Friday, February 10, 2012

There Are Burglars Lurking

"Bank of England injects another £50bn into UK economy", the BBC reports.

When normal sensible people do stupid things you shake your head. Like someone shovelling snow from a roof, untethered. You wait for the inevitable.

But when sensible people in power do stupid things, you can either get mad and active or feel helpless and do nothing.

Central Bankers are not supposed to be stupid. They are the best brains in banking. But you would be right in feeling confused about this. Especially when they keep doing something that hasn't worked long-term and also has never worked historically.

Central Banks are not supposed to be political entities. I know the NZ Reserve Bank is mandated as such. However, one has to wonder how this short term 'easing' could be anything but political. How can it not be serving political masters to leave your theory and history at the door and attempt to produce wealth by printing it?

It defies logic. Perhaps this will stimulate for a while. It may make GDP, as it's measured anyway, a little brighter next time it is reported.

But 'things' or assets that you can touch and feel and dig out of the ground, haven't suddenly and magically been printed. You've heard of 3D printers, well they aren't yet good enough to do the Star Trek thing and produce real physical assets by the touch of a button.

If only that were so. Then we wouldn't need money.

So the Bank of England prints but who gets the dosh? Who is on the other side of the trade. Remember any credit needs a debit. It's just the way it is. Light and dark, positive and negative, laws of the universe that are inviolable.

If you are the lucky few who get to use this money first, when prices haven't yet caught up with the money supply increase, then whoopie, you are extremely pleased. Buy those assets now while they are cheap.

But who is at the bottom of the this dastardly pyramid?

You guessed it, it isn't rocket science. You and me savers. We pay. Not directly, as a tax is deducted from pay, but in the leaching away of value that our hard earned labour represents.

One of those hours you worked last week? You may have just lost 2 minutes of that. Or put it this way, now you may need 62 mins work to be rewarded in the same way as last week or to just buy the same amount of stuff. The stuff hasn't changed, the amount of money has.

Ponder this? What's the difference between banks printing money and a burglar stealing your wallet?


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