The central bank money-printing party

As the world's central banks print money and buy each other's bonds with abandon, very few seem to realize the implications for the world's finances -- or their own.

By Bill_Fleckenstein Jan 11, 2013 3:01PM

International currencies © Artifacts Images/Getty Images/Getty ImagesOn Tuesday, Japan announced that it intends to buy European Stability Mechanism bonds using its foreign exchange reserves in order to help weaken the yen.


This is not new news that Japan will be buying this paper, as it has purchased European Financial Stability Facility issues in the past. But I thought the juxtaposition of this with how government finances and currencies around the world have devolved made a poignant statement.


Just think: The Japanese have told us they are going to print as much paper as it takes to generate more inflation and drive the yen lower (which is also the unstated aim of the rest of the G-7 central banks).



They are then going to use this literally worthless paper they have conjured up to buy the bonds of an organization that is backed by the same insolvent entities that are issuing the paper that it intends to backstop. The whole concept is rather comical, but to me this one act is a perfect illustration of where we are in modern-day finance.


The fact that the gold market doesn't go berserk on a daily basis just shows you that an enormous chunk of the G-7's population is still oblivious when it comes to this sort of lunacy. 


I don't want to call the bond bull market a bubble, because it has not precipitated the behavior change that goes on in bubbles among the masses. However, this idea that central banks can simply print up the money to finance government deficits is completely absurd, and if it wasn't, John Law would be one of financial history's great success stories instead of one of its great con men. (Learn about John Law and the Mississippi bubble on Bing.)


At least we're not that bad . . . are we?

I've highlighted this example from Japan in light of the news there, but lest we forget, Federal Reserve Chairman Ben Bernanke plans to buy $1 trillion worth of government paper (offsetting 70% to 100% of our deficit). That folks are bullish on the dollar, bonds and/or stocks with those policies at work just goes to show that even after our stock and real-estate bubbles, the citizens of the U.S.A. remain sound asleep.


Meanwhile, Wednesday's Wall Street Journal carried a front-page story about the absurd lengths to which the Swiss National Bank has gone to weaken the franc. It is truly remarkable (which is why I keep remarking on it) how incredibly enormous and powerful -- yet ignored -- these central bank activities are when one goes down the list of actions the G-7 central planners are doing, as they are operating at a multitrillion-dollar run rate of monetization.


As I noted above, I don't think one can characterize the central bank buying and the long-running (though possibly ended) bond bull market as a bubble, because it hasn't really warped the behavior of the public, though it has allowed governments to continue their wrong-headed ways worldwide.


It is also quite likely, given the rampant money-printing around the globe, that at some point Asia may "catch a bid" and start moving. Given Japan's current policy plans, and if China decides to get serious about stimulating its economy, it is hard to see how that won't affect other countries in the region -- especially considering that many Asian currencies are in effect pegged to the dollar, so the Fed's policies abound there as well.


You're going to need a bigger boat

To say that there is a sea of paper money out there is an understatement; it is more like an ocean. All of that is quite likely the reason the Standard & Poor's 500 Index ($INX) is as firm as it is, that coupled with the fact that too many in the paid-to-play (i.e., professional money management) crowd had too much angst about the recent fiscal soap opera and now are scrambling to own however many equities they need to catch up to their beloved benchmarks.


In any event, I believe that the result of all this madness will inevitably be much more inflation and a worldwide bond bear market, though as we learned in both of our bubbles, and Japan's before that, when crowd psychology is this disoriented, it is impossible to predict exactly when sanity will return.


At the time of publication, Bill Fleckenstein owned gold.


Jan 11, 2013 10:06PM

America is arming itself at a unprecedented rate.  Close to 15 million guns were sold last year alone.  Why is America arming itself?   The American public is usually not wrong in recognizing trends.  Most people feel we ar eon the wrong track, and are preparing for financial collapse.   The country is roughly divided 50/50, the people that work for a living verses those that vote for a living. 


You cannot Borrow and Spend your way out of debt.  You cannot Print and Tax your way to prosperity.  People that pay taxes are fleeing high tax states like NY, IL and CA.  They figure why should they pay the taxes when they recieve no benefit.  This leaves places like Detroit and Chicago.


These socialist economic policies will all fail.

Jan 12, 2013 2:33PM

This is not capitalism.  Once upon a time the Fed managed monetary policy by setting a target Federal Funds Rate - which in turn influenced Money Market Rates.  However, by actively manipulating the Bond Market in such a manner is an example of Central Planning rather than Capitalism.

