Europe's printing-press problem

The region's debt markets are caught in a game of chicken in which the central bankers can either speed up the presses or lose the euro. In the end, it will solve nothing.

By Bill_Fleckenstein Jun 1, 2012 2:10PM

After some time on the back burner, European angst has worked its way back into the headlines and market price tickers, led once again by a deterioration of confidence in Italian and Spanish debt. Both were roughed up midweek for roughly 20 basis points apiece.


That left Spain's 10-year bonds yielding 6.60% and Italy's 5.90%, high numbers signaling that no one wants to touch them.


Print your poison

Obviously, variations of this scenario have been at the root of the European financial psychodrama for going on two years now. That will continue to be the case until either the euro totally fractures amid some sort of unimaginable chaos or the European Central Bank becomes extremely bold in its money printing.


That is not to suggest that it has not already printed a lot of money. It has, but it doesn't get "credit" for that because it has done so reluctantly and as a last resort after huge damage had already occurred.


It may sound a little like I am describing the printing press as a perverse sort of savior, when, in fact, I detest it and the dislocations, malinvestment and irresponsibility it has spawned over the past 30 years. But the way the world is set up right now, being willing to use the printing press aggressively makes you a winner (at least on a relative basis).


Just look at Japan, the U.K. or the United States. On Wednesday, the yield on 10-year bonds in the U.S. hit a record low of 1.63%. Is that because our problems are nonexistent? Quite the contrary. It is because we print money aggressively and somewhat proactively compared with what has transpired in Europe.


Perpetuating the 'stasis' quo

The guardians and architects of the European Monetary Union have shown a complete lack of understanding of the fix they have created for themselves, as they are trapped inside a structure that absolutely cannot work under its current setup. However, they refuse either to admit defeat or to ensure victory. As a result, the world continues to be caught in a no-man's land where Europe is full of potential live financial hand grenades, and yet the ECB is hesitant to use the preferred method for disarming them, i.e., the printing press.


In the end, intensive money printing will be the order of the day, but there is no way to determine ahead of time how bad the crisis is liable to get first, as measured by which markets might be pummeled the most. It is simply unknowable.


But, as I have just noted, using the U.K., Japan and the U.S. as examples, any fool can see that, in the current environment, a powerful printing press creates an oasis of calm, if only temporarily. Eventually, the consequences of these actions will lead markets and societies to take the printing press away.


But for right now, printing rules.


Putting the RIMM in grim

Last, given how much ink I have spilled on the company over the years, I should mention that Research In Motion (RIMM) preannounced an ugly loss on Tuesday. My only regret is not being short it in the past year and a half (due to the upward pressure on asset prices caused by central bank money). But to say this was an obvious train wreck is an understatement, as anyone who has read this column over the years can attest.


There is a good lesson here, however. The fact that something seems cheap doesn't mean that it doesn't deserve to be even cheaper. You have to get behind the numbers and look at the fundamentals. I had been hearing that Research In Motion was cheap for the last $30 of its recent decline, and the fact of the matter is, it wasn't.


At the time of publication, Bill Fleckenstein did not own shares of any company mentioned in this column.

