Quantitative easing opened a Pandora’s box that will not be closed until massive inflation spreads worldwide. Only when people quit accepting the digital money that central banks spew will it end. However, the end may be far, far away.
Traditionally, central banks created money “out of thin air” to finance wars by buying new government debt. Later, welfare projects and “infrastructure spending” became excuses for creating still more money out of thin air, which led to inflated money supplies and higher prices. With the introduction of QE, however, a new wrinkle was added.
Central banks, led by the Federal Reserve System, began buying up bonds on the open market solely for the purpose of increasing the money supply, which, when introduced in 2008, was for the purpose of saving the world’s banking system. Now, the European Central Bank is doing it to stimulate economic activity.
In the beginning, rising prices were expected and were to be ignored as “a small price to pay” for a greater cause. Then, the desire for rising prices became an excuse for money creation, under the concept that a little inflation is better than a dreaded deflation, where consumers get more for their money. Most central banks have goals of two percent inflation.
Now, the Bank of Japan has revealed that it plans to spend $2.4 billion (a tiny sum in central bank circles) “to buy shares in companies that expand the economy by investing in their factories or by raising workers’ pay.” In other words, if Japanese companies run their business in a manner approved by the BoJ, it will reward those companies by boosting their share prices.
Where will such machinations end? When will they end?
No way of know where fiat money creation will end for central bankers can come up with myriads of reasons and ways to spend money. For example, they could do direct deposits to bank accounts if they wanted.
But, money creation will end only when central banks have created so much fiat money that it becomes worthless. Zimbabwe is the most recent country to go down that road.
Sadly, when the end of massive money creation will come may be a long way off as few people today grasp the concept of “commodity money.” Further, generations have been brainwashed about Keynesian economics, which is nothing more than central planning, which has never worked over long periods of time.