-- Posted Wednesday, 19 September 2012 | | Disqus

Head of the Bundesbank, Jens Weidmann has shocked Europeans by appearing to compare the ECB’s unlimited bond buying program to a scene from the important German literary work Dr. Faust where the devil persuades an emperor of a small kingdom to print money to solve his financial problems and it ends in financial disaster.

It is a clever literary reference as Germany celebrates the 200th anniversary of the birth of Goethe, the German equivalent to Shakespeare who wrote Faust. It’s also a clever reminder that nothing is new in history and that money printing always ends up badly.

No different this time

Basically the initial impact of money printing is deceptively reassuring, people have money to spend again and things look very positive. But then the reality of price inflation become more and more apparent until their wealth is completely inflated away by paper money.

You can’t actually create prosperity by printing money, only the illusion of wealth and the economic distortion it creates will eventually destroy those caught up in this illusion with inflation and devalution.

ArabianMoney would add the aside that only those who convert their wealth into gold and silver during this period of apparent prosperity still have their riches when the financial system collapses. Then they can become hugely rich by buying back all the assets that the others can no longer afford to own at very cheap prices, and wating for them to recover their value.

‘If a central bank can potentially create unlimited money from nothing, how can it ensure that money is sufficiently scarce to retain its value?’ said Dr. Weidmann in an apparent reference to the ECB. ‘Yes, this temptation certainly exists, and many in monetary history have succumbed to it.’

Eurobond pressures

Spanish and Italian bond prices are falling and yields rising again as the financial markets prepare to test the resolve of the ECB, though it will be for the politicians of these respective countries to first ask for help and then accept whatever tough conditions are imposed for the money.

The Federal Reserve has also upped the pressure with its new QE3 money printing program that with its unlimited timeline is really QE4, QE5 and QE6 all rolled into one program. Mr. Benanke is also playing with the fires of hell from Faust’s vision. Everybody is doing it. The Bank of Japan extended its QE program today.

We would simply recommend a practical approach, and that is to abandon paper assets and look for real assets that the money printers cannot devalue. Our monthly subscription-only ArabianMoney investment newsletter recommends what to buy to do this, and for September only we are giving away sample copies (Email us: circulation@arabianmoney.net).

-- Posted Wednesday, 19 September 2012 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link

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