It's the printing press or the euro

Despite the latest deal, the European Central Bank remains unwilling to pump out cash as readily as its counterparts elsewhere. And that's the only real way to save the euro.

By Bill_Fleckenstein Jun 29, 2012 2:24PM

Image: Printing press © James Hardy, Getty ImagesHopes were no doubt running high this week that somehow a solution to the euro crisis would be found at the European summit, which began Thursday. Unfortunately, however, that was always extremely unlikely, as I'm sure anyone who thought about it could see.

 

In fact, world markets rallied Friday on headlines about a deal that includes letting European banks borrow from the European Stability Mechanism, a rescue fund. Details were sketchy, as usual, but a deal in and of itself will not provide much relief.


We need to be clear about what separates the European Union from everyone else and, though I have discussed this ad nauseam, I think it is worth repeating: The problem the Europeans face is the fact that the individual countries, and the European Central Bank collectively, are unwilling to use the printing press with reckless abandon.

 

The only way is the wrong way

That does not mean they aren't printing already, because they are: Witness the balance sheet of the ECB, which is now more than $3 trillion. Rather, the stumbling block is that the ECB doesn't stand ready to print money in unlimited quantities as the "winners" of the monetary world are, i.e., the U.S., Japan, Switzerland, the U.K., etc.

 

I don't mean to imply that using the printing press is an intelligent choice, nor is it a solution. In fact, printing money has caused the economic woes of America and the rest of the world. However, as I have said often, we are not going to rid ourselves of this menace until it is carried to its logical conclusion.

 

Thus, we can only hope that the crisis in Europe will rise to the point where the Germans choose the printing press as the least-bad option. To my mind, they will never agree to "eurobonds," jointly issued bonds proposed as a way to lower borrowing costs for struggling nations. But I do think that, at some point, the ECB will choose to print money, despite the objections from Germany, as opposed to seeing the euro collapse.

 

A default line in the sand

Though I have felt rather strongly that the problem is as I have described it, I hadn't seen it laid out just that way by others until George Soros defined it similarly in an interview for Bloomberg TV  just this week. He said: "The individual members don't now control the right to print money -- they have given that over to the central bank, you see, and that has created the situation with a European country that could actually default, and that is the risk that the financial markets price into the market."

 

Thus, if he and I are right, it would seem at some point the powers that be in Europe will decide that printing money is better than the disaster scenario conjured in their heads when they think of the consequences of the eurozone fracturing.

 

The house of cards that Jack built

While I'm on the subject of wrongheaded policies that are perceived to be panaceas, I would also like to point out that the problem in the housing market in America is not that prices are too low but rather that they are still too high. The solution to high prices is high prices. That is what brings on supply, which then curbs demand, just as the solution to low prices is low prices, whereby demand increases, which leads to higher prices and ultimately an increase in supply.

 

In The New York Times last Sunday, in a lead editorial headlined, "Still depressed after all these years," the editors indicated that we need to avoid "falling prices," stating that, "policymakers need to take steps now to prevent a renewed housing downturn."

 

The real-estate bubble -- which was aided, abetted and exacerbated by irresponsible lending -- resulted in prices in the stratosphere. If the "authorities" would stand back and encourage the foreclosure process to run to its conclusion and allow prices to fall, the real-estate market would clear, and then cease to be a problem at all.

32Comments
Jul 2, 2012 3:02AM
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Printing money isn't saving the U.S. dollar so how can anyone expect it to save the Euro? It's time to let the chips fall where they may and get the agony over with. It's going to happen anyway so why not get it over with sooner than later.
Jul 2, 2012 6:42AM
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You cannot Debase your way to Prosperity no matter what "57 states" and his donkey party  minions tell you...
Jun 30, 2012 2:17PM
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Every time I hear an economist that fears deflation, it strikes me that prices *should* decrease for every product as efficiencies improve over time.  However, inflation is the means by which all governments FORCE their population into risk taking rather than saving.  If you try to save money for a rainy day (or retirement) in a "safe" haven, inflation will kill you over time.
Jun 30, 2012 12:16AM
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Maybe they should print lots and lots and lots of Euros so the value of the Euro will fall.That is what America has done for the worthless dollar.

Jul 1, 2012 9:28PM
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The more money you print, the less the money is worth and . . . the less the money that you had was worth before the printing press was let loose. But I guess this is too much to expect from all these so-called experts who base their economic fiscal and monetary theories and this "hopey" crap.

Besides, there isn't a printing press out there that can keep up with the speed of all the lies that the liars are telling. If greed and avarice was currency all these idiots would be trillionaires.
Jun 30, 2012 2:15PM
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I see this GD "life is so lonely..." spam on nearly every article on this website.  They really need to invest $3 / hour in an offshore labor to clean off spam on these sites.
Jul 1, 2012 10:58PM
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Yeah, keep printing that money. I love it when the price of my gold keeps going up!  That inflation will also hit energy and housing so hang on to your real estate because once all the foreclosures are wrung out of the market there will be a housing shortage. Foreigners are already scooping up U.S. real estate because it cheap compared to prices around the world.
Jul 2, 2012 11:51AM
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                                                                               Economics 101

 

We need deflation now to increase employment. We have low fixes wages and high unemployment. Inflation like high gas prices reduces the consumers buying power. Deflation will increase consumer buying power, increasing demand and employment. The Fed needs to stop printing money, it is causing unemployment.

