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More printed money equals higher prices

The calls for another round of Quantitative Easing (known as QE2) are making the rounds at the Federal Reserve.

Quantitative Easing is a fancy word for money printing. The Federal Reserve creates money by the push of a keystroke and then goes out and buys somebody’s IOU with it, typically U.S. treasuries but more recently it has included bank debt and other assets. They then shelve the IOU at the Fed and log it as an asset and the payment for the IOU goes to the seller of the asset.

That isn’t you or I by the way, but some bank or brokerage firm with ties to the almighty Federal Reserve. These institutions will then either go out and lend it to someone (hopefully consumers) and charge interest on it or they can also just plain gamble with it in the asset markets.



Gamble with it? You heard that right. The Federal Reserve can print up as much money as it wants and give it to whomever it wants but may make no stipulation on how the bank on the receiving end spends it. If the bank perceives you and I are too risky to lend money to (such as what is happening now) it can just put the money in the stock market or even buy IOUs from another branch of the government, the Treasury. If they buy Treasury IOUs (U.S. treasuries or notes) they then get paid interest from the Treasury, which is again is either your taxpayer money or more created money.

Money from either the Federal Reserve or the Treasury isn’t free, however, as money created from air just adds to the existing money supply and eventually causes general price increases that we know as inflation.




The Federal Reserve, Washington and some notable economists such as the Noble Prize-winning Paul Krugman somehow seem to think that money creation is free and that the banks will use the money wisely.

There is little historical precedent to back up either of these claims.

We’ve already witnessed the banks’ idea of prudent financial management throughout the housing bust, having

almost brought down the entire banking system with their shenanigans. They continue their charade by putting back very little of the billions of bailout money they have already received, evident by the pitiful lack of new loans being made to consumers. Instead they plow the money into stock and equity markets, driving prices of stocks and commodities ever higher and then post record profits and doing little else that benefits our “recovery.”

What all this created money is doing, however, is evident in the markets that cost you and me real money, that being the grocery market. Basic materials and foodstuffs are skyrocketing in price and you can easily verify that the next time you go the grocery store or eat out at your favorite restaurant.

Inflation is again running rampant, despite what the Washington economists try and tell you through their massaged statistics and spun economic numbers. The cost of all that money creation that the Federal Reserve is doing and planning to do in the next round of Quantitative Easing (QE2) and what Paul Krugman is advocating is showing up on our grocery and energy bills. Those higher bills are the cost of all this created money.

Adding insult to injury, all this so-called free money is doing little stimulating unless you call higher everyday expenses exciting. The fact remains the government has already enacted trillions of dollars worth of stimulus and quantitative easing and interest rates are at historic lows. In spite of all this “stimulus,” unemployment is still horrendous, the housing market it still receding, the economic “recovery” is a no show and they tell us we need just a little more of the same.

No thanks, Washington.

Instead, let’s consider an alternative economic plan I know will really work to help out everyday Americans.

You guys keep your funny money and let us keep the money we earned through honest hard work.

You can hear more on money creation and stimulus programs on my next Money Matters Show this Thursday at noon, PST on KVMR 89.5 FM or go to http://www.Moneymanagementradio.com.

Marc Cuniberti hosts the financial radio show “Money Matters” on KVMR FM 89.5 and 105.1 or online at http://www.kvmr.org


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