Last month brought forth new evidence that not only are things getting better, they’re getting worse too. For instance, borrowing by Spanish banks from the ECB hit a new record in March at 227 billion euros. The banks, in turn, loaned the money to the Spanish government through bond purchases.
Don’t ask where the ECB got the money to loan out. For a magician’s tricks are a magnificent disappointment when you know their secrets. Nonetheless, the cash infusion will make things better in the short term. The banks can remain solvent and the government afloat…for now. But, over time, this will only make things worse as the banks and the government link their fates and go further into debt.
In the United States things are equally absurd. After Secret Service agents were caught in flagrante delicto short paying Columbian working girls, President Obama took a moment Tuesday to lambast speculators for bidding up the price of oil and pushing gas prices up at the pump. It’s an election year, after all. Blaming oil traders for high gas prices is a great way to procure some votes.
Yet President Obama neglected to mention that oil prices – and Columbian courtesans – are going up because the dollar is going down. Since the mid-January the dollar, as measured by the dollar index, has fallen nearly 2.5 percent. Coincidentally, over this time, the price of oil has gone up about 2.9 percent.
But why is the dollar going down? Perhaps, one reason is, because there are too many of them.
Shouldn’t Everyone Be Rich?
Contrary to what the monetary authorities believe, creating more money does not bring about more wealth. Years ago, when the money supply rested on a stable foundation of gold, it took a gold rush to expand the money supply. But even a gold rush did not bring new wealth and abundance to the world.
For example, by the mid-to-late 1800s the flood of gold from both California’s and Australia’s gold rush had significantly increased the global gold denominated money supply. Not since Spain conquered the New World 300-years prior had the world seen such an expansion of the quantity of money in circulation. Yet while some enterprising fellows accumulated wealth from their mining ventures, society as a whole did not grow wealthier.
Many people wanted to know why? With all the new money floating, shouldn’t everyone be rich?
Pondering this apparent paradox, 19th century English economist and logician, William Stanley Jevons, astutely asked the question: “Have the Gold Discoveries added to the Wealth of the World?”
What follows is Jevons, circa 1884, offering enlightenment from beyond the grave…
A Wrong Against the Human Race
“If we take wealth to be that which is agreeable and useful to mankind, it may be safely said that the mere gold produced by Australia and California represents a great and almost dead loss of labour.
“A century or more ago it was the fashion to consider gold and silver as the only wealth, because it happened to be the measures and vehicles of wealth. Now it is more correctly seen that gold is one of the last things which can be considered wealth in itself, and that in its most useful employment as money, the very scarcity of gold is its recommendation, rendering the value greater, and the weight or quantity to be carried as money less.
“To over-estimate the indirect effects of these discoveries in creating new colonies, in spreading the English people and language, and in newly animating commerce, is not easy. But in itself gold-digging has ever seemed to me almost a dead loss of labour as regards the world in general – a wrong against the human race, just such as is that of a Government against its people, in over-issuing and depreciating its own currency.”
It seems so obvious…mass money creation does not result in the more abundant life. Yet this key insight discerned by Jevons has been lost by today’s central bankers who – unrestrained by the need for a massive gold discovery – believe that depreciating a currency by increasing its supply brings wealth and abundance to the world.
“The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost,” said Bernanke in 2002.
Ten years and several trillion dollars later…and look what we have to show for it…
High unemployment, high prices, and an enormous debt to boot.
for Economic Prism