money to start a business would make no sense.

The interesting question is why this process should ever stop. If we all agree that it's possible to take something that is infinite- bank credit- and turn it into real wealth why do we not have permanent global prosperity?

You may be able to print infinite money, but it is used to pay for things that are finite. So how does the issuing of your new money drive the allocation of capital? You say the bank lent it to my business. Perhaps my business was shit, and close to bankruptcy due to competition with better run competitors. I use your loan to cut my prices to below cost for long enough to put my competitors out of business, then having cornered the market put my prices up higher than they were before. Has that made the pie bigger? Edited by SpectrumFX

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