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The Many Euphemisms for Money Creation
by Thorsten Polleit
January 18, 2011
Confused Language, Confused Thinking
According to the teachings of the Greek philosopher Parmenides, language illustrates human thinking (and reasoning); confused language is thus tantamount to confused thinking; confused thinking, in turn, provokes unintended acts and undesired outcomes.
"Doublespeak" — a term that rose to prominence through the work of Eric Blair (1903–1950), more famously known as George Orwell — is a conspicuous form of confused language and thought. The term doublespeak was actually derived from the terms "newspeak" and "doublethink," which Orwell used in his novel Nineteen Eighty-Four, published in 1949.
"While under suppressive Party instruction, the mind of the protagonist, Winston Smith slid away into the labyrinthine world of doublethink. To know and not to know, to be conscious of complete truthfulness while telling carefully constructed lies, to hold simultaneously two opinions which cancelled out, knowing them to be contradictory and believing in both of them, to use logic against logic, to repudiate morality while laying claim to it, to believe that democracy was impossible and that the Party was the guardian of democracy, to forget, whatever it was necessary to forget, then to draw it back into memory again at the moment when it was needed, and then promptly to forget it again: and above all, to apply the same process to the process itself. That was the ultimate subtlety: consciously to induce unconsciousness, and then, once again, to become unconscious of the act of hypnosis you had just performed. Even to understand the word "doublethink" involved the use of doublethink." 
A euphemism is a form of doublespeak: it is a rhetorical device used sometimes intentionally and sometimes unintentionally — a linguistic palliation, amounting to a distortion of the truth — in many cases applied to avoid offending people. In real life, euphemisms can be used by some to try and legitimize actions that run counter to the interests of others. In that sense, euphemisms are a "manipulation of language" and a "manipulation through language."
Euphemisms in the Wake of the Credit Crisis
Since the outbreak of the so-called international-credit-market crisis, euphemisms have risen to great prominence. This holds true in particular for monetary-policy experts, who are at great pains to advertise a variety of policy measures as being in the interest of the greater good, because they are supposed to "fight" the credit crisis. Consider the following examples.
1.The expression "unconventional monetary policy" casts central-bank action in a rather favorable light. The adjective "conventional" stands for "hereditary" and "outdated," while unconventional might suggest something along the lines of "courageous" and "innovative" action.
2.Using the expression "aggressive monetary policy" works in the same way. It often refers to, for example, a drastic cut in official interest rates toward record low levels, or a strong increase in the base money supply in light of an approaching recession, conveying the notion that policy makers take "bold" and "daring" action for the greater good.
3.The term "quantitative easing" makes it increasingly difficult, even impossible (for the public at large), to see through what such a monetary policy really is — namely, a policy of increasing the money supply (out of thin air), which, in turn, is equal to a monetary policy of inflation.
4.Talking about a "low-rate monetary policy" glosses over the fact that monetary policy pushes the market rate of interest below the natural rate of interest (the societal time-preference rate), thereby necessarily causing malinvestment rather than ushering in an economic recovery.
5.Speaking of "neutralizing the increase in base money" is clearly misleading, as a rise in the money stock is never, and can never be, neutral. It is necessarily accompanied by redistributive effects — irrespective of whether the receivers of the injection of additional money (which was created out of thin air) hold these balances as "excess reserves" or in the form of, say, time deposits.
6.Referring to "ample liquidity" (as a contributing factor to the "credit crisis") tends to cover up the fact that central banks have inflated the money supply (through bank-circulation credit expansion).
The term "liquidity" tends to disguise the fact that unfavorable monetary conditions are a result of central-bank action. A good example of a recent euphemism in the field of monetary policy was the announcement by the Governing Council of the European Central Bank (ECB) on May 10, 2010. It said it would conduct interventions in the euro area public and private debt securities markets (Securities Markets Programme) to ensure depth and liquidity in those market segments which are dysfunctional. The objective of this programme is to address the malfunctioning of securities markets and restore an appropriate monetary policy transmission mechanism.
Such a monetary policy can be seen as subsidizing the bond prices of some government issuers in the euro area — namely, those that are increasingly viewed as unsound by investors — thereby favoring some issuers (and investors holding their bonds) at the expense of others.
Such a policy will actually amount to something like a minimum-price policy for the bonds of certain government issuers if and when the central bank makes purchases that keep certain bond prices above levels that would otherwise have prevailed.
