Even dumber than those who believe the housing bust has already run its course are those who think the Fed will be able to hold deflation at bay by “printing money”. This is such a contemptibly stupid idea that one would think it would have no currency at all outside of the academy, CNBC and the Federal Reserve’s own Open Market Committee. In fact, it represents the popular wisdom on the subject. I’ve done my best to dispel such notions, explaining here in voluminous detail why we could no more bail out a deflating economy with so-called printing-press money than we could avoid a collision with an asteroid by changing the orbit of the Earth.  The following is an interesting note on the topic from fellow hard-core deflationist Jas Jain. He is responding to a question from one of his own readers, who has asked,  “How do you define ‘printing money’ and why do you seem to  believe it is unrelated to the expanding money supply or credit/debt?”

Here’s Jas’s answer, which flouts the popular wisdom with common sense:

Cash for Criminals

“The Fed does print and mint currency in circulation, but it has not been increasing. (Perhaps half the demand is from those who engage in illegal activities and money laundering.). Much of it sits idle in the Federal Reserve vaults!

“Beyond that there is no printing of money by the Fed to stimulate the economy. Granted, the Fed does influence lending, or credit creation, through its interest-rate policies and supervision of the banking system. Lax supervision means more lending. The Fed can and does affect lending, but that is not Printing Money.

“During the past few years, the Fed did help grow private debt, with household borrowing being the most important stimulant to the economy. It did so by way of an “emergency rate policy” and by horrendously lax supervision of mortgage lending (a high crime, in my opinion). It is idiotic to confuse these actions of the Fed with Printing Money. Please, God, give these dupes some brains, or good eyesight, so that they can distinguish between black and white, or red and green.

Fed Not ‘In Control’

“Federal borrowing in excess of tax revenues does increase the supply of money, but it is borrowed in the open market and not “printed” by anyone. In fact, an increase in public or private debt is not the same as “printing money”.  And as far as “controlling” the economy, all the Fed can do is either tighten or loosen lending conditions.

“And why is it that people keep ignoring the Japanese example? Has Japan not been “Printing Money”!? Just look at the Japanese government. debt levels relative to the GDP.

“There are some dupes out there who believe that the Fed prints money and gives it to the banks so that banks can lend more. What rubbish!  Where does all that printed money end?”

Marc Faber's Error

Jas’s questioner also asked him not to be so hard on Marc Faber, a respected economist who also happens to be in the inflationist camp: “I wouldn't be so hard on Faber, one of the few in the Barron's annual round table that has actually made big money.  I definitely recommend his 2002 book, Tomorrow's Gold.”

Jas’s response: “Well, even the best can be totally wrong about something or other. Of course, I bought and read Tomorrow's Gold. He is right about many things but dead wrong about Printing Money and high inflation when the housing bubble bursts. Someone asked me if I was ‘in the Mike Shedlock [deflationist] camp'. Gladly. Another one asked as to what I was smoking. The best California weed!”

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London Seminar

A Hidden Pivot seminar in London appears likely, judging from the strong initial response.  If you’re interested in attending a two-day class there, probably sometime in the spring of 2007, please let me know via e-mail, including your contact information. The cost would be $1,500 USD.