Can we print our way out of deflation?

In my previous reposts I referred to articles on Seeking Alpha that stated that it would take US Treasury 80 years to print $100 Trillion worth of $100 bills (Please read: 1) Credit is Not Currency; 2) The Fed’s Real leash (Credit is not Currency, part II)).

Now I have found statistics on how much physical capacity do the US Treasury printing presses have to print the actual currency to replace all the credit that is vaporizing at a rapid pace. This would be a good excercise to prove that the hyperinflationists are dead wrong about the privately owned FED’s and US Government’s ability to cause inflation (which in their view is CPI but in reality it is increase in total money supply in the economy, 95% of which is credit or debt).

For the argument’s sake let’s assume that the US Congress passes a legislation that mandates that The United States Treasury Bureau of Engraving and Printing start printing currency with the purpose of defeating deflation, the BEP turns on its presses at full capacity and starts printing like mad trying to inflate us out of this economic depression that we are in now.

This is what we know of the BEP’s physical abilities to print money and the properties of money bills themselves:

– During fiscal year (FY) 2008, the Bureau of Engraving and Printing produced approximately 38 million notes a day with a face value of approximately $629 million.
– During Fiscal Year 2008 the BEP delivered 7.7 billion notes at an average cost of 6.4 cents per note.
– 95% of the notes printed each year are used to replace notes already in, or taken out of circulation.

– The average life span of a Federal Reserve Note by denomination:


$ 1 ……………
$ 5 ……………
$ 10 ………….
$ 20 ………….
$ 50 ………….
$100 …………

Life Span

21 months
16 months
18 months
24 months
55 months
89 months

And more

– Of all the notes printed by the Bureau of Engraving and Printing, $1 notes make up about 45% of currency production.

Should the UST BEP printing presses switch to fully produce only $100 bills, they will be printing $770 billion worth of them per year. That, of course, is an unrealistic scenario, as smaller bills are needed for retail commerce otherwise it will simply stall, and then also remember that as usage of $100 bulls increases in circulation so does their wear and tear and its rate will approach that of the smaller denominated units. Thus, the BEP will be largerly printing money to replace the old notes. This is not very likely to increase the money/currency supply anywhere enough to cause hyperinflation, while at the same time the credit and balance sheets are shrinking many times faster the the printing presses can print physical currency. Just think of those hundreds of thousands of foreclousers that are yet to hit the market and to be accounted for on the bank’s balance sheets as losses, and don’t forget the commercial realestate implosion that is only beginning to take hold, and the stock market losses incurred by tens upon tens of millions of baby boomers heading into retirement with not much to show in their 401(k) plans. And what happens to interest rates when the market realizes that the Government is hell bent on debasing the currency? They sure go up as investors’ sentiment changes away from the US dollar, even slightly, and when interest goes up the bond price goes down. An increase in the yield on 10-year US treasury notes from 4% to 6%, for example, will cause a ripple effect on all bond holders to eat up losses on their Treasury and Corporate bond portfolios with similar maturity of 34% approximately, depending on the investment grade of securities held. Knowing that most of the money out there is debt, this will be a multi-trillion shrinkage of balance sheets that is by definition deflationary. And that will happen in a matter of months if not weeks – much faster then the government can print.

Not long ago someone came up with a nice visual representations of what various sums of money would look like if packed in wads of $100 bills.

Here is a view of $1Trillion:


This is a double stacked football field sized pile of palets full of $100 bills. And that takes more then 1 year and 3 months to print by the all powerfull US Government printing presses.

Then also remember that currency is printed on special paper that is in limited supply and may not be immediately produced in needed quantities for even one year’s worth of printing. From the first BEP site link above we also learn that:

– Currency paper is composed of 25% linen and 75% cotton. Red and blue synthetic fibers of various lengths are distributed evenly throughout the paper. Prior to World War I the fibers were made of silk.
– Between the Fort Worth, Texas and the Washington, DC Facilities approximately 18 tons of ink per day are used.

I think it is high time to put to rest the speculation that US Government or the privately owned Federal Reserve system can just print its way (literally and by extending credit) out of deflationary situation that we are facing now. If they could, they would have done that long ago. Japan has been pouring freshly “printed” money supply into their economy for decades now and to no avail.