Jun 2, 2012 9:11AM
Read this article, then listen our President talk of even adding more "stimulus" (read:debt) to the already debt-bloated US economy!!!!   These are serious times (I beleive the most serious times) and require serious leadership.  Why is it so difficult to see that operating in excess of one's means is a recipe for disaster, be it personal, business, or government.  Yep - Time to build that bunker!!!  
Jun 2, 2012 7:37AM
Read the part "perpetuating the status quo" very carefully.  I agree 100% that the printing press will be utilized and greased to run without abandon.  The last sentence of this section should read; "in the end the consequences of these actions will lead to chaos, a fully destroyed economy and no currency worth the paper its printed on".  This will be world wide, all countries including the so called safe haven America will not be spared.  Government order will collapse, unable to fund its war machines, keep order in the streets, local governments will be destroyed, martial law will rule, all laws will become meaningless as street law will rule.  While this sounds rediculous it will be part of the unfolding end, being put off continuously by kicking the can, eventually kicking the can will not be possible.  Already we are seeing a return in limited fashion to a barter economy, one outside the control of government.  Americans should heed the signals from Europe and then look in the mirror, the image is frightening.  The 2008 "economic crisis" will look like a cake walk. 
Jun 4, 2012 12:44AM
I say I am pretty smart, but I don't know anything about economics. I know in the short time Obama has been president, the National Debt has gone from 10.6 Trillion dollars to 15.72 Trillion dollars. I know that the unemployment rate is 8.2% and that is not counting all the people who have quit looking for work and all the people the government have put on disability. If those people were considered, the real unemployment rate would be around 14%. I know our nation owes Communist China 1.2 Trillion dollars. I know the federal government has increased the money supply by 50% since Obama came to office, despite the Gross Domestic Product being relatively stable during that period at 14 Trillion dollars per year.

Paul Krugman, PhD in economics assures us this is all okay. Paul Krugman won the Nobel Prize in Economics. If you don't believe me, talk to him for a few seconds and he will tell you. He will probably tell you more than once. The Nobel committee was made up of four guys that voted.

Whom do I believe? If I talk to myself and look at the numbers, I panic. I could talk to Paul Krugman. Maybe, he is just a party hack. Maybe, economics is so mysterious that nobody understands it. They just pretend to.

This is what I want. I want a group of economists-say twenty PhDs. They cannot be particularly interested in politics-they just care about the truth as they understand it. They look at these same dismal numbers and soberly and boringly  and apolitically reach a consensus about what is going on in our economy and what to do about it. Everybody signs a contract to take no bribes, write no books. I FEEL that our country and the world's economy is in grave danger. I want grownup eyes to attempt to figure out what is happening, before it is too late.
Jun 4, 2012 8:05AM

Ah, print more money, where have I heard that before. The problem is, you elect someone to tighten the purse strings, balance the budget, and put your financial house in order and what happens? The libs RECALL the elected official, waste 12 to 15 million in tax payers money for the recall election, and lose in the process ( unless the community organizers can bus in enough "voters" ). Wisconsin dems ( unions ) are absolutely clueless.

Jun 4, 2012 8:14AM

Bill Fleckenstein:


If you have no money in your checkiing account, do you keep writing checks?

If your credit cards are maxed out, you you apply for a new one?


Printing money is the same exact thing as writing bad checks or carrying a maximum balance on your credit cards.

Jun 4, 2012 2:57AM
Europe is a big socialist experiment gone wrong.The fools in charge have learnt nothing from history
Jun 3, 2012 9:42PM
Historically, over the long run, firing up the presses has never worked. We need to achieve a balance, to pay off debt and rebuild the economy. This is going to be neither quick nor painless. The longer we wait the worse it will be. Therefore, I will not hold my breath. Grab your wheelbarrows, folks, that loaf of bread is going to be expensive.
Jun 4, 2012 7:04AM
Europe's printing press problem? What do you think the Democrats have in store for us? That's right, fire up the printing presses, what's good enough for Europe is good enough for us....QE3 here we come...the liberals solution to our economic problems?...print more money. Forget that it will drive up inflation, destroy your 401K ( if you can afford one ), and devalue the dollar and everything you to get that stock market moving ( artifically )'s election time ( and they have no other plan )!!! This is what happens when you put a community organizer in charge of the country...absolutely clueless.
Jun 4, 2012 9:55AM
Its all a house of cards, and a strong wind is on the way.
Jun 2, 2012 11:37AM
i knew these days would come when we went off the silver standard. Money without value on demand and governments that could not be trusted to hold the value of the root of all evil. Instead of working our way out of a financial hole our leaders put us in they want to print their way out and get their hands on the paper. How does a nation put a stop to this reckless use of power? A big world wide financial mess will only lead to one thing when some nation feel cheated. Not peace.
Jun 4, 2012 2:55AM

our natl. debt. (thanks to Keynesian economics) is almost 16 trillion dollars. thx to;

regan-2 trillion

bush 1-1.5 tril.

clinton-1.4 tril.

little bush-6.1 tril.

obama-2.4 tril.

repubs and dems are from the same cloth less the social agenda.

that leaves voting for or against abortion rights/gay rights/womens rights


vote independent and throw all these bums out

we need term limits and need them now


and citizens united passed by the supreme court? what a nightmare

best of luck to us all!

