G20 Authorizes Global Printing of Money Out of Thin Air

In a completely expected move, politicians from around the world gathered and made the decision to spend a lot of money that they didn’t have and which doesn’t exist (yet).

I am referring to the recent G20 meeting, where the global crisis was the main topic. As you may know from my past writings, I hold it as a near dead-certainty that national politicians can be counted upon to spend instead of cut and to print instead of tax. It’s just natural to want to take the path of least resistance.

If local politicians had a printing press, they’d print, too. But they don’t, and so they hike fees and taxes on things like roads, gasoline, fishing licenses, and building permits when things get tight.

Printing money out of thin air is inflationary and unfair. It steals from savers and preferentially enriches those at the head of the handout line. It diminishes all the money accumulated from past production and inappropriately reinforces the belief that something can be had for nothing.

So I was more than a little intrigued when I read about the $1.1 trillion pledged by world leaders to the IMF. Where did it come from? Who was donating what? As always, the devil is in the details.

Interestingly, I had to read through more than 18 accounts before I found any details at all, which were meager. I finally located these in a NY Times article:

World Leaders Pledge $1.1 Trillion for Crisis

China is expected to contribute $40 billion. Japan and the European Union each pledged $100 billion. The United States has said it will contribute $100 billion, too, though that requires Congressional approval.

In addition to $500 billion in loans, the Group of 20 approved a one-time issuance of $250 billion in Special Drawing Rights, the synthetic currency of the fund, which will be parceled out to all its 185 members.

As I read it, there are about $250 billion in outright grants, $500 billion in loans, and $250 billion in Special Drawing Rights (SDRs). Given that none of the governments in question, except China, have that kind of money lying around, the $250 billion in grants and $500 billion in loans will have to be printed out of thin air.

More worryingly was the authorization to create $250 billion SDRs out of thin air. Usually described as a “synthetic currency,” they are nothing more than a type money created out of thin air, but one without any particular association to any given country.

Think about that for a minute. SDRs are being printed out of thin air by an institution that does not have any particular taxing power over the productive output of any particular nation.

What does this sort of money mean? What exactly is it?

It operates like central banking super-money and can be used as the primary fuel for massive pyramiding by the recipient bank. Think of it as the primary deposit into a banking system with a minuscule reserve ratio. It can be leveraged hundreds of times by central banks and then thousands of times further once those funds are disbursed into the next tier of the banking system.

For a world that should be mulling over lessons learned about the peril of thin-air money and excessive leverage, the reintroduction of SDRs are like a gigantic, blinking neon sign that reads, “We didn’t learn anything!!

If we are collecting the fuel for a massive international inflationary bonfire, SDRs are a very dry bundle of sticks.

The chance that this all ends in a year or two with a round of severe and destructive inflation is now quite high, perhaps better than 50%. With any luck, the central banks will continue to try and hide their tracks by selling their gold, meaning you can pick it up at fire-sale prices. Pun intended.

This is a companion discussion topic for the original entry at https://peakprosperity.com/g20-authorizes-global-printing-of-money-out-of-thin-air-2/


I have seen the monetary base increase by a large amount since the crisis began with m1 and m2 up by at least 20% and with m0 up by a large amount as well. However, if you look at the chart of the m1 money multplier the whole system has crashed. There arent many loans being made and i dont think many will be made for a while becuase of the massive deleveraging that will happen in the next 2 to 3 years. With household debt being over 15 trillion dollars we still have a long way to go in terms of bank credit writedowns. Losses in the US have totaled 1 trillion dollars so far. With millions losing their jobs and with one or two persons being the breadwinners in the household a job loss is devastating to the overlevered american family. Defaults will continue with student loans, car loans, home equity lines of credit, mortgages, commercial real estate. As such, becuase of all the debt that is being destroyed the fed will not be able to offset debt deflation with his goal of "targeted inflation". Also, becuase the fed keeps kicking the can down the road the deleveraging process is happening much slower than it should. Inflation will come, but only when the money begeins to change hands in a rapid fashion. If, now if defaltionary forces are strong enough to offset bernankes printing press, maybe we could survive a hyperinfaltionary holocaust.

