Will the Real Counterfeiters Please Stand Up

According to the U.S. government, Peru is the worlds top producer of counterfeit money. Over the past 10 years, some $105 million counterfeit notes have entered the U.S. from Peru. Counterfeit producers in Peru have the printing “down to a fine art,” according to U.S. intelligence experts.

Peruvian Times, 8 October 2015

Now that’s a case of the pot calling the kettle black. The Peruvian counterfeiters are rank amateurs compared to The Fed. In 10 years all they’ve managed to print is, in the scheme of things, chump change…a mere US$105 million.

The Fed has printed US$4 trillion in six years.

Where has all this money gone? Asset price inflation, expensive artworks, valuing tech start-ups in the billions of dollars, excessive corporate bonuses, building more mines and factories we don’t need to make stuff we don’t want, and into the pockets of dirty politicians.

At least the Peruvian counterfeiters put their printed money directly into the economy.

And that is probably why they were arrested, because that’s the Fed and other central bankers’ next most likely course of action…People’s QE.

The new UK Labour Leader Jeremy Corbyn is all for the Bank of England printing money for the UK Government to go on a spend-a-thon to build things. Infrastructure, paying off some union mates, and any other hare brained scheme to spend ‘made out of thin air’ money they can think of.

It is easy to dismiss this notion of People’s QE as the ideological manifestation of a looney left winger. But it isn’t just Commie Corbyn who thinks this is the cure to a deflating world.

The 8 October 2015 headline from Reuters screams: ‘Former IMF chief economist backs “people’s QE”.’ According to the article:

“People’s QE” could be an option to help economies fight future crises, Olivier Blanchard, who has just stepped down as chief economist of the International Monetary Fund.

Now that they’ve figured out that plain old QE only manages to goose up asset prices and precious little else, it’s time to implement Plan B.

It only took six years and countless trillions of dollars, pounds, yen, euro and yuan to figure out that the lion’s share of all this printed money would end up in the hands of the already rich. Pure genius.

Since Adam played fullback for Jerusalem the rich have always had the inside running. Why would it be any different when you print a squillion dollars and ask those good and honourable folk on Wall Street to make sure this gets out into the economy?

So we know QE has failed to achieve its objective of stimulating economic growth. But it has been a spectacular success in driving up the US share market to price levels validated only by a cyclically adjusted price earnings ratio that is on a par with the period prior to The Great Depression — and only bettered by the dotcom boom. And we know how both of those stories ended don’t we.

But when you are a central banker you have to do something, anything, to demonstrate that matters are under control. Hence, we have the People’s QE thought bubble.

The problem is, this bubble will take shape in the form of genuine policy in the coming months and years as the global economy sinks into a deflationary funk.

This is how the former IMF chief economist describes the grand plan to reflate the global economy (emphasis mine):

Blanchard said that this does not mean central banks would buy goods directly. Rather, governments can increase their fiscal deficits by spending on infrastructure projects. Central banks can then buy this debt with newly created money.

You got that?

Governments dream up schemes like, let me see…school halls, pink batts, cash for clunkers, highways to nowhere, or whatever pet project a politician in a marginal seat can dream up, and hey presto the money appears, courtesy of the central bank printing press.

At least the Peruvian counterfeiters contained their printing efforts to a measly US$100 million or so.

Old Swannie with his tin badge that says ‘world’s best treasurer’ went nuts with a pristine balance sheet. What sort of damage could someone of equivalent or god forbid even worse understanding of an economy do with an unlimited supply of dollars?

Imagine the pork barrelling around election time? More welfare? No worries. More schools? No worries. Higher incomes for public servants (who also vote)? No worries.

I can hear it already: ‘stop being so cynical! Our elected officials would only use “people’s QE” for good, honest and necessary projects. There would be no graft and corruption in the tender process and taxpayers would receive full value for every freshly minted dollar.’

If you think this is what will happen, please send me an email. I have a bridge and an opera house to sell you.

You and I know how this will end. We do not need to wait another six years and see trillions more printed and wasted to understand that this too will fail.

Japan is running a people’s QE scam at present. Printing money to buy government bonds (a deficit way of financing the Government’s deficit).

How’s that going?

According to Reuters on 17 August 2015:‘Japan economy shrinks in second quarter in setback for “Abenomics”.’ But wait it’s not the fault of Abe-sans brilliant three-arrowed economic policy. It’s those pesky emerging markets who are to blame. On 8 October 2015 they said: ‘BOJ’s Kuroda: Emerging economies’ slowdown harming Japan exports.

If those emerging economies hadn’t indulged in all that cheap US dollar denominated debt, Japan would be just fine.

Folks, we are in a deflationary world — debt servicing costs (even with the lowest interest rates in recorded history) combined with too much capacity to produce things we no longer want or can afford to borrow for, are crushing in the economic growth model. The same model created and fostered over the past four decades by the central bankers, political class and financial sector.

The model is in its death throes. That’s why political leaders and chief economists (those who have no desire to see the model fail) have gone deeper into the barrel of desperation and come up with ‘people’s QE’.

But they should remember the old saying about fooling some of the people some of the time, because most people can smell a con job.

RBS (Royal Bank of Scotland) Macro Credit Research conducted a survey with one simple question: Are central bankers losing credibility and ammunition? The results:

Source: RBS

Two things surprise me. Firstly, why was the Yes vote so low? And secondly, why wasn’t the ‘they never had any’ not a whole lot higher?

When this mess is revealed in the coming months and years in all its technicolor detail, there are going to be lynch mobs. People who lose everything tend to get very angry. They’ll call for central bankers to be hauled in front of the courts to answer for their recklessness.

Give me the Peruvian counterfeiters any day. At least they are only running off around US$10 million per year. And in the scheme of things cannot do anywhere near the harm these official counterfeiters are doing to our economic and financial welfare.


Vern Gowdie
Editor, Markets and Money

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Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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