The Trouble with Printing Money, QE3 Reflects Colossal Failure to Address Our Predicament

freerepublic.com  via marketoracle

For a while now, I have been expecting a coordinated, global central bank action that would seek to print more money out of thin air, or "QE" (quantitative easing), as it is now called. Now we have two of the most important central banks, that of the U.S. (the Federal Reserve) and in Europe (the ECB) having committed to open-ended, limitless QE.

Recently, Obama pointed out that "we owe it to ourselves" with respect to the debt issue.  Limitless QE means two things 1) limitless debt and 2) no limits on money supply.  Now, it is true that "we owe it to ourselves" but if unlimited amounts of money is created, what is the effect of that?  Isn't it true that adding money to the money supply will diminish the buying power of money already in circulation?  Also, this diminishes the existing private debt.  In the end, lending will cease because there's no incentive to lend if you can't make money from it and your principal is being inflated away.

Here's another point, which is important to remember:

One way to look at the $40 billion per month in new printing is to compare it to individuals and households. Remember, money only comes into your life through effort, and that's why it has value and can function as a store of value. Once upon a time you could make the choice as to whether to work to find money (by mining gold or silver) or work to earn money by farming or practicing a trade, craft, or service. Note that work was always involved. [ emphasis added]

This is just another way of saying that you can't get something for nothing.  When Obama says, "we owe it to ourselves", he is really trying to say that you can get something for nothing.  He's wrong.

His conclusion?

How does all this end? Like it has every other time in history, with a final destruction of the currencies involved. That's my best guess.

This can continue only as long as there appears to be no inflation and prosperity for some continues.  When prosperity ends for enough people and/or inflation begins to be undeniable, this policy will be all too obvious as being untenable.