<img src="http://research.stlouisfed.org/fred2/data/MULT_Max_630_378.png&quot;&gt;

Money multiplier from the Fed



Thanks for all the hard work Chris.


George from LA

Any chance you might do a article on what a popping of the derivative bubble might mean?

The article from yesterday on Global Derivatives from Nathans economic edge talks about how the derivatives market is now over 1 quadrillion dollars and that there are 8 bubbles involved.


  1. Sub-prime Mortgage linked Loans & Assets (USD 1.5 trillion) within Mortgage backed Assets (USD 5 trillion);
  2. China, India, Eastern Europe and other Emerging Market Loans (USD 5 trillion);
  3. Commodities (Commodity Derivatives at about USD 13 trillion);
  4. Corporate bonds (USD 18 trillion);
  5. Commercial (USD 22 trillion) and Residential property (USD 45 trillion);
  6. Credit Cards Outstanding Debt (USD 4.5 trillion);
  7. Currencies (Foreign Exchange Derivatives at about USD 62 trillion); and
  8. Credit Default Swaps (USD 57 trillion) as a subset of all Derivatives (USD 1,405 Trillion).


The banks JP morgan, Citibank, Bank of america, and Goldman Sachs hold some 200 trillion worth of derivatives.


The 5th derivative bubble that he lists worth 67 trillion is part of another bubble that is collapsing real fast right now. Should I be worrying about this derivative bubble attached? Will it just simply bankrupt a few banks with most of the derivatives cancelled? Any idea of what will happen as the bubbles deflate?


Would be helpful as the money involved here is bigger than the GDP of the world many times over.

Second this point. If we agree past growrh rates and lifestyles are not sustainable. How this conflicts with the Derivative market, and its additional/consequental economic impacts would be enlightening.



I have a question concerning how hyper-inflation in the US would impact other countries. All other things being equal, if the US dollar does completely collapse through inflation does it have any automatic proportional effects on the Euro or Pound?


Firejack and Nichoman, the end of this derivatives bubble is endgame stuff. Nobody can predict how it will turn out because it depends entirely on what the federal govt and the Fed do. It’s why nobody should pay attention to the media, the govt, Bernanke or anyone else saying not to worry. It’s why some people on this site are working to develop sustainable living independent of organizations that rely on financing, which is the entire corporate world and almost any business you can think of. Nobody knows how bad this is going to get. People shouldn’t maintain blind hope in their current job, their pension plans, their investments, their checking accounts, their grocery stores, gas stations, the water company, etc. We have quite a while before it gets that bad, but the notional claims out there (derivatives) on all productive activity in the world are basically in the midst of creating an infinite margin call on everything. As long as the government goes along with it, the most highly tiered claims (which are the most politically connected financiers) will get all the wealth and everybody else will lose everything…feudalism.
The government should declare most of the engineered derivatives like CDS void and let the big institutions/investors who own them go broke. That would be extremely painful for a while, but it would end the current parasitic financial empire, which would allow us to start from the bottom-up building a new economy based on local banks, local relationships. But instead the Fed has now stood behind the CDS market by backing AIG (which creates a bias toward corporate bankruptcies as CDS holders would rather see them go broke and receive 100% payment from AIG than renegotiate terms and allow the companies to survive), plus Congress recently gave derivatives holders priority claims in bankruptcy above other stakeholders. Those who understand what’s going on here can see the obvious…this isn’t just a mistake, or a random policy choice…this is the biggest shakedown in history as DC continues propping up this club of brazen parasites. The problem is, most of the people who really understand what’s going on have joined the club…it pays quite well.

holy cow…ok jason you got me but it was worth it.

i am havinga really bad day and i did not need to read this

i just spent the entire day in a thing called forward fayetteville with ove 400 believers in the endless smart growth paradigm. i was a voice in the wilderness. prof bartlett was here in the fall but had no impact …obviously

ok i have moved from acceptance back into depression

i will write a more detailed account when i have had a bottle of singlemalt…it has finally gotten weird enough for me.

