In a letter to investors released on July 29, Pantera Capital CEO Dan Morehead noted that the United States has printed a shocking amount of money to combat the pandemic-induced financial crisis.
“The United States printed more money in June than in the first two centuries after its founding,” Morehead wrote. “Last month the U.S. budget deficit — $864 billion — was larger than the total debt incurred from 1776 through the end of 1979.”
It’s not the only country doing that, of course — the NZ government is also at it to the max.
If one does not have sufficient currency in circulation to actually consume production then that production is pointless – and the only option is to wither destroy it (as with farm stock during the Great Depression, while people starved) or to become involved in trade wars, where trade is facilitated via debt anyway. .
The problem is not with QE but with the manner by which currency is issued into circulation – whether as an interest bearing debt to bond holders or as a debt-free state issue – such as the Kennedy Treasury Notes that bypassed the Federal Reserve system.
Nightmare scenarios about a flood of inflationary currency as per Zimbabwe or Weimar Germany are red-herrings. The reality is more often ‘poverty amidst plenty’ for want of consumer purchasing power.
For NZ, the question to be asked is where the billions that are being thrown about at non-productive projects are originating, and at what cost, not in regard to inflation but in regard to debt?
When the Labour govt. issued state credit (albeit credit not being synonymous with currency) in 1935 to fund housing it did so not only without debt but without any inflationary impact.
The pundits have more commonsense than the CEO it seems. QE delivers a whole lot of liquidity to the financial markets who then go looking for a place to invest – and there are lots of cheap assets to buy. This is precisely what happened in the GFC. Only 5% of the QE “trickled down” to the real, productive economy. That’s why there was no inflation last time and will be none this time. Asset prices, of course are a different matter. They go up and the rich get richer. The Reserve Bank in NZ needs to fund the treasury, not buy govt bonds on the secondary market.