The graph below shows the total balance sheet assets of three of the world's major banks - the Fed in America, European Central Bank and Bank of Japan. It is noteworthy for many reasons. Firstly, the ECB has overtaken the other two with total assets of $9.6 trillion. Most of this is due to quantitative easing (QE) or money printing.
The ECB has been engaging in large scale QE since 2015, long before the covid pandemic. Which is odd since most of Europe's economies were strong then. Certainly, here in Ireland, house prices were rising again, as were rents by 2015 and 2016. At the end of 2016, the government brought in rent controls to cap rent increases. Also in early 2016, the European Commission expected Ireland to be the fastest growing economy in Europe. Yet, Ireland was been flooded with this cheap ECB money which the government was only too happy to take and spend in an economy beginning to heat up (on a side note - it didnt fix the health service did it ?).
As the pandemic hit in March 2020, the ECB went even further than US and Japan and printed enormous amounts of euros to the extent that they practically doubled their balance sheet. Although there are other factors impacting inflation right now, I believe this to be one of the main reasons, if not the most significant. Over half of this new money has gone to government bonds, a record amount of central bank financing of government debt. Normally, the government would have to go to the market to trade their bonds. But we are far away from normal in this age of negative interest rates. Now the central bank prints the new money to buy government bonds that presumably most of the market would not touch.
What is remarkable about all this is that, in a Europe completely captured by the green movement, government finances have been allowed to reach such epic unsustainable proportions. Surely, government spending should be reduced so as to reduce consumption. Enabling countries to spend beyond their means and deferring the cost of excessive consumption should be the last thing that green politicians should want. It's true, that some of this spending has gone on renewable infrastructure such as wind turbines and pylons (about € 1 trillion) . But these technologies require large amounts of rare earths and metals to produce and so contribute to more consumption and more mining of the planet. Instead, the preferred method to reduce consumption is through taxation. The problem with taxing fuel and electricity is that it results in yet more government spending as the poor and working class become even poorer and are unable to pay for necessities like fuel and electricity. The government then gets locked into a spending cycle where pressure comes on it to increase social welfare supports and just recently the Irish government has planned to give every household €100 off their electricity bill. The cycle of taxation - borrow / spend - inflation - tax - borrow - inflation continues.
If we were really serious about sustainability then we would get our finances in order first. By encouraging people to save instead of spend, we slow that economic growth that eco warriors claim is destroying our planet. We put the future on a firm sustainable footing. But instead we have created the exact opposite environment of low / negative interest rates where people are unable to save and governments spend beyond their wildest dreams.
It is incredible to me that green politicians are not aware of this simple paradox. Or perhaps that old saying "money talks" is more relevant than ever and still overrides all of the green buzzwords that politicians love to use.
The value of money in Ireland decreased 33 times between 1913 and 2021. It decreased 23 times between 1969 and 2021. This did not lead to an economic collapse. The difference now is that interest rates are near zero whereas in that period years ago they were as high as 14%. Ordinary people traditionally could not grasp the concept of money printing. It hit savers and there were less voters with saving than without. To day, people are better educated and may understand what is happening. There is no doubt that if societies empires and civilization are inn the process of collapsing, money printing will feature big time in that collapse. No one really knows how present inflation will end up. Money will either become less valuable or it will become worthless.
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