Except for the few insiders, speculators and sharpies who are first in line to get the EZ money, everyone else gets poorer
by Bill Bonner
We can barely catch our breath. We can't stop laughing.
Last week,
Japan announced that it would undertake a bold and radical experiment. After 23
years of on-again, off-again deflation, the new government decided it had had
enough of things getting cheaper.
The Bank of
Japan will now obediently monetize debt until inflation reaches 2%. This, the
country's central bankers believe, will encourage people to spend. The economy
will take off.
Why is it
better for people to spend more tomorrow than they want to spend today? Why is
it better for prices to go up 2% than to go down 2%? Why is an economy that
"takes off" better than one that sits calmly on the runway?
Those
questions will have to wait for another day; no one bothers to ask today.
Economists say the secret to prosperity is to stimulate demand. Anything that
stimulates demand is thought to be a good thing.
It doesn't
seem to matter that this proposition is transparent poppycock. People always
want stuff. Demand is infinite. Government doesn't have to stimulate it.
What really matters is buying power. And buying power is limited. The
authorities try to get around this problem by printing money. Then, with this
new money in hand, it is almost as though people had real demand!
The
Demand Delusion
But that's
what is so breathtaking and so funny about this time we live in. Who really
believes you can increase demand... and make people wealthier... by just
printing up money? Who really believes you can give people more buying power by
giving them more pieces of paper?
Apparently,
just about everybody! Ha ha ha!
Real demand
depends on real earnings, not more currency. People buy things by producing
things. That's "Say's Law," named after Jean-Baptiste Say. Buying
power -- or demand -- comes from production, not pieces of paper.
Economists
and central bankers cannot increase real demand. But they can sure move it
around!