New Script Calls for More U.S. Quantitative Easing: Opinion

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Bullion Bulls Canada) -- Ben Bernanke has been in a quandary, ever since the Federal Reserve's QE II was universally castigated as a reckless (and selfish) escapade by the U.S., aimed at doing nothing more than propping up the value of the "financial assets" of the Wall Street crime syndicate.  Bernanke never understood that criticism, since all of the money-printing done by the Federal Reserve is for the specific intent of propping up the value of Wall Street's financial assets. How else do you stop Ponzi schemes from imploding?

Be that as it may, the one thing which Bernanke did understand is that there was little tolerance (and certainly no appetite) in the global community for more U.S. quantitative easing. To understand this requires actually taking a moment to define quantitative easing, since though the mainstream media uses the term a million times a month, they never explain it.

Quantitative easing  is nothing but a 21 st century euphemism to replace a 20 th century euphemism: "monetizing debt." Those with any understanding of language realize that euphemisms are expressions we create when we want to (more or less) lie about a subject -- because telling the plain truth is too unpalatable.

In this case, quantitative easing (aka "monetizing debt") is nothing more than printing money out of thin air to (pretend to) pay one's bills. This brings us to the multi-trillion dollar Ponzi-scheme known as the Western financial system. To illustrate how far Western finances have deteriorated requires  providing some historical context.

Following Canada's previous, disastrous experiment with the Conservative Party (during the last half of the 1980's, and early 1990's), the reckless fiscal incompetence of the Mulroney regime had saddled Canada with one of the highest debt-to-GDP ratios in the entire Western world. Peaking at 70%, Canada's indebtedness was regarded internationally as nothing less than an economic crisis. The Liberal government which inherited Mulroney's mess, engineered a remarkable fiscal turn-around -- going from record deficits to a budget surplus in little more than two years -- and produced a decade of surpluses after that.

Today, with a new Conservative Prime Minister at the helm, all those years of surplus have been squandered and once again Canada's debt-level has hit a new record high of 83% of GDP, while once again Canada is saddled with record deficits. Yet instead of being labeled as a poster-child for fiscal irresponsibility as it was in the 1990's, today it is hailed as a paragon of fiscal prudence -- because most of the rest of the West is even more obviously (i.e. hopelessly) insolvent.

Not only are the individual debts of most of these Western debtors totally unsustainable, but collectively there are no "buyers" for the vast majority of their debts. So the only way that the West's Ponzi debt-markets can be kept from immediately imploding is for it to keep conjuring larger and larger quantities of (worthless) paper out of thin air, and then using their own paper to buy-up their own debt.

As I've written in the past, there is an obvious personal analogy to the Western financial system: "kiting checks". This is where some deadbeat writes someone a bad check, and then to  "cover" that bad check he writes another (even bigger) bad check. And then to cover the second bad check he writes a third, and so on. It makes absolutely no difference, in principle, whether that scrap of bad paper is called a "check" or an "IOU" or a "U.S. dollar."

Creating one piece of un-backed paper to "cover" the obligation of another un-backed piece of paper is check-kiting (or a Ponzi-scheme -- take your pick). It is nothing more than the most desperate of measures to temporarily delay bankruptcy. That is what is meant by "monetizing debt," and now "quantitative easing": a desperation measure to temporarily ward off bankruptcy.

The quandary for Bernanke when it comes to (officially) cranking up his printing press again is that he is unable to admit this desperate imperative for more money-printing. In the fantasy world of the mainstream media, the U.S. has a growing economy and a "AAA" credit rating -- hardly what one would expect for a deadbeat kiting trillion-dollar checks to temporarily delay its own bankruptcy.

Meanwhile, as I detailed in a recent commentary, rather than "growing" the U.S. economy continues to plummet deeper into Depression. The charts in that commentary showed a housing sector that has totally collapsed, construction activity is negligible, energy use has collapsed to the point where the U.S. is now a "net energy exporter," and there are the fewest people in the U.S. workforce in thirty years.

Hence, while Bernanke desperately needs to print more money (and as soon as possible), what he needs just as much is "political cover": a pretext for that money-printing where he doesn't have to admit all of his previous lies about the U.S. economy, or be seen engaging in just another gratuitous (and inflationary) hand-out to his Wall Street masters. As a result, we have seen months of dithering by Bernanke where he assures the market again  and again that he is "finished" with his money-printing (most recently yesterday) -- but then he qualifies that promise every few weeks, by noting he would change his mind tomorrow if a great enough need arose.

Enter Christine Lagarde, the French money-printing trollop who went from Finance Minister of France to head of the IMF, after making it clear from her rhetoric that she had never met a paper currency which she didn't want to see more of -- much more of. Just as eager to please her banker masters as Bernanke, she has graciously provided Bernanke with the political cover he so desperately needs, by begging him to print-up a fresh, new batch of U.S. dollars .

Next in this clumsy script will be Bernanke, the Reluctant Money-Printer; stepping in front of a podium to announce that as much as it pains him to do so that "for the good of the world" he would crank-up his printing press yet one more time -- and kick out another trillion or so scraps of this fantasy-paper.

For precious metals investors, this provides us with two reasons for buying more gold and silver today: the long-term reason, and the short-term. Long term, kiting checks to delay the bankruptcies of our governments can only end in one possible way: Greece. The only question remaining is whether these $10's of trillions in Western bonds will be devalued/written-off by 50%, by 75% (like Greece), or (most likely) a complete 100% bond-burning party?

Note that if even 10% of the chumps holding this doomed paper have the foresight to exchange it for precious metals before it goes to zero (or somewhere in that vicinity) that by itself these trillions of dollars would be enough to send gold and silver prices to many multiples of present levels. Meanwhile, all of the new money-printing is itself an equally strong driver of higher gold and silver prices (as we have seen for the last 10+ years).

Short term, we now have the Prince and Princess of Paper signaling that more money-printing is on the way. Christine Lagarde gets a pat on the head from the bankers for soliciting more paper. Bernanke gets to play the role of "the cavalry riding to the rescue," rather than the Evil Villain tying the economy to the railroad tracks.

It's about as close to a "perfect script" as the propaganda machine is able to cobble together -- without either admitting all of its past lies about our economies, (deliberately) crashing all of our economies again, or starting another war. So perhaps we should all be hailing this latest deceit as representing the lesser of evils?
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.