Not enough oil for the G20 package


Interesting article I ran across.

Strabes: once again, you, sir, have nailed it.

Thanks so much for you contributions to this forum.


I gotta say, that is the single most depressing analysis of our disaster, laughingly called an economy, that I’ve read so far.

Over shareholders? bond holders? lending institutions? If that’s the case, we are in deep do-do. It would be inconceivable if so much that seemed inconceivable hadn’t already been done. How did they do that?


Thanks for that article. It certainly puts things in perspective:

The G20 heads have to know this. That means they are either engaging in magical thinking (a sign of insanity) or they are purposely trying to deceive us. The question to me is, what purpose would be served in deceiving us? Do they think that we will somehow take it better when the inevitable truth dawns if we don’t see it coming? Are they profiting in some way by keeping us in the dark? Are they really that venal?


Based on your comments above, were on the same page in many, maybe most aspects.

Yet, were all shaped by our experiences, and my experiences are molded by analytical problem solving.

The "How" question is just that. We still will have commerce and movement of goods and services. There are plenty of business that will continue to operate. Probably just differently in some regards.

From personal experiences…

1.) Successful food business. As of today, your profits which are significant, show little impact to the recession/depression. Why? Good business acumen and provide quality food at low prices and are the most popular in a prosporous farming town of ~5,000. You’ve run through a worst, worst case scenario of 50% drop in revenue and can still be profitable because you’ve paid off debt.

2.) Family Farm. There are many farms that minimize debt, keep fixed costs low, and are doing quite well. They still borrow money at certain times, but don’t use their cash for cash flow purposes. Their almost nil risks (live near "Field Of Dreams". The last 3 harvests have been exceptionally profitable. Why would that end? Farmers I’m with are just down to earth, modest, average folk who happen to love farming. The need for food should increase.

3.) Successful Hardware store. Your store is paid off, you run a tight ship and have a very positive cash flow since your the only hardware store in town.

My point is trying understand how this will impact average American, ranging from personal investment options, to business decisions.

Their are always winners and losers, I don’t agree in the "all is bleak" point of view. That’s where I’m coming from.



The G20 are not going to just print bazillions of dollars, they are going to lend it. More debt, more burden, more control. This current crisis in credit is being used to consolidate the banker’s control of the Earth’s economies.

The hand of the lender is always above the hand of the borrower.


Could you elaborate on what you mean when you say "We have quite a while before it gets that bad"?

What are you thinking for time frame, and what do you mean "that bad"?

I’m asking because lately I’ve had a persistent thought that I might be underestimating how bad this could really be. Perhaps worse than we could comprehend.

Just wondering if anyone else is seeing the potential for a modern "Dark Ages" out of this whole mess.



can any html guru out there explain how "nevertheless be the first ones paid off" in the post above kept its link when all I did was copy/paste the text in from another site? I posted the URL separately because I thought I had to.
anyway, that’s impressive. good excuse for a beer…

A major financial collapse would mean a major oil production collapse. Given how 7 billion people are dependant on all that food produced using oil I would say things would get ugly pretty fast.


