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 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 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!!!!!!!!!!

Jan 13, 2013 1:34PM
Oh, please. As long as the only sound that matters is the can being kicked down the road, then everything is blah, blah, blah. Even Wall Street can print the truth, if they don't believe the truth. Gold is being manipulated and is under control, meaning priced in. The death of the Free Market economy has been priced-in. Total systemic economic collapse? All taken care of, priced in.
Jan 13, 2013 1:30PM
This is a fine article. I don't like what I see, but it is better to be warned that a storm is coming than to experience it as it arrives. This financial storm is only a disturbance now but will devastate billions of people around the world. No country nor person will not be touched, but knowing that could allow those who respond in the proper manner to be better off. Don't whine. Think and respond. The old will be hit the hardest because they are necessarily risk averse because they have fewer tomorrows. The middle aged should renounce all their dogmas that cloud their vision and like the young should take calculated risks.

Jan 13, 2013 12:54PM
We are going down hill fast with no brakes. Everything that Washington does is wrong, no matter the party. We need term limits, serious term limits, no re-election possibilities for anyone, congress, senate, president or even state and municipal offices. It should be a treasonous offence for political parties to posture prior to elections. Bills that come up for approval should be singular in nature, no pork. This would prevent the chaotic behavior of the radical loons on both sides of the isle. Yes, I refer to myself as a conservative. A fiscal conservative. I could care less about social issues on either side of the isle, you want to abort a child fine, you want to keep all guns legal fine. Stop digging in my and my neighbors wallets to further your political agendas. If you are impoverished it is your fault. It is not the job of government to even the playing field. This is real life where there are winners and losers. It is your job as a citizen to make the best you can for your self. I am not a child of privilege as some of you may assume. I earned the my place in this world on my own merits. It has not been without setbacks and sacrifice. As country we would not be facing financial disaster, with "fiscal cliffs" and "debt ceilings" if we controlled spending and forced our citizens to be self reliant and self responsible. If I can do it all can do it, too!
Jan 13, 2013 12:32PM
Jan 13, 2013 12:17PM
The righties are foaming at the mouth while investors are making a fortune. I have doubled my net worth since Obama took office. If the government comes for you wall mart guns do you think your peas shooters will stop them?
Jan 13, 2013 11:56AM
I already have guns, will likely get more.  Printing money to pay bills is absolutely hilarious.  Then to do it so driving down its value is eventual economic suicide.  The reason most policy makers embark on such behaviour deals with understanding life issues.  These are people who likely no longer have family that lived through tough times or they are young enough to not remember what silly folly it is to repeat past mistakes.  A growing number of people (actually part of the working 50%) are finally realizing they are on a train with tracks running out up ahead.  When the cards start to fold the fianancial pain, civil unrest and economic collapse will shock everyone.  Marshal law will ensue and the haves will be attacked by the have nots.  The haves are already being attacked through legal means now, but eventually the milk cow dries up.  Keep quiet about what you have, protect your ability later to use barter instead of "worthless cash".  After buying all the guns you need now, go buy wheelbarrows, so you can carry cash to the store. 
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 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 9:35AM
He brings up a good point:  we are in a bond bubble.  One interesting question:  how many lawsuits will there be when it pops?  (There is always litigation now.). It used to be "buyer beware," and due to political correctness, it is now "seller beware."  This in a nutshell is why America is failing.
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 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 13, 2013 3:54AM
Get ready for currency wars as printing presses go round and round and round.  Place your bets!
Jan 13, 2013 1:19AM
Where are we going... and why are we in this handbasket?
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 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 12, 2013 10:40PM

gold stocks are getting killed and lost their shirts since 2009 when stocks skyrocketed from 777 to 1450. Big companies hoard 2 trillions of cash and booming. The shorts are getting killed and gold bugs are licking the wounds. Stock buyers are eating steaks and lobsters. What is going on and wrong with your argument? 

Jan 12, 2013 9:02PM
mirage Guy your assumtion are quite wrong .ca ill and n.y have balanced budgets and surpluses. the people that vote to prevent thieves like koch bros who taken over kochkansas do not taKE OVER Amlerica. obviously you are white male who is losing more and more power .In essence awhite racist who is delusional 
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.

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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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