Jun 3, 2012 11:31PM
The Fed's printing presses have been pretty active as well. Catastrophe will hit us too. Before long a gallon of milk will cost $100.
Jun 4, 2012 11:11AM
All roads in this crisis will lead to more global centralization.  Centralization of government power equates to what the NAZIs, Communists, Dictators, and other totalitarian movements have desired for centuries.  Big business and social interests groups prefer one partner over hundreds local/state governments (other forms of checks and balances)!  The cost is to individual freedom and economic liberty. Those who support more centralization betray the interests of their people for collective benefit of the elite. 
Jun 3, 2012 10:30PM
Everyone is forgetting that money is just a number, a measure of progress or decline, and a temporary contract in the marketplace.  In the end, people need food, clothing, shelter, and finally leisure; to be happy.  If government and private sector leadership don't use tax, monetary, and pay policy to encourage people to work and be productive, societies will decline.  The left wants too many handouts and the right defends obscene/undeserved pay for a few at the top.  This makes everyone in the middle who are are only ones practicing capitalism feel like a bunch of losers.  In the short term, the best solution is to use our right to vote, to support moderate political candidates.  Get rid of all the the fringe - look at their voting records and financial supporters, and don't waste your time listening to their campaign lies.  In the long term, we may have to be armed, grow our own food, and generate our own electricity.  Then when someone wants something that you have and all they want to give you is some useless government printed money or company stock option, you can fire a warning shot over his head. 
Jun 3, 2012 9:33PM
Come on Bill,The Japanese Govt does not print money to cover their debts..The Japanese buy the worthless US $ to try and prop it up and lose Billions in the process.
They are stuck with a Trillion US Worthless paper that if they start to sell will cause a further f    en
collapse of that worthless paper and that rotten US dollar.
Jun 1, 2012 3:46PM

Little House on the Prairie!  Mr Engalls, remember?  Thats who you remind me of.  Your advise is good and sound.  Thankyou.  A rational voice amidst the din.

Jun 4, 2012 7:22AM

You   ie.  our  gubment  can  use slight of hand, talk out of both sides of their mouth, lie, what ever B.S. they want to call it.  In the end, you can not spend more than you bring in......   Period


If you think you can, try it with your family.  See how long you make it.  Our gubment has no money, all they can do is Tax their workers.   They must stop giving money away. Stop spending money they do not have, and stop wasting and thieving our money

Jun 4, 2012 9:44AM
I used to get paid in silver. A dollar in paper was worth a dollar in silver when I started working for a living. What has lost value more? The paper dollar or the silver dollar? Silver kept prices reasonable. Now plastic money for Canada. Plastic and paper money? The USA said paper was easier to carry. I thought you could make plastic from garbage. Garbage money & paper money replaces silver money? Bill Fleckenstein didn't just fall off the turnip truck when it comes to materials holding their value. Now what would you want to save? A silver dollar, a paper dollar or a plastic dollar?
Jun 4, 2012 7:55AM
we have been headed for this  problem for  years  big money buying out little  businesses. stock market going  crazy on 401k  money . a government with to many old thoughts if they are collage educated people  maybe  but common sense  was not one of there  subjects .  pelosi  predicting  clinton for  president in 2016 ???where in hell is this government  headed  can't take care of the problems we  have  out on the road  looking  for  votes but nobody is trying to  fix anything. in nov we need to  vote  but  the selection does not impress  me  neither  side
Jun 2, 2012 5:01AM
buy gold, hold it until the quasi socialaists imploded the world economy.
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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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