The Penny Finally Dropped … or

 

Should I say, ‘Dollar’ as in the American Dollar?

This week, Japan came out and said that it too would begin the printing of money – their Yen – as if it is going out of style …as well it might be.

This exercise, known as Quantitative Easing, has been perfected in recent years by the US of A; in essence it is the printing of money without anything to back it up e,g, gold.

Japan is now trying it out since its economy has lain dormant now for well over a decade.  Moreover, its debt to GDP surpasses 233%; America in contrast, has a ratio of just over 100% – mere pikers in the international race to the bottom.

Japan’s move though got me to thinking – why are countries following this apparent disastrous route and that’s when I had my Eureka Moment.

Up to that point, I had viewed the reckless printing of money as something that would impair governments’ ability to manage their respective economies.  In fact, I was correct but for the wrong reason.  Quantitative Easing is really a scheme designed by Governments to pass the risk of their mammoth debts on to their unsuspecting publics. 

But first, a look at my credentials in the field of economics.  I took first year economics in University and received one of my best marks in that subject.  I also took a third year economic geography course and can still vividly recall Von Thunen’s Ring Theory.

So there you have it – I do have some expertise to bring to bear.

And a little more background:

I have written continuously about the dire straights within which the States currently finds itself; its debt tops $17 Trillion and will surpass $20 Trillion by the time the current occupant of the White House moves on; the Fed must purchase the Government’s own bonds because the private market for such collapsed some time ago (it is akin to buying from yourself); one third of its populace is on welfare; and finally, as more and more retire from their labour force, fewer and fewer are left to carry the load.

So that brings us back to Quantitative Easing – best enthusiastically described by Fed Chairman Ben Bernanke as throwing money out of helicopters in the hope that these monies will be picked up by the populace and spent to stimulate the economy.

Governments like the USA and now Japan hope that with the printing of fiat money (nothing to support it) – their economies will be boosted and tax revenues will increase which will enable them  to continue their spend thrift ways while at the same time using this free money to fund their respective debts.

Nice trick if you can get away with it and so far America has albeit its economy is still sputtering on the brink of recession.  

The really neat thing about this is that it costs governments nothing save the insignificant cost of the printing.

But sadly it costs you the taxpayer since Quantitative Easing is just another word for devaluing one’s currency – like inflation without inflation although it can easily lead to inflation and in the end will most likely do so.

It also resembles Cyprus’ 10% off the top savings.  ‘Presto’ and your holdings are worth 10% less.

Take Zimbabwe for instance.  It too likes to print money and in fact now prints 100 Trillion Dollar Bills worth but $5 bucks; all due to its reckless printing and runaway inflation.

I do not foresee such denominated bills in America’s future but I do readily see serious inflation come about as a result of its indiscriminate printing of dollars.

Countries that are serious about managing their finances properly do the following:

• Refrain from debt / balance their budgets
• Increase their money supplies in direct proportion to the rise in their Gross National Products (GDP)
• Reduce Taxes to allow for more money to spend in the private sector where real jobs are created.

It would do both American and now Japan good to follow the above prescriptions but sadly I do not foresee this happening any time soon,

As I see it …

‘K.D. Galagher’

 

If The Young-un is not careful…

 

He may fall into US Hands.

Since my writing of the Young-un Blog several readers have written to me challenging my worried assessment and saying that this is all just ‘old hat’ – it is North Korea simply once again “calling wolf”. 

Hopefully those who think that are correct but I still am convinced the North’s position has gone well past mere posturing.

I say that for the following reasons:

first, the young-un is new to his position and must project himself strong in the face of opposition from within and without;

second, never before has the North revoked the July 27th armistice with the South (i.e. bluffing is to threaten to revoke and not to actually revoke it);  and,

third, not since the 60 year old cease fire, has the North actually declared war on the South … until this past week that is (i.e. again – bluffing is to threaten to declare war …not to actually do it).

It has a million man army and just one spark would be enough to set things off …

That said, if the Young-un is not careful, he may be falling into a trap of his own making and one that the US may welcome.

There are two – (possibly three rogue nations if you count Pakistan) that have or are close to perfecting their nuclear capability.  The US is on record – at last saying it will not allow Iran to join the nuclear club so that leaves North Korea.

The North – does have those weapons but does not have the capacity yet to deliver them to the continental United States.  Now comes along the Young-un madness which gives the States the excuse it needs to ensure that they never gain that capability.

If I were the Young-un, I would be backpedalling for no other reason than that.

Will he?  I am not so sure and hence the reason for my last Blog.

Should he?  As stated, in his own interest he should.  

One last comment, this is by far the most dangerous story out there and yet, from our own media, you would think that nothing is going on in the Koreas at all.  It is all robo call and great issues such as that.  Pathetic.

As I see it…

‘K.D. Galagher’