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“Worth A Shot” Economics

05 May

Janet Yellen: the Fed's "It's Worth A Shot" Gunslinger [courtesy Google Images]

Janet Yellen: the Fed’s “It’s Worth A Shot” Gunslinger
[courtesy Google Images]

Casey Research recently published an article entitled “Let’s Try Giving out Free Cash”. Well, that certainly sounds like an idea that could catch on with the general public. But what’s it all about?

It’s about government trying to stimulate the economy by handing out free “helicopter money” directly to all the people rather than to the “too big to fail banks”.

Casey Research explained:

 

“Economist Milton Friedman coined the term “helicopter money” in the 1960s. He said that in the event of an economic contraction, the government could drop free cash from helicopters to stimulate the economy. People would spend the free money, causing the economy to grow. Friedman likely never took the cartoonish idea seriously. However, last week, former Fed chairman Ben Bernanke said helicopter money could be worth a shot.”

Gee, there’s a slogan sure to inspire public confidence: “Helicopter money—it’s ‘worth a shot!”

In fact, Bernanke’s language cuts confidence. He sounds about as competent as a high school sophomore experimenting on a dying lab rat in biology class who says, “Let’s give ‘im a shot of the stuff in the green jar—maybe that’ll help.”

Bernanke continued:

 

“[H]elicopter money could prove a valuable tool since it should work even when more conventional monetary policies are ineffective and the initial level of government debt is high.

“To implement, the government would likely give out free cash by mailing checks to people, or depositing money directly into people’s bank accounts.”

“Under certain extreme circumstances—sharply deficient aggregate demand . . . exhausted monetary policy, and unwillingness of the legislature to use debt-financed fiscal policies—such programs [“Helicopter Money”] may be the best available alternative. It would be premature to rule them out.”

Bernanke implicitly argues that:

 

  1. Our current economic circumstances are “extreme”;
  2. Total consumer demand is down;
  3. The Federal Reserve is exhausted and unable to provide more monetary stimulation (QE) for the economy;
  4. Congress can’t or won’t borrow enough money to stimulate the economy back to a “recovery”. And, therefore, since nothing else works,
  5. They might as well “take a shot” at “Helicopter Money”. What can we lose, huh?

 

If “Helicopter Money” doesn’t work, maybe Obama will try begging consumers to please, please go out and buy something.

Casey Research:

 

“Therefore, economists are considering the distributions of another dose of ‘helicopter money’—but this time give it directly to the people instead of the banks.

“Nouriel Roubini is one the world’s most influential economists. He recently wrote an article entitled “Central Bankers May Have to Fire up the Helicopters.”

“Richard Clarida, an economist at Columbia University, predicts we will see helicopter money within five years.

 

Five years? Nowadays, predictions of that length make me smirk.

Today’s world is so unstable, volatile andunpredictable, that you’ve got to be a prophet to make accurate predictions for five weeks from now.

In the next five years, we’ll likely see recession, depression, inflation, deflation, a new currency, an economic collapse, a recovery, and maybe a nuclear World War III. More significant event may happen in the next five years than have happened in the past 25 or even 50.

But right now, we keep hearing from the Fed that:

 

1) The Federal Reserve is out of tricks and is incapable of using previous monetary strategies (like QE and ZIRP) to revive the economy; and

2) The federal government is unwilling or unable use fiscal policy (meaning more taxes, benefit cuts, or more borrowing) to shore up the economy.

 

I believe the Fed is telling (or implying) the truth. I believe the Fed is currently incapable of doing much more to “stimulate” the economy with monetary policy.

If the Fed’s not fibbing, then only the federal government remains to save us with fiscal policy that focuses on raising (or lowering) taxes, borrowing more (or less) currency, and/or increasing (or cutting) entitlements.

 

• But this is an election year. In fact, it’s one of the most extraordinary election years anyone’s seen since WWI.

If this wasn’t an election year, maybe the federal government could implement a new fiscal policy that raised taxes, cut benefits or borrowed more to stimulate the economy. That new fiscal policy would be painful and unpopular, but it might actually work to revive the economy. However, given the coming election, no politician wants to risk enraging voters by raising taxes or cutting entitlements.

Thus, it’s very unlikely that government will make a significant change in fiscal policy during the balance of A.D. 2016.

 

Ten years ago, faced with similar economic problems and without the inhibitions imposed by election-year politics, the federal government might not have raised taxes or cut benefits. (When, since WWII, has government ever raised taxes or cut benefits sufficiently to repair economic problems?) But government could’ve “kicked the can further down the road” by just borrowing more currency to inject into—and thereby stimulate—the economy.

