Some commentators fear it poses more of a threat to Western civilisation than environmental damage or Islamism, that it is making the poor poorer while the rich get richer, and that it is demoralising young people.
And yet Church leaders have been strangely silent about the effects of Quantitative Easing (QE), or what critics say is a euphemism for simple, old-fashioned money printing.
QE involves central banks buying government bonds (government debt) and other securities with “electronically printed” dollars or other respective currencies in order to keep interest rates low and incentivise banks to lend to borrowers at bargain rates.
This so-called “asset-purchasing” scheme, initiated by the Federal Reserve and then copied by the European Central Bank and others, was born out of the 2008 financial crisis when governments were desperate to prevent the world economy completely collapsing.
The figures are not small. Since the financial crash over ten years ago, the Federal Reserve has created around $4 trillion this way (see the Fed’s own graph), while the European Central Bank’s “balance sheet” has ballooned to about 4.65 trillion euros since it started its own QE program in 2015.
Proponents of QE say it’s not real money printing as the “money” is used to buy bonds and assets with the aim of stimulating the economy but that it won’t affect living expenses.
Critics, however, say it is nothing less than creating cash out of thin air as it has the effect of devaluing currencies, making the dollar, pound or euro in your pocket worth less and less, punishing savers, and bringing instability to the economy.
And although both the Fed and the ECB have applied brakes to their QE programs or, in the Fed’s case, tried to embark on “Quantitative Tightening” with a view to ending it, when they have done so, stock markets have teetered and talk of recession has increased, leading them to reverse policy and embark on further QE, as happened earlier this year.
Many critics have pointed out how dangerous this policy is, as economies become dependent on this “free” or “easy” money from central banks and an inevitable economic realignment with reality, or true value, is forever postponed.
Some have equated it to a kind of methadone for the economy, an addiction no democratic government can afford to stop for fear of losing votes. But all the while, a crash worse than 2008 is generally expected, and its severity grows as this process continues. Longer term, some expect hyper-inflation, the usual outcome of money printing as history has shown.
The immediate effect, however, is that interest rates remain very low or even turn negative, as they have in countries such as Germany, Switzerland or Denmark. This hurts savers and leads to the absurd situation of having to pay banks to hold money rather than earn interest on savings.
Meanwhile, most of the “free money” remains in the hands of bankers and the so-called “1%” — the world’s super wealthy. QE therefore ends up in reality being a tax on the poor and the middle classes while the rich profit because they are net borrowers and so can benefit the most from the low interest rates. Often this printed money ends up being directed towards mortgages and the property market, raising property prices. In turn, it fuels debt — the amount of global debt is expected to reach a massive $255 trillion by the end of the year.
“Money printing is destabilizing our society, because it increases inequality between the top 1% and the rest of society, and because it makes socialism popular,” says Jürgen Siemer, a German economist currently working as a consultant in Rome.
“Just look at the universities, where you see more and more students questioning capitalism, private property rights and the market-based economy as such. To some extent, I understand these students because they face the reality that, after having invested so much in their own education, they cannot find a job that would justify their investment.
“Burdened with debt, years wasted, they cannot start a family,” Siemer continued. “Then they become radical and demand salvation from the politicians. And the politicians make sure that more money is printed. It is a vicious cycle.”
“Socialism is gaining popularity and subsidiarity [a just governing principle of Catholic origin] gets forgotten, even in the Catholic world,” Siemer says. “It’s a disaster.”
Others have suggested that the enormous sums involved have had even greater, far-reaching effects on people, skewing people’s sense of the true value of money and altering the way we think.
In the following exclusive and instructive essay, Siemer shares his expertise to explain more fully the mechanisms at work and why he believes money printing programmes like QE are essentially theft that actually deter investment, causing enormous harm to economies and therefore families and individuals.
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Money Printing is Theft and Does Not Encourage Investment
In Germany, anyone who commercially prints his own money (“whoever counterfeits it with the intention of bringing it into circulation as genuine[1]“) will be punished with imprisonment of not less than two years.
Most citizens are likely to support this law, because a counterfeiter or “commercial money printer” robs his fellow human beings, who usually work to earn money.
In the Seventh Commandment, God forbids theft, in the Tenth Commandment he even forbids one’s desire of his neighbor’s property. A greedy man, who can still control his desire, is already a sinner. God builds a high moral barrier around private property!
Money per se, especially in the form of printed paper, has no value. The value of money is a derivative from its acceptance and used as a medium of exchange for products and services — or more generally, the work that went into these products and services.
It is self-evident that the amount of money must be limited in order to maintain the trust of the market-participants in money as a medium of exchange. This “natural law” is violated when additional money is printed, independent of who does the printing, be it a private counterfeiter or a public, state-sanctioned central bank.
The central banks have created, in the form of paper or through electronic account entries, a lot of money in recent years. Just the US Federal Reserve, the European Central Bank and the Japanese Central Bank have injected additional US Dollars, Euro and Japanese Yen worth approximately $11,000 billion into the economy between 2007 and the end of 2018. These state-sanctioned money printers are, of course, not penalized, because, from a legal point of view, they do not counterfeit but create “real” money.
Most economists and media representatives don’t see a moral problem in governments printing money. For in a never-ending barrage of academic publications, newspaper columns and interviews, these economists, most of whom are employees of central banks, large banks or media corporations, educate the common man that money printing and artificially lowered interest rates are justified to save the “system”, to create growth and jobs, or to save the pensions. According to this line of reasoning, the end justifies the means, the good outcome excuses the wrongs committed to attain it.