Jan 12, 2013 12:04AM
This reminds me of the housing bubble.  Nobody thought anyone would lose money.  I feel the stock market is getting over bought and think it's just a matter of time before we have a bigger crash than the housing bubble.  It would not surprise me if we had a flash crash that never recovers.  That would lead people having to much risk in the market to lose everything.  Will people ever learn?  Everyone blames everyone else except themselves.  The old saying still holds true.  Buyer beware!
Jan 13, 2013 12:33AM

Our financial system is based on unsustainable addiction to consumption and debt. Anyone who thinks that "their" political party has the answers is brainwashed...both dems and republicans bow to wall street and facilitate, or at best turn a blind eye to, the financial abuse going on since its quid pro quo between washington and wall street. People should wake up and think for themselves rather than letting forces like fox news or CNBC do the thinking for them. Just look at the facts...the national debt and deficits have grown exponnetially for past 40 years regardless of political party in the white house.

Jan 13, 2013 1:05AM
Dave Carver........Are you Rip Van Winkle?  You MUST not live in ANY of those states.  I live in Illinois and the state is 90 BILLION in the RED due to state and teacher pensions alone!  Balanced budget?, our legislature has been spending their share of these pension for years on their pet projects and now they cannot meet their obligations.  Why is it that liberals LIKE YOU fabricate information and then try to pass it along as fact.  It couldn't be anything further from it.  Go crawl back into your hole and never come out again. 
Jan 12, 2013 11:01AM
Too bad all this cash is being digitized instead of actually printed.  Otherwise, you could invest in ink and make a killing.
Jan 11, 2013 10:06PM



I just love it. And it says at the Bottom Bill Fleckenstein Owns Gold!


Me too, Bill! And I like Oil Services and Pipleines and lots of Water Stocks. And Guns, ooops, I gotta go buy more Guns too.


The only problem I see is the food manufacturers keep making the containers smaller. Soon they can't get a lot smaller and they will start raising the prices. What happens when they start selling dixie cups for $1.99 on sale (limit 4) I figure that's the point when everyone, all of a sudden says "Holy Smoke!!!" "Inflation!!!!" "I gotta go buy Gold". and then it's off to the races.


But if the Government is trying to inflate itself out of it's debt, shouldn't they stop creating more debt?


As much as I hate to ask the obvious...Are the 635 Congress People That Stupid? Or is just the majority (oops are they Democrats) that stupid? Okay we know Obozo is. Oh shoot maybe I am, for asking this?


I'm gonna go down the bar and discuss this with my friends...the Democrats. They don't know diddly, but they are fun to mess with.


You know if they just made Pot legal everywhere, they could solve the budget crisis with new taxes and no one would give rats ****.


Paper money...maybe we should go buy a paper company? Wow what a neat idea?


And MSN other wise is staying on top of the news. Did you read about that Government guy that Farts too much? I bet all those Congress people Fart a lot and eat the bubbles in the bath tub. Specially that guy Reid and Pelosi too. they both look like old farts to me. 

Jan 13, 2013 7:45AM

David Carver, you are a typical Lib., who is feeding you your wisdom? Must be your UNION STEWARD.

Illinois is full of your kind of sheeps who can not think or read for yourself.

Jan 11, 2013 9:26PM

All this is true, Bill, but the average working age person falls further and further behind with each fiat printing (dilution of value). Youth are being told to work 70+ hours without job security. Middle age is broke. Seniors are making more now than during working years, hoarding and faking poverty living a Wal-Mart lifestyle. Consider the points-- that which actually sustains economy cannot. Youth buying into society sustains economy. Middle age buying up, paying tuition, expanding and growing sustains economy. Seniors out-earning working years, hoarding and using an unproductive platform (Wal-Mart doesn't make anything) destroys economy. When you think about Central Banks creating more fiat currency, you realize that our obvious demise is expanding faster than the universe. Shortly, nothing commercial can sustain because no matter how much it makes, it cannot satisfy costs. It isn't like the world will one day just stop, but banks will and platforms without tangible substance will because it's natural. If something keeps expanding (forget bubble, think rubber) the material gets thinner and thinner until it can no longer maintain integrity. It doesn't POP, it dissolves into intangible matter. You're a good guy, Bill. I've read your column for years. The idea is not what "hedge" survives dissolution but what matters in a dissolved state of existence. It could be as odd as literacy and as complex as water purification. It isn't gold, cash, bonds, blonds, bombs or any sort of technology. Japan's a little island fully dependent on larger populations. It's philosophy is pretty simple... stay in the game or risk becoming a little island fully exposed to larger populations. It has earthquakes, nuclear radioactivity and? We have everything anyone would ever need AND a bunch of Kool Aid addicted deadbeats who control our Central Bank. This too shall pass and never to be allowed life again. Put your thinking cap on and imagine beyond the irresponsible financial box we are perceived to be in. Organized finance is a mythical creature. Sustainability is the real thing.