Did anyone read Heinburg’s latest Muse Letter:

A much more likely scenario, in my view: We will see a few months of
fairly gradual economic deterioration (slowed by the mighty efforts of
the Bailout Brigade), followed by a truly ugly global economic
meltdown. The result will be a general level of economic activity much
lower than the world is accustomed to. Efforts to right the ship will
include protectionist legislation (that will provoke international
confrontations), the convening of world leaders to create a new global
currency and financial system (which probably won’t succeed, at least
not the first time around), and various populist uprisings that will
lead to political instability around the globe. Energy demand will
remain low, but energy production will fall dramatically due to lack of
investment. Carbon emissions will therefore fall too, so the world’s
attention will be diverted from tackling the greenhouse gas issue, even
though climate impacts from previous carbon emissions will continue to


That’s right, Richard Heinburg (I really respect the guy, I assume most people here do) gives us months (assuming I’m reading that right) before "a truly ugly global economic meltdown." Then he adds this later on

"Once the unwinding has begun, no more preparation is possible. Our
strategy must change from crisis prevention to crisis management.
That’s where we are right now, in my view. "


This is a problem for me because if we really do have months I should be preparing a doomstead with like minded people. I don’t think my family would weather a major financial crash very well even if I stock the basement full of food. It’s scary and every day it’s on my mind that I really should be doing more to prepare. I would have to be 100% certain that the crash is going to happen and it’s effects are going to be bad enough to warrant running for the hills before I would do that. Part of it is I fear, at age 29, I could be living the last few years of my life. Really I guess I should speak more frankly with my family on what I think is going to happen but as far as their concerned god will make everything okay amen.




When you copy/paste web page content, you pick up any embedded HTML, such as hyperlinks. This is both good and bad … if the text just has something simple like a hyperlink, it doesn’t cause any problems. However if the text is formatted with all types of special fonts and stylings, it may look like something went wrong once it is pasted.

My recommendation is always to use the "Paste as Plain Text" (clipboard with a "T") and "Paste from Word" (clipboard with a "W") icons on the toolbar. These icons provide a pop-up window where it is posisble to cleanly paste text from other documents and websites with no formatting problems.


Very helpful explanation Ron. Thank you. I wasn’t aware of the special paste buttons. Sounds like good advice.

Hi…lots of questions and emotions. I didn’t mean to set off a panic. Just meant to answer the questions above asking how the derivatives bubble will impact things. It is SO much bigger than anything else being discussed, and I think that’s precisely why it’s not being discussed. If the media/govt can keep us focused on exec bonuses, social security, gun shootings, peak oil, GM they buy themselves time to figure out what the heck to do with the armageddon scenario of derivatives and distract us from what Rubin, Paulson have done and what Geithner continues to do with Wall St running our Treasury.

[quote=Doug]Over shareholders? bond holders? lending institutions? If that’s the case, we are in deep do-do. It would be inconceivable if so much that seemed inconceivable hadn’t already been done. How did they do that?[/quote]
Yes. Deep do-do is an appropriate description. This is an example of how the regulation/deregulation debate has no clear answer. The 2005 bankruptcy bill and earlier bills in the 80s/90s helped drive derivatives to impossible levels because they take priority over every other claim–huge incentive to write as many CDS contracts as possible. So, flawed regulation caused it, but lack of regulation of the firms and profit incentives also did. How did they do it? The Wall St / DC syndicate simply passed the bills…a good example of how it’s never a good idea to have the ex-CEO of the most powerful investment bank on Wall St be the Treasury Secretary (Rubin, Paulson). I’ve never quoted Huffington in my life, but she does a good job explaining the impact of the 2005 bill with this sentence:
It’s worth noting that, thanks to the industry-written 2005 Bankruptcy Bill, derivatives claims are not stayed in bankruptcy – so the financial institutions that gambled and lost would nevertheless be the first ones paid off. Isn’t gaming the system fun?
Or checkout this short article: http://www.talkingpointsmemo.com/archives/2009/03/im_sure_the_knowledgeable_people.php
Nichoman, I agree with you…there is hope. I was just trying to communicate a sense of the magnitude of the derivatives problem you asked about…it is beyond comprehension and I’m still not sure if you’re seeing the potential impact. Make no mistake, millions more around the world will starve because of this than otherwise would have (probably not in the US). Yes the 3 types of businesses you laid out are in much better shape, but even they depend on power, lights, dollars, fuel, and most importantly, customers with buying potential. The hardware store depends on corporate suppliers. They also depend on the fed govt not making their activity illegal or taxing away all their profits to continue supporting itself and Wall St. The problem is so big that it’s going to force govt to do more insane stuff. We have no idea what they’ll do, but unfortunately I think it’s unlikely that they’ll close up shop, let Wall St fail, and let power pass back to the local level so your 3 types of businesses thrive again and we go back to a Little House on the Prairie economy…I wish they’d let that happen…it’s really the only solution. I hope to start some sort of small farm, not for business, but for survival insurance, so I’m with you on that. I’d love to be in your position of knowing lots of small farmers. In terms of how it will affect the average american, we’re already seeing tent cities. I’m afraid that’s a drop in the bucket compared to what we’ll probably start seeing by next year if not 2011.

