Polite Pessimism Is Not Warranted

Monty Pelerin / EconomicNoise.com

The condition of the US (and world) economy is precarious. Alasdair Sinclair says that money printing is the only thing holding the economy up:

We are in the eye of a financial storm, for which the only solution – other than mass default – is an accelerating supply of money. Deteriorating financial conditions ineither government, banks, private sector or securities markets are almost certain to trigger a run on the others. And that is why a far larger figure than QE3’s $85bn permonth may be required to keep the system afloat.

Mr. Sinclair is correct. I recommend you read his piece in full.

While Mr. Sinclair points out that the Fed’s current effort (QE to infinity) will not be enough, the implication is that some larger number or other actions might solve the problem. I don’t believe that impression was one intended by Mr. Sinclair, although I do not want to speak for him.

There is no escape from the box that we are in. Printing money does nothing to heal imbalance in economies. It, up to a point, covers up these imbalances while continuing to make them worse. Each Fed intervention needs to surpass prior ones in order to have similar effects. A larger stimulus might enable the problems to be hidden a bit longer. This can-kicking can solve nothing. It ultimately makes the inevitable collapse bigger and more painful.

Let me be blunt, blunter than Mr. Sinclair in his article:

1. The Fed is engaged in acts to hide the true condition of the economy from the American public.
2. No amount of money printing can solve the economic problem.
3. Nor can anything else the government might attempt.
4. What is being passed off as economics is pure political Ponzism.
5. Continuing efforts to mask problems will produce hyperinflation.
6. Not continuing efforts will produce another Great Depression, likely worse than the first.
7. Hyperinflation makes the next Great Depression worse.
8. Hyperinflation ensures that most of the country begins the Great Depression will savings and fixed incomes destroyed.

An ill-wind is coming. Better that the government not exacerbate an inevitable ending with additional interventions.

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