If there’s one thing we’ve learned about central banks in the past few years, it’s that they will print money — and then print some more — as long as they can get away with it. Never mind that all it accomplishes is asset price inflation (including commodities!!). And doesn’t do anything to help the real economy, while impoverishing savers.
The U.S. Federal Reserve, under the leadership of Chairman Ben Bernanke, launched the first round of “quantitative easing” (QE1) in 2008. It totaled $1.7 trillion. QE2 was $600 billion. And any QE3 program could add hundreds of billions of dollars more to the fiat money system.
The Bank of England (BOE) is pursuing the same crazy, misguided strategy. It spent 200 billion pounds ($313 billion) as part of its own QE1 program. And it just launched a 75 billion pound ($117 billion) QE2 scheme this fall.
Even the Swiss National Bank (SNB) has lost its marbles. The bank is printing an unlimited amount of francs to keep the currency from appreciating too much against the euro. Result: Assets on the SNB balance sheet ballooned 27 percent year-over-year as of last count, while its M0 money supply has exploded by 210 percent!
The odd man out so far? The European Central Bank (ECB). Today I want to discuss the reasons WHY … and what they mean for you.
The ECB: Fighting Back against
the Easy-Money Addicts!
the Easy-Money Addicts!
The ECB has done plenty to keep European banks liquid. It has extended longer-term loans to banks. It has been sporadically buying sovereign bonds in the secondary market.
But in one regard, the ECB has set itself apart from the insane printing policy of the Fed, BOE, and SNB. You see, for months, there’s been a flood of pressure from politicians and bureaucrats the world over. They want the ECB to go further than its limited bond-buying program already underway …
They want it to print, print, and then print some more in order to bail out troubled nations like Italy and Spain. I’ve even seen some people throw around numbers like 2 trillion euros as if it were petty change!
But the ECB hasn’t bowed to pressure so far. And there’s a very good reason for it: Europe’s cultural and economic history.
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| The ECB hasn’t given in to the funny money crowd. |
Here in the U.S., you probably know about the internal resistance to money printing that Bernanke faces from hawks like Dallas Federal Reserve President Richard Fisher and Philadelphia Fed President Charles Plosser. But that’s nothing compared to the German hawks at the ECB.
They staunchly oppose papering over fiscal problems with printed money because of their country’s incredibly painful hyperinflation experience in the 1920s: Many historians believe the financial instability and decimation of German savings, which that episode caused, helped lay the groundwork for Hitler’s rise to power.
So while French and Italian policymakers are whining and begging for more funny money, the Germans are resisting, and not by a little bit. In my view, that’s why at yesterday’s ECB meeting, policymakers opted for a 25 basis point rate cut to 1 percent and relaxed rules on the types of collateral banks can swap for cash. They also extended the term of some loans to 36 months, more than the 24 months some people expected.
But crucially, they did NOT announce a U.S./U.K.-style QE program! In fact, ECB President Mario Draghi said the so-called Wall Street “experts” had it all wrong about a speech he recently gave. Many investors thought his comments opened the door to an expanded program of bond buying; Draghi said that wasn’t the case.
Stop Looking for An Easy Way Out …
Because There Isn’t One!
Because There Isn’t One!
Everyone on Wall Street keeps looking for an easy way out … some magic solution that will miraculously bring back the overleveraged, debt-fueled, unhealthy expansion we had in the early 2000s.
They think if central bankers just print enough money, and if governments just borrow even more money than they already have, the problems we’re experiencing now will just go away. They can get their Santa Claus rally. Then they can start spending their hefty bonuses before they’re even deposited in their bank accounts.
I’ve said repeatedly how that is NOT the case. And it looks like Wall Street is finally getting the memo.
So please, continue to be cautious, continue to use hedges against downside risk, and continue to consider getting more aggressive. Specifically, Consider Shooting For Profits With Targeted Investments that will surge if the Santa Claus rally turns into a Santa Claus flop!
Until next time,
