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increasing money supply will undermine value of the euro

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So Europe is going the American way. That was my first thought when I heard the first news about the European measures to stimulate the economies of its member nations. Quantitative Easing, QE in short, is the euphemistic way to say that the printing presses will be started. Printing of money to restore the economy, where have we heard that before? Yes, most recently in the United States where billions of dollars were flocking the nation in the last few years. Has it worked? Have the American citizens been benefitting and enjoyed a more comfortable life? Not quite! The U.S. government wants us to believe that the U.S. economy is not only recovering but even starting to flourish. I always liked President Obama for his energetic leadership and have given him the benefit of the doubt but I also witnessed him fighting fights that he could not really win. The stubborn conservatives in the Republican party and the not much less conservative members of his own Democratic party have given Obama some hard times.

I simply distrust the so-called upturn of the US economy, I think it is more wishful thinking and manipulation than realistic. And if there really would be sustainable recovery, it does come at the expense of a very costly price tag. Just look at the charts of the U.S. money supply that their QE program has caused:

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The economic and financial wizards in the European Union apparently could not come up with a better and more creative and effective solution than copying the American way. I was not impressed. The explanation is that the newly printed money will be mainly used to buy bonds and loans from the European banks and pension funds which in turn would use the funds to increase their lending policies to corporate and private businesses to stimulate the economies. Don’t we still remember what the European banks did with the money that was supplied to solve their financial problems a few years ago? They all restricted their lending to business! A situation that still has not get any better yet……. Yet, the ECB will sweeten the economy with 60 billion euros every month until the end of September 2016. The total sum would equivalent to €3,000 for every European citizen…… don’t count on it that you will see that money come to your benefit!

On top of all this, Europe has to face another problem since the outcome of the Greek elections this last weekend. The winning coalition is not in favour of the Greek membership of the European Union and even less in favour of repaying the loans that they so gladly accepted during the last few years. Some tough decisions are facing the European leaders. Greece cannot pay and is not willing to pay. If they would allow the Greeks to walk away with that, it would be causing serious damage. But not only that, if they would allow Greece to forget about their debts, what will they do when other financially ailing nations like Italy, Portugal, Cyprus will follow the example of Greece?

Anyway, after the huge growth in the U.S. money supply of the last few years, now also the European money supply is about to show a similar pattern. The QE will add more than 1 trillion euros to the existing money supply. And, the ECB already said that if that would not be enough by September 2016, there could be additional measures. I would like to make only one observation here: Quantitative Easing without structural reforms does not make much sense; in addition, QE is even likely to diminish the urge to accept those reforms. The ECB has missed a great possibility here to force these two factors to be combined.

The real meaning of the subtitle of this editorial is “the more paper money, the lesser its value”. A simple statement. But oh so very true. In the end, the only thing that counts is value, true value. The process of creating more money has not only been going on for many years now, it is likely to even increase further, much further. Some time ago, I watched a little video of printing money and how it was handled from printing press to the loading on the trucks to be transported to the central bank. The thought that came up in my mind was that it did not make any difference if I would be looking at the fabrication of any kind of paper. I did not see any value at all. Would I have the same thoughts if I would be looking at the pouring of gold and loading the bars on the truck? I don’t think so….


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