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 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 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 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 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 11, 2013 10:13PM

Well that didn't work. Hey MSN is this thing broke? You hit check spelling and it posts.


I was going to say my Pop always said He was going to stock up before the hoarders get it.


Me too, I'm gonna go buy more guns and ammo beofre the VICE Bozo Biden comes up with some stupid idea.


Why don't we just reinstitute Capital Punishment on a Grand Scale. Wack all the bad ones in Prison, let all the Pot People go free.

Jan 11, 2013 10:09PM
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 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 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.

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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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