Mad Money
December 1, 2009
American Conservative Magazine
[ECONOMY] MAD MONEY The Federal Reserve, Treasury, and Congress have had one solution to the financial crisis: more money. Print it, redistribute it, spend it even before the greenbacks roll off the press. Keep interest rates low and get the banks to manufacture more money, which they do every time they take in and loan out deposits.
The result has been the plummeting of the dollar’s value. Once again, it’s near parity with the currency affectionately known as the “looney,” the Canadian dollar. Even as the stock market bounds past 10,000 again, causing Pollyanna pundits to hail recovery, our currency sinks. And off in the distance, the “BRIC” states—Brazil, Russia, India, and China, would-be financial titans of the future—rumble about replacing the dollar as the world’s reserve currency.
What happens when U.S. banks, still cautious about making loans, start lending full throttle? What happens if the return of boom-time speculation coincides with falling confidence in the dollar and the creation of a new reserve currency? We might not feel exactly like Weimar or Venezuela, but we would not be able, as the divorce lawyers say, to live in the manner to which we have become accustomed.
But Uncle Sam’s monopoly money might get a short-term reprieve. That’s because the spendthrift ways of other governments remain competitive with those of our own. Consider what China has been doing to its money supply, as noted by analyst Mike Shedlock:
The Chinese central bank’s printing and respective Chinese bank lending make us look like amateurs. Chinese central bank assets and the money supply are up 25-26% annualized YTD. But this growth rate of money supply and bank lending is what is required to make up for the 8-10% net contraction in output from the collapse in exports and export-related production. Meanwhile, back in the US, total bank credit is contracting while M2 is up 5% annualized YTD.
It’s hardly a comforting thought, but the U.S. might restore the appearance of prosperity not by generating more goods and actual wealth but simply by remaining a haven from the even more reckless policies of other nations’ central banks. The end result, however, will be a crash not only of America’s economy but the entire industrialized world’s.