Tags: Carr | QE | France | England

Quantitative Easing Has a 300-Year History of Economic Destruction

By Michael Carr   |   Wednesday, 19 Sep 2012 07:42 AM

Printing paper money to boost economic growth and help the government reduce its debt is not really a new idea. Federal Reserve Chairman Ben Bernanke calls it quantitative easing (QE). He has said QE is an unconventional policy tool for central banks to use when interest rates are low.

Perhaps central banks haven’t used this tool in the past because it carries disastrous long-term consequences.

France faced a debt crisis in 1715 when the country’s debt was more than 20 times greater than its tax revenue. To solve the problem without cutting spending, France introduced paper money and converted the debt into amounts that could be repaid with pieces of paper instead of gold.

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French central bankers actually went further in their QE programs. Rather than simply printing money, which would devalue the gold coins commonly used and create inflation, France issued shares in the Mississippi Company, a venture that would allow everyone in the country to profit from exploration of the New World.

Banks quickly exchanged their government debt securities for stock in the new company that would soon make everyone in France wealthy. A stock market bubble developed and stocks traded at prices completely disconnected from the reality, and restraints, of earnings.

After only four years, the bubble burst and it would take France nearly a century to recover. England suffered a similar fate at around the same time when the South Sea Company failed to deliver the promise of a debt-free and free-spending government.

Nearly 300 years later, the Federal Reserve is using the same general idea and using the purchase of mortgage securities to increase the money supply without having to admit that they are simply printing money. This scheme has been under way for about three years. Maybe it’s different this time, but unless basic economic laws have been repealed, the Fed’s QE is likely to deliver the same dismal results that France’s Mississippi Company and England’s South Sea Company provided.

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MichaelCarr
Printing paper money to boost economic growth and help the government reduce its debt is not really a new idea. Federal Reserve Chairman Ben Bernanke calls it quantitative easing (QE). He has said QE is an unconventional policy tool for central banks to use when interest rates are low.
Carr,QE,France,England
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2012-42-19
 

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