Today, the Head of Germany’s Bundesbank, Jens Weidmann, has asked a very simple but critical question about Quantitative Easing and its cousin, the Unlimited Bond Purchase:
“If a central bank can create unlimited money from nothing, how can it ensure that money remains sufficiently scarce to retain its value?”
Money is a commodity and was invented when someone did not have goods or skills to trade in return for a commodity he wanted. He was able to offer “money” which could be redeemed at a later date for something that the original “seller” wanted or needed.
However, if there is a too much of a commodity, its price goes down.
So, if there is too much money, its price WILL go down.
THAT is why Central Bankers are playing a very dangerous game.
The simple answer to Herr Weidmann’s question is that a Central Bank CANNOT ensure that by increasing the money supply, it can even begin to ensure that the money will retain its value.
What they’re doing is the equivalent of fixing a stalled car engine by painting the car…..again….and again….and again…..