Quantitative Easing and the Money Printing Press

In the past year the Federal Reserve System has done $600 billion of “quantitative easing.” QE2, the second round of this kind of stimulus, is officially over, but we could get another dose of it. In his July 13 report to Congress Chairman Ben S. Bernanke mentions QE3 as an option for the woebegone economy.

“Easing” means having the 12 banks in the system buy Treasury bonds and Treasury-backed mortgage securities. Payment is with money created by the Federal Reserve.

What’s going on here? Investing, as when JP Morgan buys a Treasury bond? Or something more like money printing?

Defenders of big government and of expansionary money policies (they tend to be the same people) have a fit when you equate quantitative easing to the printing of dollar bills.

QE1, QE2, QE3...QE184 are not about stimulating the economy. They are all about buying government debt to paper over the annual deficits. The world’s credit markets are not and never were able to absorb the $1.6 trillion annually dumped on it by the United States Treasury. What cannot be sold to the Chinese and Saudis is now being “sold” to the Fed, who just prints the money to pay for it.

It’s pretty much how the Germans financed World War 1, and we all recall where that led them by 1923.

Printing paper money always has been a problem for leaders who prized individual liberty and opportunity for citizens over outright lust for power for themselves.

Readers of this thread may be interested in the following quotations on the subject from "Our Ageless Constitution." Dr. Edwin Vieira, who contributed to that volume, has written extensively on the Founders' protections for liberty through their provisions for a sound money system. A search of his books and writings provide a great resource for understanding the dangers of paper money, and the wonderful protections of the Founders' system.

Thomas Jefferson:

"Paper is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted."

". . . although the other nations of Europe have tried and trodden every path of force or folly in fruitless quest of the same object, yet we still expect to find in juggling tricks and banking dreams, that money can be made out of nothing. . . The misfortune is. . . we shall plunge ourselves in unextinguishable debt, and entail on our posterity an inheritance of external taxes, which will bring our government and people into the condition of those of England, an nation of pikes and gudgeons, the latter bred merely as food for the former."

"Stock dealers and banking companies, by the aid of a paper system [paper money] are enriching themselves to the ruin of our country, and swaying the government by their possession of the printing presses, which their wealth commands, and by other means, not always honorable to the character of our countrymen."

Then there is John Maynard Keynes observation in "The Economic Consequences of the Peace - 1920":

"Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. . . . Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. . . . (It) does it in a manner which not one man in a million is able to diagnose. . . ."

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