[quote=Aaron]What are you thinking for time frame, and what do you mean "that bad"?[/quote]
Depends on the Fed and govt. I admire the Fed for trying to soften the armageddon crash that would’ve happened last fall had it done nothing. A hard crash to depression levels I don’t think can be avoided, but the Fed is trying to get there more slowly…sort of like an approaching hurricane so we know what to expect when the eye wall hits as opposed to an immediate F5 tornado that would wipe everybody out. But as we know, a hurricane ends up doing more damage because it lasts so much longer. But at the end of the day, I gotta say I think the Fed is smart to try avoiding the F5 wipeout. My problem is more with the govt (treasury and congress) and its bias toward the elitist of the elite financiers, the bias toward bigger govt solutions, the bias against small-ness and local level (see how the FDIC is hurting smaller good banks to support the big failures it knows are coming).

Hi guys,

Lots of thought-provoking comments tonight, and I have much on my mind and barely know where to start. So I’ll start with FireJack.

Yes, I did read Heinburg’s latest Muse letter and found it to be a pretty good assessment of where we are right now and what’s just over the horizon, per usual for Heinburg who I think in general is one of the best commentators out there.

One of the most interesting aspects of the prediction game or even speculating about what’s going to happen in the next three months is the language part of it all. Any phrase whatsoever is interpretive. So even Heinburg talking of a "truly ugly global economic meltdown" is almost meaningless to me. Haven’t we already had by some standards such an event? And what kind of additional impact does the phrase "truly ugly" lend to the phrase "global economic meltdown?" How much worse is a "truly ugly" one than a regular ole’ one?

In cases like this I think it best if the author actually gives some (or even extensive) details about what their rhetorical flourishes (and I don’t mean that pejoratively) really mean. So give me some data points: unemployment, GDP shrinkage, global oil production, inflation/deflation, foreclosures, home prices, trade numbers, and the list goes on. Paint me a picture of downtown Boston or Philly or Seattle. Tell me what the US/Mexican border’s going to look like. Talk about food production, the availability and quality of health care. I need something to sink my teeth into.

Personally, I’m starting to burnout on the lexicon of doom: implosion, on the brink, dropping of a cliff, unprecedented, stunning, previously unheard of, crisis, toxic, meltdown, breakdown, reckless, massive, plus whatever you’d like to add.

To that point, here’s what I’ve come to rely on for my thinking of how bad events will turn out to be.

Each day, month, year will be worse than the last. That’s why Kunstler chose the phrase "long emergency" and John Michael Greer the phrase "long descent." This is a process (meaning it’s a verb and not a moment in time) that will unfold over decades punctuated by events that at the time or in hindsight will be more significant than others, but the decay is happening in small ways all around us every day. In this sense, to focus on a specific event that is TSHTF is probably a metaphorically poor conceptualization of what will actually take place.

