Since 2008, the Federal Reserve has more or less printed over $1.6 Trillion in two rounds of “Quantitative Easing”.  Many have speculated that this has to result in inflation for the simple reason that there are more US Dollars out there than ever before.  That’s based on the most fundamental principle of any market, supply and demand –more of these things called “Dollars” around and the value has to drop, meaning it takes more of them to make a reasonable exchange with something real.

It hasn’t worked out that way.  Inflation remains at around 2% per year as it has throughout the worst part of the Managed Depression, the financial crisis that started in 2007.  How on earth can that be?

The answer is that the number of US Dollars in the world is only one part of the equation.  The “velocity of money”, or the number of times they turn over in the economy, is equally important.  Data since 2007 shows what every freelancer and job seeker knows – it’s a tough world out there, and people are pretty slow to let go of the dough they have.

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The announcement came after the closing bell, after the noise of the day was over.  Moody’s bond rating agency cut the rating for 15 banks in the US and Europe, hitting all of the big ones at one.  JP Morgan, Goldmann Sachs, Morgan Stanley, Barclays, Credit Suisse, Deusche Bank, Société Générale – pretty much every major investment bank was hit with major downgrades.

Reaction in the press was swift. “This has been a long time coming” was one way of putting it, with speculation that “Should any major bank be considered investment grade?”  The entire financial system is downgraded at once and it was something like a big yawn.

But there is a story here.  True, it has been moving in slow motion for a long time, so a downgrade by Moody’s is just one event in a long chain.  But it still means something, and the effects of this may ripple for a long time.

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In the US, when a bank fails the FDIC swoops in to take control.  Often arriving on a Friday, a bank that cannot meet its obligations is often completely re-organized and recapitalized over the weekend and opens for business on Monday as if nothing happened.  The executives are pushed out to the street and new management is found, often another bank that can take over as soon as possible.  They’ve done this 30 times so far this year. It’s all paid for by insurance premiums paid over categories of risk at all banks across the US.

In Europe, they don’t have such a mechanism.  They have something called “Emergency Liquidity Assisitance” (ELA) which is run through the central banks of the member nations.  No one knows which banks are getting this money, and the executives to run them as usual.  The exact amount has been buried in the balance sheets of the European Central Bank (ECB) as “other claims”, so we don’t even know how much it is.  But as money flees Greece and some other nations there’s a whole lot more “other” floating through Europe.  And the secrecy shows just what’s wrong with a banking system set up by and for bankers.

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What will it take to solve the Euro crisis?  It’s an important question because no one professes to have the actual answer for the long term.  Injecting €100B or so into Spanish banks does nothing more than buy time – the real problem is that they cannot service the debt they have now or in the foreseeable future.  Ditto for Greece, which would prefer to grow its way out of the problem but does not have an economy that is capable of doing this.

So what is the solution?  There may not be one in Europe or anywhere else.  In other words, collapse may be inevitable.  It’s worth looking at this worst-case scenario not just to prepare for it somehow, but because it suggests that eventually we’re going to have to push a big, red button labeled RESET.

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Bad news is good news, at least in stock markets around the world.  If that doesn’t make any sense, you’re far from alone.  But you are on the wrong side of the most important trend around the world right now, which is the fine art of printing (and eventually incinerating) money.

In the last 4 years, central banks in 4 of the 6 largest currency zones (Euro, US, Japan, and UK) have literally printed about $6 trillion, or 5 weeks worth of total production in those places.  Markets are excited by the fact that things look so weak that they are about to print even more.

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