Traditional vs Contemporary Money Printing

Claire Kuchever: What if you had to tell someone the most important thing in the world, but you knew they'd never believe you?
Doug Carlin: I'd try
--Deja Vu

Doug Noland distinguishes between two types of money printing. Traditional, 'old school' money printing involved the creation of cash and distributing it into the real economy. Those inflations of old raised general price levels and reduced purchasing power.

Such traditional money printing is a thing of the past. The contemporary printing press is an electronic, virtual one. Not only is modern money 'printed' in the form of bits and bytes, but it is distributed directly into the financial system rather than into the general economy.

Uneven distribution of modern money creates privilege for those in the financial system who get their hands on the newly printed cash before others. They can buy assets like stocks, bonds, and real estate at relatively low prices, and then sell them to late comers at higher prices.

Because the newly printed cash is not widely disbursed, general prices remain largely subdued. Where prices do take off is in the financial markets. Stocks, bonds, houses, commodities--whichever markets become the object of speculation.

Meanwhile, deceptively referring to scoreboards more appropriate for monitoring traditional rather than contemporary inflation, central bankers and the privileged recipients of the cash point to benign consumer price indexes as evidence that contemporary policies are not hurting the system--suggesting, perhaps, that the system could withstand even more money printing.

The public, seemingly unable to comprehend the enormous wealth transfer scheme taking place before its very eyes, naively nods in agreement. What's good for financial markets must be good for the economy, they figure.

Of course, we know how this movie ends. Leveraged speculation pushes asset prices higher until the Ponzi finds no more buyers. Speculators rush toward the exits and asset prices collapse.

The speculators then go to policymakers with hat in hand, and request more contemporary money printing in order to keep the system from collapsing.

Wash, rinse, repeat.

position in SPX, Treasuries