Jan 12, 2013 1:51PM



Very eloquently said!  I can't add anything more to what you've stated, and it's truly what I believe will happen.  We are beyond the point of no return.  We've passed the event horizon and unfortunately we're going to see what's in the black hole.  There was a time when a balanced budget amendment to the constitution could have put us back on track, but it's too late.  As you said, the only advantage that we have is that we have real resources in this country whereas Japan is a tiny island nation with virtually no resources.... they must play the game.  We have the option to tell the world stage that we're just not going to pay the debt and that we're not going to play with anyone anymore.  The worst thing that we can do is become a slave nation to those who hold our debt (perhaps we're already there)....

Jan 13, 2013 2:12PM
And when the whole financial system completely collapses as it seems most are constantly warning and predicting in these forums and elsewhere, Bernenke and the other so-called leaders will swear that no one saw it coming. 
Jan 13, 2013 9:28AM
maybe the government should rethink its laws; and change them : why is their armed guards in government buildings and not Wal-Mart?----- maybe Wal-Mart treats people better?
Jan 13, 2013 3:54AM
Get ready for currency wars as printing presses go round and round and round.  Place your bets!
Jan 12, 2013 12:05PM
We here in the Michigan Militia ... WE have all the guns and ammo we need .And real big ones too ! We here in the thumb area are ready to ROCK...  And have been for a real long time ..
Jan 13, 2013 1:19AM
Where are we going... and why are we in this handbasket?
Jan 13, 2013 5:07PM
Dear Abby,
My husband has a long record of money problems. He runs up huge credit-card bills and at the end of the month, if I try to pay them off, he shouts at me, saying I am stealing his money. He says pay the minimum and let our kids worry about the rest, but already we can hardly keep up with the interest. Also he has been so arrogant and abusive toward our neighbors that most of them no longer speak to us. The few that do are an odd bunch, to whom he has been giving a lot of expensive gifts, running up our bills even more. Also, he has gotten religious. One week he hangs out with Catholics and the next with people who say the Pope is the Anti-Christ, and the next he's with Muslims.. Finally, the last straw. He's demanding that before anyone can be in the same room with him, they must sign a loyalty oath. It's just so horribly creepy! Can you help?
Signed, Lost
Dear Lost,
Suck it up and stop whining, Michelle. You're getting to live in the White House for free, travel the world, and have others pay for everything for you. You can divorce the jerk any time you want. The rest of us are stuck with the idiot for 4 more years.
Signed, Abby
Jan 13, 2013 9:46AM
Well Bill, not "all" the masses are asleep. A lot of us "ordinary" people are on to this and I'm glad gold isn't going berserk yet because that has allowed me to obtain some, but it will and then "Hello" pre wwii Germany!. You're also too smart not to know two things; Hyperinflation will end up being a fact of life and the mainstream media who are in bed with the g20 are only too pleased to let the public remain ignorant. I'm amazed MSN allows you to tell the truth that you do. It must be the nice way you say things.
Jan 13, 2013 12:32PM
Jan 13, 2013 10:37AM

Q: What's the difference between a centrally planned economy (ala China) and an economy with a centrally planned monetary system?


A: Nothing really.

Jan 13, 2013 1:43PM

there was this island with ten people on it. each of the people owned 10% of the land. a foreign banker came to the island and told the people "I will loan you all $100,000.00 each at 5% for one year so you can build houses and factories and build up the economy of your island". The people all did this because is sounded so great. But how will the people pay back the loan? They owe the banker $1,050,000.00 but there is only $1,000,000.00 in the system. It can only be done if the new people that move to the island take out more loans to buy the houses and products that were built thus paying the principle and interest on the first round of loans. But now we have an even bigger problem. There is not enough money to pay the interest and principle on the second round of loans because it is also short the interest for BOTH the first and second round of loans. So a third round of loans must be taken out that will pay the interest and principle of the second round plus be minus the interest of the first round. So now a fourth round of loans must be..........


I have just described a fiat money system just like the one we use in the United States orchestrated by the Federal Reserve. It creates COMPOUND DEBT! It grows slowly at first and then gains size faster and faster. We are in the final stages of a collapsing fiat money system. The whole world is. It is gonna get ugly!!!!!!!!!!

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Image: Bill Fleckenstein, MSN money

This column is a synopsis of Bill Fleckenstein's daily column on his website,, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.



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