OPINION:
The plates to print money across the world ought to come with a warning label. There’s nothing more addictive to government than the ability to flood the market with paper currency. It seems like a solution, but it’s not.
Mario Draghi, the president of the European Central Bank, announced last week a desperate “monetary-easing” policy that will combine with negative interest rates to prop up crumbling economies in the Old World.
The central bank’s asset-buying scheme won’t be any more successful in Europe than the Federal Reserve’s “Operation Twist” has been in the United States. For the past three years, the Fed has been swapping short-term securities for long-term securities in a scheme to drive down long-term interest rates in the hopes that would encourage businesses to borrow and invest.
Mr. Draghi was careful to point out that Europe’s central bank is not engaging in “quantitative easing,” which would make the Germans, with their bitter memories of hyperinflation in the Weimar Republic of the early 1920s, more than a bit antsy. Instead, he proposes a combination of rate cuts — pushing one rate explicitly into negative territory — and the purchase of bonds and “transparent asset-backed securities.”
This game of “how low can you go?” is getting out of hand, as market rates are already at rock-bottom, and there’s plenty of liquidity in the European markets. The new policy won’t solve anything, and the part of Mr. Draghi’s statement praising attempts by members of the European Union to reduce “budgetary imbalances,” suggests that he’s aware of it.
Budget deficits are merely symptoms of government overspending. Most of the member nations have chosen to treat the symptom by raising taxes because that’s easier to do than cutting spending. Washington’s policies are identical, and they haven’t worked here, either.
The Fed is now making noises about hitting the brakes on the easy money. The Fed’s balance sheet has swollen from $870 billion in 2007 to $4.4 trillion today, yet after all that expansion, millions of Americans are still out of work.
While the working-age population increased by almost 2.3 million over the past year, only 524,000 Americans were added to the labor force. The broadest measure of unemployment, that counts people who would take a job if offered, hovers at 12 percent — almost twice the official calculation of joblessness. There’s no indication that the gap between the two measures is closing, as it would if the economy were returning to health.
The monetary games are futile here as in Europe. Governments on both sides of the Atlantic must realize that the burden they impose is the problem, and this is made worse, not better, by printing money. Until the size and burden of government is curtailed, the Old World and the New will continue to measure the economy in bankruptcies, unemployment and recession.
The European Union and the Food and Drug Administration take glee in plastering consumer products with as many warnings as they can get on a label. They should apply a few to the central banks.
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