Now when I say each day, month, and year will be worse than the last I mean that in a broad sense that covers both the anecdotal and statistical. Though clearly individuals, regions, companies, and entire industries will have experiences that run counter to the general trend. So, yes, unemployment will continue unabated but you may actually land a more secure job than you had ten years ago. Personally, I’m a builder in the Northeast and the last year has been very thin for me. I’m used to building houses soup to nuts or doing major renovations. But in the next few weeks I’m lucky enough to be starting one of the most lucrative jobs I’ve ever had, but after that who knows.

So for me every negative trend that exists now is going to continue its trajectory into the future. So, like I said, unemployment’s going to continue to increase globally, but also GDP’s going to continue to contract, retailer’s are going to continue shuttering their stores, home prices will keep dropping, and once again the list goes on. But then there’s the little things (or not so little things) like town and city budgets drying up, which means less police, less fire and emergency services, less DPW services, less public transit, cuts in schooling/education at all levels.

I think the really big one though (one of those significant, punctuation marks) is food production and availability. Something that Matt Simmons has hammered home for years now is that without fossil fuels for only a few days, the food supply simply runs out because of how we’ve voluntarily structured and designed our food supply system. This to me remains one of the single most chilling ideas in all the theorizing about societal collapse. Once people start starving to death in middle class America then who the hell knows what’s going to happen. That’s the day I dread though.

However, that said, because our asinine system has been voluntarily established it can be fixed and, curiously enough, it may actually fix itself. We don’t need to have a just-in-time food delivery system that ships food from all over the world to all over the world, and, at least right now, there’s no reason for a true food shortage. There’s enough land and enough know how to grow enough food for everyone. However, more people will have to be involved full-time in food production than have been in probably three hundred years. But another huge hurdle that could possibly hit simultaneously is the lack or prohibitive expense of fossil fuel-based fertilizers, which are responsible for today’s Superman yields. Without those inputs, yields will fall; but still, if everyone (literally everyone) is engaged in food production at some level, we could theoretically meet our demands. To me, the crux to all of this is the transition. Do we have the gumption to get through it? Even if half the country were as aware as everyone on this website is that might be enough. But obviously that couldn’t be further from the truth, so the reality on this front is pretty bleak.

Another issue that is still not fully understood based upon the discussions I read (even here) is what I call the "pixie dust nature" of oil. Oil is in everything. Walk into a hospital, everything from IV tubes (every kind of tubing in fact) to the space-age, roto-molded polyethylene wheeled beds to the pedestrian bedpan require black gold to exist. We live in a world made from oil. Never mind oil for transportation, we need it for our medical infrastructure. And we’re not going to get that from a wind turbine or inefficient solar panel. Anyone who thinks oil will simply be replaced in a seamless fashion over the course of a few years with life more or less remaining unaffected is in a deep, deep state of denial or is naive.

The most startling and almost macabre part of all this is that our corrupt and pathetic economic and financial system through its voodoo worship of profit first, "price signals," and the law of supply and demand has now determined that the human race no longer needs oil! Gee, thanks, the law of supply and demand. Next it will tell us that we don’t need food. I mean, think about it, if food fell enough in price would we stop farming?

Attention priests of economic orthodoxy: Your system is broken, prices and supply and demand no longer tell us anything about value. Wake up before we’re all dead.

To Aaron, as far as the nouveau Dark Ages. Those come when there’s no more or significantly less electricity. And that day may very well be close at hand. Look at our pathetic grid.

So just remember, April ‘10’s going to be worse than April ‘09. And April ‘13’s going to be a hell of a lot worse than April ‘10.

And, last but not least, the US government will do everything in its power to make the coming years as hellish as humanly imaginable. How much money has been spent in the last six months? How much percentage wise of that has gone to fix our electric grid, to fix our food supply and delivery system, to build renewable energy infrastructure, to expand public transit, to do anything remotely of value to the future of this country?

Thanks Bernanke, Paulson, Bush, Geithner, and Obama. You unabashed, unmitigated collection of crooks.