However, for the past several years, private lending sources previously available to government have largely dried up. Creditors suspect that the U.S. government won’t be able to repay its staggering National Debt and is therefore reluctant to lend more to Uncle Sammy.

Result? Since the onset of the Great Recession, the Federal Reserve has become the “lender of last resort” and the federal government’s principle source of borrowed currency.

But. For the past 12 to 18 months, the Federal Reserve has been feeding us a growing diet of “there’s nothing else we (the Fed) can do”.

As I wrote previously, I believe them. And when the Federal Reserve says “there’s nothing else that we can do,” I believe they mean that they can’t lend much more additional currency to the federal government.

 

• Contrary to popular belief, the Fed can’t “spin” more fiat dollars into existence by simply firing up the printing presses. There are limits. The Federal Reserve appears to be close to those limits and therefore can’t lend much more.

Principle among those limits may be the Fed’s balance sheet. I doubt that the Fed can “spin” more fiat dollars into existence without causing their balance sheet to fall deeper into negative territory where their debts exceed assets and the Fed may become technically bankrupt..

I’m sure that the private owners of the Federal Reserve don’t want to push their balance sheet closer to technical bankruptcy. But, regardless of what the Fed’s owners may want to do, I doubt that they’re even capable of safely “spinning” much more fiat currency into existence. I think they’ve hit an accounting limit that prevents them from printing more “Helicopter Money”.

If I’m right, the government can’t borrow more currency to paper over its current debt problems. Private creditors refuse to lend much more to the federal government and the Federal Reserve may be likewise unable or unwilling to lend more to the federal government.

 

• The private lenders’ refusal to continue to support government in the style it’s become accustomed to can’t be a surprise. In the past seven years of the Obama administration, the National Debt has doubled. President Obama has borrowed more money than all of the previous 43 presidential administrations combined.

Do you need a PhD in economics or accounting to realize that maybe, just maybe, the federal government is now so deeply indebted that it’s become a bad credit risk and you shouldn’t lend it any more currency or trust it to manage your wealth?

If the Federal Reserve can’t print enough new dollars to stimulate the economy, and the federal government can’t borrow enough new currency to to stimulate the economy, the federal government has only three solutions left to escape its debt problems and stimulate the economy: 1) raise taxes; 2) cut benefits; and/or 3) initiate hyperinflation to reduce the real size (purchasing power) of the massive National Debt.

 

• But, again, 2016 is an election year. No incumbent politician is willing to antagonize the voters and risk losing his job just to do what’s necessary—but painful—to save the US economy. In fact, no incumbent politician is even willing to break the bad news to voters: the National Debt is too big to be repaid in full and therefore promises of pensions, So-So Security, entitlements, subsides and welfare will have to be substantially repudiated.

Those Americans who think they’re going to get a substantial sum of currency from the federal government over the next several years are in for a surprise. No one wants to talk about that surprise because everyone is pretty sure it will be massive, shocking and painful.

Therefore, I suspect that between now and the November election that—unless we see a real economic catastrophe in the meantime—the Federal Reserve can’t, and the federal government won’t make any changes in monetary or fiscal policies that are likely to significantly stimulate and revive our economy.

I don’t think we’ll see “helicopter money” from the Federal Reserve in A.D. 2016. I’m sure we won’t see tax increases from the federal government this election year. I doubt that we’ll see any significant increase in borrowing by the federal government. There could be some reductions in benefits, but they’ll be relatively minor and unlikely to provoke widespread rioting among government’s dependents—at least not until after the election.

Assuming that we don’t fall into an economic collapse before the November election, you can bet that our circumstances will be so dire in A.D. 2017, that we will then see higher taxes and/or substantial cuts in entitlements and/or the beginning of hyperinflation. But I still doubt that the federal government will be able to freely borrow as much as it has in the past. I think big government’s “days of wine and roses and unlimited borrowing” are just about finished.

In fact, I think that after Obama leaves office, his “signature achievement” won’t be Obamacare but the fact that he’s just about destroyed the U.S. government’s credit rating and ability to go deeper into debt. The next President and Congress will have to find a way to maintain the economy without much more borrowing. Americans will scream. That’ll be unpleasant but possibly necessary and probably good—in the long run—for our economy.

For the moment, however, “Happy Daze” are here again.

