A Passport to Disaster

Monetizing sovereign debt by printing ‘enough’ money as The New York Times advocated in a recent editorial, is a recipe for economic disaster.

“European nations with triple-A ratings — like Germany, the Netherlands and France — could jointly issue “euro bonds” to help finance their weaker neighbors. The best solution would be for the European Central Bank, which can print money, to become the lender of last resort and buy the bonds of distressed European nations. That would force down yields to where the countries could afford to pay them.”

What the economics wizards at the Times don’t seem to understand is that paper money not supported by tangible wealth, i.e., goods and/or services with use and exchange values in the real world of economic activities is as worthless as the pipe dreams of NYT editorialists.

Collateralized Debt Obligations (CDO) are only as good (and worthless) as the economic viability of the collateral associated therewith.  It should not take a legion of Nobel Laureates to figure out that Mortgage Backed Securities as commercial products or instruments would necessarily devolve into Toxic Assets whenever the mortgages “backing” them proved to be the sub-prime mortgages spawned by Freddie Mac and Fannie Mae.
Printing money alone has no power to rescue any distressed economy.  Pretty soon you shall have printed enough money that the output of the printing press would not even be worth the ink and paper and the printing press which produce the instruments.  It requires people to get to work to produce commodities which are useful to people to enhance the wellbeing of the society they constitute.  This is the only way that you reproduce the society endowed with the faculty of self-perpetuation.