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Though many governments of European Nations would like to line their and their supporters pockets with more borrowed money, I believe they won't because of the fear of severe political consequence or perhaps widespread Citizen revolt due to the spreading realization that the cost to the people is forfeiting more State Sovereignty, Civil Rights, and higher tax dollars (under the guise of 'shared responsibility' through austerity.
Jul 1, 2012 10:01PM
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Want to fix these banking issues raise the fractional reserve rate which will force the world to go back to a cash and savings society instead of living on credit and fake money.  Yes it will take time to right the wrong but this is the only true way.  You throw money at the problems without creating strict regulations to prevent it from happening again and what have you done?  Nothing.  What got us in this mess to begin with?  CREDIT!  Giving fake money to people that couldnt pay it back and when others came calling for the money the owed they didnt have it and the fractional reserve trickle down effect hit everyone....HARD!  When businesses start expanding with cash only when they know they can afford it we will have real true economic expansion based on market factors.  When businesses expand on credit just to put a store someplace before a competitor you are creating problems.

Jul 2, 2012 2:11PM
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What seems to be a issue here is that we the savers(people with no debt and money in our savings account) are being punished for our foresight on controlling spending.
Jul 2, 2012 12:29PM
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I can't believe that Fleckenstein - who slammed Greenspan and others for printing well over a decade ago is actually advocating PRINTING!

Has everyone lost their mind???????

Jun 30, 2012 4:52PM
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Better Question:

 

CAN THE PRINTING PRESS SAVE THE DOLLAR ?

Jul 2, 2012 8:59AM
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keep printing

 

ever hear of zimbabway?

Jun 30, 2012 2:59PM
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We have a built in printing press. It is called minimum wage. For each increase, there is a corresponding decrease in the value of a dollar.
Jun 30, 2012 8:27AM
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Thanks for telling it like it is, Bill.
Jul 1, 2012 11:29AM
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Again... Andrew Dickson White was the youngest professor ever at the University of Michigan. He would later go on to found Cornell University. In 1876, he read his book: Fiat Money Inflation in France, before members of both parties in Congress. It's the historic accounts of economics for the French Revolutionary Period to Napoleon. About 108 pages so similar in composite to our own situation that it is uncanny. He blames it on- Inflationists... people who cause economic downturns to preserve wealth. Think about it... you and I aren't buying the bonds and notes associated with all the fiat money printing, it's very old money. Those debts take precedent in the recovering economy, so we end up paying interest to those who caused the problems in the first place. Is it coincidental that  Clinton retired all our old debt in his second term and suddenly Dubya runs it back up and in his second term, global economics trash and the printing of money to offset collapse, then cause it, takes place? Come on, America... I don't want to owe old money anything. When you read what Bill discusses and you see who he identifies as "winning", those are hollow economies. We have business platforms, not businesses. we have debts but no jobs and every avenue of potential recovery seems suspect. There is another solution, Bill... it will hurt but help... time to cut bait on our own financial sector and start looking at how we can build from the ground up... reconciled, regulated and with proper oversight protecting basic American interests.
Jun 30, 2012 8:41AM
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At last someone knows what's going on. Very well put. That is the first time I have heard anyone tell it like is, & then give the answer how to fix the problem. Good column!
Jul 2, 2012 9:08AM
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dont take loans from banks

 

dont buy bank foreclosures

 

its a scam

 

im telling everyone

Jul 2, 2012 12:55PM
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it is so clear what needs to happen.  google HJR 192 & read it well..our country has been bankrupt since this was passed and ignored since the 1932 passage.  We need to eliminate the Fed. stop their ability to print money..they have secretly loaned banks money to the tune of who knows how many trillions of dollars  when this news is finally in the open then the American public will understand how corrupt our govt really is.  They caused the illegal foreclosures in out country and continue to allow this to happen.  Fiat currency will not prevail and it will soon happen.  The dollar is worth less and less because of printing more and more of it while not backing it up with the Gold Standard..when it crashes and the financial markets have a true picture of what is going on, then we will have to put pressure on our leaders to do the right thing.
the time is now to buy precious metals..I hope Ron Paul is in a Cabinet positions some kind of way to keep the fight in Washington going to stop the Fed once an for all. Paul knows how it is draining our money  fiat  currency   Soon we will have to put metals on deposit..the bank are gearing up for that I hope.

 
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ABOUT BILL FLECKENSTEIN

Image: Bill Fleckenstein, MSN money

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

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