Well, maybe not all that “happy” just now, but far happier than they’re going to be starting in A.D. 2017. In fact, the day may be coming when Americans long for the “good old days” when President Obama ruled the roost. Until after next November’s elections, these are the “good old days”. You’d better enjoy them while you can.

But, starting in A.D. 2017, Katy bar the door!

Our “happy daze” of big borrowing, low interest, low inflation, low taxes, and substantial entitlements will vanish into the myths of time. America will soon be forced to face and accept hard economic realities rather than economic theories and fantasies like QE, ZIRP, NIRP and “Helicopter money”.

 

• I doubt that any of us will enjoy the coming reality. I also doubt that any of us can stop it from coming.

What we can stop is being a government dependent.

Government is going to fail. It’s borrowed as much money in the past 7 years as it had borrowed in the previous 228 years. If can’t raise taxes very much in a recession. It can’t borrow more money. It therefore can’t pay it’s existing debts.

That means the existing debts (including welfare, subsidies, entitlements, pensions and So-So Security) must be repudiated, at least in part.

And that means that those Americans who rely on government for their financial support are in for a big and painful surprise.

Therefore, I suggest that every Americans find a way to support himself without relying on government welfare, pensions, entitlements and subsidies. Protect your savings. Cut your expenses. Get a job or a skill that might last through the coming debacle.

 

• Of course, I could be wrong. Things may not be as grim as I suggest. Maybe our “circumstances” aren’t as “extreme” as Mr. Bernanke has implied. Maybe economic “stimulation” will suddenly take hold and the economy will shine.

But, even if all that were true, would you be hurt by following my advice to protect your savings, cut your expenses, and get a job, skill or business that could support you in tough times?

On the other hand, if I’m right and you don’t follow my advice, what’ll happen to you?

To paraphrase an old cliché, “a year of prevention is worth a decade of cure.” We might still have a year—or at least six months—to get ready for the coming debacle.

In our “take a shot” economy, it’s time for all of us to buckle up.

 

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8 responses to ““Worth A Shot” Economics

  1. Ralph P. Torello

    May 5, 2016 at 10:50 AM

    • But this is an election year. In fact, it’s one of the most extraordinary election years anyone’s seen since WWI.

    FALSE. Donald Trump hosted a television game show for over 10 years. He is more like a “Dalai Lama” historical figure than any Woodrow Wilson, Herbert Hoover, or Jimmy Carter. Hilary Clinton’s speeches (as you pointed out) are just computer generated gibberish totally unrelated to territory whose largest population percentage is now Spanish speaking (Former: Texas, Arizon, Souther Cal, Florida, OK, NM, AZ, etc…)

    • And that means that those Americans who rely on government for their financial support are in for a big and painful surprise.

    FALSE Million upon millions (billions? trillions?) of dollars are paid to office cubicle employees who sit in front of computer screens who do everything from Brain Control (electrical/microchips inside American’s bodies), to answer telephones, to sit and read news.yahoo.com!!! These companies do not heed the standard rules of accounting. Take for instance BBVA Compass. Is this bank really meeting expenses to pay it’s executive employee salaries? Probably not. Does it pay it’s executives huge sums of money in salary anyway? Yes. Why? Nobody gives a care about FINANCIAL OVER-SIGHT here in DFW.

    • I don’t think we’ll see “helicopter money” from the Federal Reserve in A.D. 2016.

    FALSE. Prior to 1970/1960, words like “helicopter money” would have been referred to by the more mundane label “corruption.” Now-a-days BOGUS ACCOUNTING is THE NEW NORM. As I said, as long as the shelves are stocked at super-stores, and the food canneries are running at full capacity – inflation and hyper-inflation-collapse (Weimar Germany) CANNOT occur. Free goods from Asia Pacific play a huge role in this situation. Quote-end-Quote “Helicopter Money” IS THE NEW NORM for big corporations. It’s (the repugnancy, the corruption) is just NOT REPORTED in the news.

    • Contrary to popular belief, the Fed can’t “spin” more fiat dollars into existence by simply firing up the printing presses. There are limits.

    FALSE. Paying salaries with “digi-dollars” – money printed out of thin air on a computer spreadsheet – is easy as long as the workers who do the *ACTUAL* *WORK* (Chinese Factories in GuangDong province, China) – do their work FOR FREE. The hedge to inflation is no longer “borrowing” … it is “free labor from the CPC” (Communist Party of China).

    • For the moment, however, “Happy Daze” are here again.