Confused Language, Undesired Results
With monetary-policy experts making increased use of confused language, the corrective counterforces against a damaging monetary policy are greatly diminished. This is because confused language — and its result, confused thinking — makes it increasingly difficult for the public to understand the medium- to long-term consequences of policy measures; and that knowledge is clearly needed to resist damaging policies.
Perpetual use of confused language may result in social outcomes that few actually intended. Consider the case of an ever-greater expansion of government. The reason that the state apparatus keeps growing at the expense of the private sector is in large part the government's acquisition of full control over money production.
Holding the money-supply monopoly, government can increase the supply through credit expansion without any real savings supporting it. With fiat money, government can and does increase its spending well beyond the amount taxpayers are prepared to hand over to the state. As a result, more and more people become dependent on government spending (some voluntarily so) whether as civil servants, government contractors, or recipients of state-run pensions, health insurance, education, and security.
Sooner or later the dependence of the people on government handouts reaches, and then surpasses, a critical level. People will then view a monetary policy of ever-greater increases in the money supply as being more favorable than government defaulting on its debt, which would wipe out any hope of receiving benefits from government in the future. In other words, a policy of inflation, even hyperinflation, will be seen as the policy of lesser evil.
Thanks to the doublespeak of monetary-policy experts, the launch of monetary policy leading to high inflation may not be discernible by the public at large. A monetary policy can thus be unleashed that the public would presumably not agree to if it were informed of the medium- and long-term consequences.
As a result, there is strong reason to fear that confused, Orwellian language and the confused thought it produces pave the way to high inflation.
Thorsten Polleit is Honorary Professor at the Frankfurt School of Finance & Management. Send him mail. See Thorsten Polleit's article archives.
 Editor's Note: The birth and death dates of Parmenides are the subject of debate. He probably did most of his writing before 500 BC.
 Note that this the term "doublespeak" does not appear anywhere within Orwell's Nineteen Eighty-Four.
 Orwell, G. (1989 ), 1984, Penguin Books, pp. 37–38.
 The expression can be found frequently in the financial media. However, it is also used in academic literature. See, for instance, Curdia, V., Woodford, M. (2010), Conventional and Unconventional Monetary Policy, in: Federal Reserve of St. Louis Review, July/August, 92(4), pp. 229–264. It should be noted that in the latter article the authors do not provide any definition of what is actually meant by unconventional monetary policy.
A definition of sorts can be found in Bini Smaghi, L., Conventional and unconventional monetary policy, keynote lecture at the International Center for Monetary and Banking Studies (ICMB), Geneva, 28 April 2009: "The unconventional tools include a broad range of measures aimed at easing financing conditions." However, such a definition basically includes all kinds of policy measures:
"Having this menu of possible measures at their disposal — which are not mutually exclusive ones — monetary policy-makers have to clearly define the intermediate objectives of their unconventional policies. These may range from providing additional central bank liquidity to banks to directly targeting liquidity shortages and credit spreads in certain market segments. The policy-makers then have to select measures that best suit those objectives".
 See, for instance, Bank for International Settlement, 80th Annual Report, 28 June 2010, p. 36.
 "Quantitative easing" is an increase in the base money supply, a monetary policy action taken if and when official interest rates have hit zero percent. The term was made public by the Bank of Japan, which adopted a policy of "quantitative easing" from March 2001 to March 2006. See, for instance, Ugai, H., Effects of the Quantitative Easing Policy: A Survey of Empirical Analyses, Bank of Japan Working Paper Series, No. 06, July 2006.
 For instance, ECB president J.-C. Trichet said before the European Parliament's Economic and Monetary Affairs Committee on 21 June 2010, As the aim of the programme is not to inject additional liquidity into the banking system, we fully neutralise the bond purchases by means of specific re-absorption operations. As a result, the prevailing level of liquidity and the money market rates are not affected by the programme. In other words, our monetary policy stance is not affected, and there are no inflationary risks related to this programme.
 "Ample liquidity" has become a widely-used term. See, for instance, Bank of France Bulletin Digest, No. 158, February 2007, pp. 1–2; also Hirose, Y., Ohyama, S., Taniguchi, K., Identifying the Effect of Bank of Japan's Liquidity Provision on the Year-End Premium: A Structural Approach, Bank of Japan Working Paper Series, No. 09, E6, December 2009.
 ECB press statement: "ECB decides on measures to address severe tensions in financial markets," 10 May 2010.
 Note that there is a reverse relationship between a bond price and the return on the bond: if the market interest rate rises (falls), the price of the bond declines (rises). So a minimum-price policy is essentially the same as a maximum-interest-rate policy.
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