Dissent Growing About Hyperinflationary Money-Printing as Risks from "Quantitative Easing" Grow
January 16, 2013 • 10:55AM

Dissent is growing in financial policy circles in London and elsewhere about the copious "quantitative easing" money-printing operations which have prevailed since 2008, at the same time that public support is growing for real, Glass-Steagall-standard banking regulation. In his column of Jan. 12, Daily Telegraph commentator Liam Halligan wrote that "[r]ecently, I've seen signs, at least, that the conventional wisdom is starting to crack, not only on QE, but ring-fencing too.... There are indications, that the economics profession is coming to its senses and the pro-QE consensus is starting to shift."

Halligan wrote that at a roundtable discussion on QE at the Centre for Policy Studies in Central London last week, in addition to Andrew Sentence, a former Bank of England Monetary Policy Committee member who has long been "raising the alarm on QE, ... other top 'dismal scientists' are now voicing serious concerns about the dangers of more monetary stimulus.... When I argued that QE was just a ruse to debase Western currencies and was causing genuine anger among the governments of large emerging markets that have lent us money, several fellow discussants were literally nodding from the waist in agreement."

There has long been significant dissent on QE in the City of London, a long-term senior financial analyst told EIR today, but now, there is a growing shift against money-printing from those who had previously supported it.

This is going on as the situation in the Eurozone is hanging on little more than the illusion that the European Central Bank would continue QE: the ECB has been "massaging expectations" that it would return to buying European sovereign debt ever since ECB head Mario Draghi's speech last July — but has actually not purchased any bonds since before that speech was delivered! Essentially, the ECB is testing just how much it can get away with, without showing anyone the cash, the analyst said.

This smoke-and-mirrors game is now being tested in the "tricky negotiations" over Cyprus. Should Cyprus, a tiny nation of 1.1 million people, be forced to pull out of the euro, things could unravel very fast, the analyst said. The euro is high — now at 1.30 to the U.S. dollar — and this is costing the EU economies a lot in terms of exports.

At the same time, there are indications that Japan's new government may step in with a big bailout for the Fed over the coming months. The new Shinzo Abe government wants to drive down the yen, since Japan has been seriously losing out to other East Asian manufacturers, especially South Korea, in exports to third countries, and could do some heavy money-printing to devalue the yen. The Bank of Japan could be issuing about 50 trillion yen — $558 billion — over the next six months to pour into U.S. Treasuries, the analyst said.