Trillions In Debt & The Madness Of Printing Money

Trillions In Debt
Many of today’s newspapers have the headline talking about how we are now Two Trillion in debt.  Just to show you how many zeroes that is : £2,000,000,000,000.  It equates to £33,000 pounds each.  If you are a pregnant woman right now, your child will be born into a debt of £33,000. 

So when you receive your oh-so-generous £250.00 cheque from the government which is supposed to kick-start savings for your new baby, that’ll leave a £32,750 outstanding balance.  Let’s hope they don’t start sending red letters too soon!  The sad thing about all this is that it’s almost certainly under-estimated.  Yes, it takes into account the banks we part-own.  But it’s only guessing the liabilities of those banks and its being optimistic in its guesses (in my humble opinion). 

Nor is it taking into account those mysterious PFIs (Public Fund Initiatives) that Gordon Brown is so keen not to talk about.  In a year’s time we’ll have the costs of welfare soaring through unemployment, massive falls in income from business taxation, and a pound whose value could be so debased by ‘Quantitative Easing’ (creating money via magic wand) that it will look a sorry relation to today’s already-damaged sterling currency.

I suspect the real figure is much higher.  With every month that passes it will continue to climb.  Our Prime Minister, like so many debt-laden individuals before him, is dealing with it by dropping the outstanding bills into a bottom drawer and taking on more debt to create the illusion of wealth.  That’s understandable (if unwise) from a stress- and worry-worn debtor who is out of options.  But Gordon Brown isn’t doing it with his money.  He’s doing it with our money.   Or rather… our future money.  He ran out of ‘our current money’ years ago.

The Madness Of Printing Money
Economics is a subject that can be mystifying to those who haven’t studied it, or who aren’t confident with mathematics.  It isn’t really that tricky, it’s just that economists have that infuriating tendency to bury everything in their impenetrable economist’s language. 

In the world you have a certain amount of money chasing a certain amount of products.  If you suddenly increase the amount of money in circulation, the knock-on effect is to increase the cost of the products.  Markets, given a little ‘time’ to adjust, automatically fix the prices on products to equal the amount of money available to buy them.

 As a very basic example, if two men have £10.00 each to spend on an item they both want badly, and if nobody else wants to buy the item, then the item is probably worth £10.00.    Why?  Because they both badly want it and will pay what they have to spend to prevent the other getting it instead.  The most they have is £10.00 so that is all it can hope to achieve in sale price.  If you print some magic-money and give both men another £10.00 each, what happens to the value of the item?  It increases to £20.00.   Why?  Because this is the same situation!  You’ve just increased what the man had to spend from £10.00 to £20.00.  So £20.00 becomes the new ‘highest price the item can achieve.’  There’s ‘Printing Money’ in action, inflationary by its nature!

‘Real’ economies are, of course, vastly more complicated.  Even in my simple example it’s easy to bring up questions.  “What if both buyers clubbed together…?”  “What if they both agreed to only pay a fiver privately?”  However you look at it though the basic premise remains the same. 
Print more money = higher prices. 
If the government pursues its plan to wildly print money, which they tell us is to prevent deflation (arguable), they will in actuality cause inflation.  Possibly massive inflation.  

This is, of course, if you even accept the reason behind this is that the government wishes to prevent deflation.  Might it actually be that the government is fearful that it will be unable to raise money on the bond market?  Might they be terrified that every crazy spending binge they plan will fall flat if they find themselves so mistrusted by the lenders of the world that they can’t borrow the money?  Am I being paranoid?  Maybe.  But if so, ask yourself this.  Why is the government quietly changing laws to make it easier to print money without telling anybody how much, or when they do it?  Why is the Bank Of England being so cagey about how much it plans to print, or the mechanisms it will use to circulate the new money?  Laws and practices that have remained unchanged for hundreds of years are quietly being altered with only one obvious outcome that I can see.. to print a whole LOT of money.  And to keep everyone in the dark about it as long as possible.

Quantitative Easing (Money Printing) is the ultimate stealth tax.  To the average working person its almost invisible.  It ‘appears’ to be just the ‘workings of the market’.  “Prices rise,” people say, “But the government aren’t in control of prices, the markets are.”  Not true.  When the government prints a mountain of money and uses it to pay off it’s debts (through convoluted routes) the value of every pound you own falls.  That’s a stealth tax.  The most insidious and secretive one of all.

This entry was posted on 20/02/2009 at 03:27 pm and is filed under Credit Crunch. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.