However, the printing of paper or the entry of digits in electronic bank accounts cannot create jobs, apart from the few jobs at the printing presses. The creation of additional money is and always has been, in its essence, a redistribution of wealth, and most economists acknowledge this, claiming, however, that this money creation was a limited and necessary sacrifice, which would be more than compensated by encouraging consumers to spend and corporations to invest more. Subsequently, everybody would benefit from rising incomes.
But, is this really the case? Have we ever seen that the printing of additional money has generated a good in the form of jobs and incomes?
The US publishes very comprehensive and detailed economic data. Based on this data, it is now possible to examine if the creation of billions of additional US dollars since 2008 has indeed led to more investment in this large economy. Investment is a necessary precondition for the generation of jobs and incomes.
The change in the total assets of the Federal Reserve’s balance sheet represents the total of newly created US dollars by the US Federal Reserve. As the graph below shows, the Federal Reserve created almost $3,500 billion between 2007 and 2018, which corresponds to almost $1,000 per US citizen per year.
Reflecting the higher liquidity in the capital markets, interest rates on US Treasuries with a maturity of 10 years fell from 4.5% in 2007 to 1.5% in 2016. From 2016 to the third quarter of 2018, they have risen to 3%. At the beginning of April 2019 and off the chart, these interest rates are again below 2.5%. Consequently, governments, corporations and consumers were able to continue borrowing and spending.
Now, before examining the data on investments, a few comments shall be made regarding the question of how much investments should, in an ideal situation, have been made during this period in the US.
During the period under consideration the US population has grown by about 10%. These extra people need infrastructure, hospitals, factories, shops and offices. To maintain the standard of living of a growing population, the infrastructure and the capital in the economy should therefore grow roughly in line with population growth.
If, however, real incomes per capita are also expected to grow, productivity must increase. To increase productivity, additional investment in research and development is usually needed. On the other hand, prices of capital goods themselves may rise or fall, as an outcome of research and development. It is therefore difficult to exactly calculate an optimal growth rate for investments.
Nevertheless, one may still reasonably assume that, put simply, to provide a basis for the real per capita income to grow in a country like the US with its growing population, investments should have grown by more than 10% over the period under consideration.
But, as can be seen from the following graph, this has not been the case: net investment in the US in 2018 has just reached the 2007 level!
Source: Federal Reserve, BEA, US Treasury, DebtperCapita.com
This conclusion at least appears to be plausible, as it coincides with the increasing complaints about poor US-infrastructure, with the large number of abandoned factory buildings in the mid-west “rust belt” and the fact that today a young average income earner cannot afford to buy an average house, provide for his family, afford a car, and have a secure pension for when he retires, all based on a single salary – something which was the essence of the “American Dream” and rather common in at least the previous two generations of Americans.
But why did the lower interest rates not lead to higher investments? After all, low interest rates do reduce investment costs.
The answer to this question can be found, firstly, in how households and governments have responded to low interest rates, and secondly how asset owners and corporations respond.
From 2007 to 2017, households and the US government have increased their indebtedness by 20 percentage points relative to gross national product (GDP). According to the IMF, the aggregate debt of these two groups increased from around 163% of GDP in 2007 to 183% in 2017.
Since the GDP itself increased by approximately 40%, the total debt of households and the US government grew by almost 60% in nominal terms! At this point in time, the costs of borrowing don’t represent a problem to them, because interest rates are still extremely low. But what would happen to consumers and the US government if interest rates would rise to levels seen before 2007?
And this is a question investors have to answer when they consider long-term investments: In other words, why should investors take the risk and built new factories when the potential customers of these factories are burdened with ever-increasing debt loads and they may reach their absolute debt limits soon? The result of this risk assessment is simple: from the perspective of investors, long-term investments have now become riskier!
But there is another negative effect: low interest rates have made it easier for asset owners to replace the equity tied up in their companies and real estate with debt and then draw their equity out of their investments through dividend distributions and share buybacks: Based on data from the Federal Reserve, the BEA, the US Treasury, and Standard & Poor’s, between the end of 2008 and the end of 2017, American companies on aggregate spent more on dividends and share repurchases than on net fixed capital formation. General Motors, for instance, bought back $10 billion in shares since 2015, General Electric $24 billion since 2016.
The phenomenon of replacing equity with debt in the US economy is so widespread that it is now creating risks of its own.
From 2008 to 2018, the debt of US companies rose from $4,900 billion to $9,100 billion, based on data from the Securities and Financial Markets Association. The rating agency Fitch concluded that the high indebtedness of the US companies is “certainly something to take notice of”. Translated into plain English, this means that the rating agency is very worried about this unhealthy development.
Is it, in the light of these developments, surprising that the products of once-proud American companies, such as General Electric or General Motors, are no longer world-class?
And this is where the circle closes: By accepting the economically wrong, immoral and sinful money printing, the American voters, the majority of whom belong to the lower and middle classes, have ultimately damaged the security of their own jobs and the future their children. America, once known as the land of the free and the home of the brave, has become a nation of debt-slaves.
But there is a radical way to regain your freedom, a way which can be described in terms analogous to the Exodus-story of the Old Testament: First, leave your masters and don’t accept their powers anymore, which means today: don’t accept the Fed’s poisoned credit offer.
Second, enter the desert: Live a modest live and take care of your family, the only institution that can reliably provide support in difficult times.
Third, destroy the golden calf: Reject all promises by political parties or the government of paradise on earth in exchange for your taxes. Instead, take responsibility for your own actions and deal with the risks of living together with your family.
Given the huge amount of debt that has been accumulated by this wicked generation, the journey through the desert may be long. But the sacrifices on this journey are worth it: The goal is to earn the freedom for your children.
Dr. Jürgen Siemer
Sargans / Rome, April 2019
[1] Strafgesetzbuch, §146 Geldfälschung
Thanks for the update, is there any way I can receive an update sent in an email when you write a new post?