Since the crisis began, the privately owned Federal Reserve has extended about $6.8 Trillion out of its total $13.9 Trillion commited according to its own report figures (.pdf link). And we are still deflating.

There was a good and extensive article by Steve Keen on debdeflation website that among other things pointed out that:

To make a serious dent in debt levels, and thus enable the increase in base money to affect the aggregate money stock and hence cause inflation, Bernanke would need to not merely double M0, but to increase it by a factor of, say, 25 from pre-intervention levels. That US$20 trillion truckload of greenbacks might enable Americans to repay, say, one quarter of outstanding debt with one half—thus reducing the debt to GDP ratio about 200% (roughly what it was during the DotCom bubble and, coincidentally, 1931)—and get back to some serious inflationary spending with the other (of course, in the context of a seriously depreciating currency). But with anything less than that, his attempts to reflate the American economy will sink in the ocean of debt created by America’s modern-day “Roving Cavaliers of Credit”.

$20 Trillion dollars, as we now know how to estimate, will take about 20 years to print if the BEP prints $100 bills only at neck breaking pace. And what happens if the printing presses overheat and need to be repaced. Just a thought.

In conclusion

Ben Bernanke and his buddies don’t understand or don’t care to understand and admit that monetary manipulations will not bring back demand. We are now experiencing a DEMAND DEFLATION in everything. The sub-prime real estate buyers are not coming back to market, and the credit worthy borrowers are not going to get into debt any time soon to support the speculative bubble blowing any longer. We don’t need to “unfreeze lending” if nobody wants to borrow (while assets are depreciating). Mr. Bernanke somehow believes that he can magically circumvent creating economic product, which is always based on labor and goods it produces, by just hitting a button on his computer to add a few zeros to FED’s account in a coup of counterfeiting. This illegal act does not provide employment to anyone except Mr. Bernanke and does not result in any economic product on the other end of this labor intensive operation. His academic theories, being tested on live human beings, will be proven wrong and disastrous soon enough. The prices will go where they naturally want to go. All FED can do is slow the process of decline, not arrest it – and that will only prolong this recession that has all the underpinnings of becoming another Great Depression.


  1. Posted July 6, 2009 at 1:35 am | Permalink

    Interesting article. One thing though, future printing will be just “adding a few zeros” electronically. What they might do is a two step, add a zero to every bank account (including peoples) on a bank holiday — your paycheck was $10 USD per hour, now its $100. Since they just had a 100x increase income they then force call all bonds and whatnot and pay them at the old rate.

    This will wipe about the US’s ability to borrow or import for a while but push to shove we do have the ability to say take the oil we need.

    Another play would be to mint X number of dollars and cut a big check for each American. Make it say $2 trillion and cut every adult a 12k check. This would actually help a little bit and because everyones buying ability is so low, create only modest inflation . The only problem is going to be that most of the money will be saved or used for debt relief and won’t circulate. Of course the gift card approach won’t work either. They can make you spend the “stim card” but people will just save money they earn and if they can’t use the “card” for debt relief will use it to replace regular spending

    • Posted July 6, 2009 at 1:58 am | Permalink

      >> One thing though, future printing will be just “adding a few zeros” electronically. What they might do is a two step, add a zero to every bank account (including peoples) on a bank holiday — your paycheck was $10 USD per hour, now its $100. Since they just had a 100x increase income they then force call all bonds and whatnot and pay them at the old rate.
      Who is “they”? Federal reserve is not going to give everybody any money, just as pizza hut will not be giving out free pizzas. Money and the value it holds is the foundation of their business. What power will they have if they debase their own currency in one fell swoop? The FED has no power or means to add any zeros to anybody’s bank account. That is a fantasy. The pay checks will not be increasing since their is global wage arbitrage and all jobs will simply be outsourced off shore even more then they are now. Don’t count to wake up one day and have all the wages, prices and bank accounts to suddenly have a few more zeros. That is a pipe dream, that is not how hyperinflation or inflation ramps up.

      We need to deal with realistic scenarios, not some fairy tale magical transformations.

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