Grand Rapids, MI -- (ReleaseWire) -- 10/21/2011 -- In an October 11, 2011 blog posting, financial advisor Dennis Tubbergen asked if the excessive debt we are currently experiencing will lead to an inevitable world recession. In the posting, he presented an interesting perspective as where the world economies are heading.
Tubbergen began the posting by saying, “The Telegraph reported this past week (October 6, 2011) that the Governor of the Bank of England observed that the world is facing the worst financial crisis since the 1930s and, in his view, it might even be worse than that.”
The article reads in part, “Sir Mervyn King was speaking after the decision by the Bank’s Monetary Policy Committee to put £75 billion of newly created money into the economy in a desperate effort to stave off a new credit crisis and a UK recession. Economists said the Bank’s decision to resume its quantitative easing (QE), or asset purchase programme, showed it was increasingly fearful for the economy, and predicted more such moves ahead.”
The article goes on to quote King as saying the bank’s actions were precipitated by “growing signs of a global economic slowdown.”
“Here is the Governor of the Bank of England openly discussing the reasons that the Bank of England has decided to simply print more money to inject into the British economy,” notes Tubbergen. “One of those reasons was that the bank sees growing signs of a worldwide economic slowdown.”
Tubbergen states that the Governor added that this is the “most serious financial crisis since the 1930s, if not ever.”. The article also states, “Financial experts said the committee’s actions would a “Titanic” disaster for pensioners, savers and workers approaching retirement. Sir Mervyn suggested that was a price worth paying to save the economy from recession.”
“While you are likely familiar with what occurred in the 1930s, a worldwide banking failure then began with the failure of a European bank,” explains Tubbergen. “That banking failure led to the failure of many financial institutions worldwide.”
Tubbergen finds it interesting that the Governor also admitted openly that the printing of money by the Central Bank would be a disaster for retirees, pensioners and those approaching retirement but it was a price worth paying to keep the country from slipping back into a recession.
“From my perspective, that’s blatantly candid talk form a policymaker,” cites Tubbergen. “Since printing money will tend to devalue a currency, it reduces the currency’s buying power. That erodes the value of the savings of retirees and makes the pension checks received by retirees buy less. Continued money printing exacerbates this problem.”
Tubbergen goes on to explain that this erosion of the value of savings through the printing of money is not a phenomenon that is confined to England: it is universal and rears its ugly head whenever central banks elect to print money to ‘jump start’ the economy.
“The end result is the economy doesn’t get better and the buying power of a currency diminishes, thus punishing savings and thrift,” adds Tubbergen.
So why do policymakers elect to print money given that from a long-term historical perspective it has not been a successful policy?
“It’s the easiest choice,” concludes Tubbergen. “Given a choice between raising taxes, cutting spending or printing money, policymakers often choose the latter. If they choose printing money for a long enough period of time, it soon becomes the only option. But, in the end, its price is large.”
Tubbergen believes the Governor acknowledges this fact in a roundabout way.
“He suggests that this ‘titanic disaster’ for retirees would be alright if it avoids recession,” states Tubbergen. “That may be an indication as to how tough things are, economically speaking.”
Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in Grand Rapids, Michigan. Tubbergen is CEO of USA Wealth Management, LLC and has an online blog that can be viewed at http://www.dennistubbergen.com and a monthly financial newsletter that can be read at http://www.moving-markets.com. His weekly talk show The Everything Financial Radio Show is simulcast on two Michigan metro stations and also airs to over 600,000 financial advisors, with recent podcasts available at http://www.everythingfinancialradio.com.
The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.