    FALSE. DRUGS are here again. The government drugs millions of people into submission. Thousands of Wal-Mart employees are just drug addicts in an “under-cover opium den.”

    • The Federal Reserve is exhausted and unable to provide more monetary stimulation

    NOT REALLY. The Federal Reserve is a “relic” or an “anachronism” of the past. Corporations can operate in the red to generate money. Stocks prices (the real source of the fiat “value”) are pumped sky-high when corporations hold American’s as hostages.

    ======================================================================

    Janet Yellen is just a “crisis actor” who plays like “Old Ma Hubbard” who just “won the bake-off” in downtown Washington.

    Donald Trump would be the “American Dali Lama.” He is literally a 10-year-veteran of GameShow TV!!!

    I have *no idea* what office-employee-masters in DFW would do in a “Hillary Clinton Presidency.” These people really do not represent DFW anymore.

    The NorthEastern Quadrant (“Old America” – New York, New Jersey, Pennsylvania, Ohio, Virginia, Massachusetts, Connecticut, North Carolina)

    … HAS BECOME A TOTALLY DIFFERENT NATION THAT THE SOUTH & SOUTH-WEST. Unless you want to continue to hear about “Hispanics” versus “whites” … We’re just very different nations these days… Here in DFW – if you want to get anything done… YOU SPEAK SPANISH… If you want to fight & argue about BS – you speak English… (unfortunate for me… anyway)

    GO TO Philadelphia, Pittsburgh, Boston, Connecticut, NYC, or Baltimore and see for yourself!

     
  2. Ralph P. Torello

    May 5, 2016 at 12:25 PM

    For the last time…

    As long as: The cost to manufacture goods – washers, dryers, refrigerators, freezers, ovens, ranges, dish-washers, TV’s, iPod’s, iPad’s, blenders, text-tiles, shoes, hardware

    IS ESSENTIALLY ZERO (allowing the CPC – Communist Party of China to control that aspect)

    the word “inflation” is a TOTAL JOKE and it really is, in actuality, THE LARGEST DISINFORMATION CAMPAIGN of all! It has reared it’s ugly head in your blog because you have implants.

    ===============================================================

    DEAR MONT-SENIOR ALFRED ADASK…..

    What about “Big Oil” ??? – This is a huge part of the finance & economy (slavery) in the Southern Part of (former) America! You say nothing! Those workers are likely slaves… and… 50% Mexican… You remember Charlie Torello, right? He was a rigger for a while! Did you not see blatant “price fixing” the entire 8 years of Obama?

    What about “Big Coal” – TXU, and the “Koch Brothers,” T. Boone Pickens, etc. – you say nothing!!! Why!!!??? This is a large part of “the economy” (whatever the hell that is!) What the hell is this “billing department olympics” – a.k.a. fighting with customer services professionals about paying 8.9, 9.9 or 10.9 cents per kilowatt hour???? What the hell is that?

    What about “The Big Three” – automobile manufacturing facilities in San Antonio, Fort Worth & Dallas – you say nothing!!!

    Get with the times!!! hahaha 你不懂事情 (you missed the big picture this time…)

     
  3. Ralph P. Torello

    May 5, 2016 at 5:29 PM

    https://en.wikipedia.org/wiki/Send_in_the_Clowns

    Isn’t it rich?
    Are we a pair?
    Me here, at last, on the ground
    You in mid-air
    Send in the clowns

    Isn’t it bliss?
    Don’t you approve?
    One who keeps tearing around
    One who can’t move
    Where are the clowns?
    Send in the clowns

    Just when I’d stopped opening doors
    Finally knowing the one that I wanted was yours
    Making my entrance again with my usual flair
    Sure of my lines
    No one is there
    Don’t you love farce?
    My fault, I fear
    I thought that you’d want what I want
    Sorry, my dear
    But where are the clowns?
    There ought to be clowns
    Quick, send in the clowns

    What a surprise!
    Who could foresee?
    I’d come to feel about you
    What you felt about me
    Why only now, when I see
    That you’ve drifted away?
    What a surprise
    What a cliche

    Isn’t it rich?
    Isn’t it queer?
    Losing my timing this late in my career
    And where are the clowns?
    Quick, send in the clowns

    Don’t bother
    They’re here

     
  4. timmy

    May 5, 2016 at 7:38 PM

    We are approaching the end of the classic fiat money curve. It goes exponential at the end and then collapses. Which they know, and I think they actually want. Then they can implement two of their core dreams: one global monetary unit, and two digital only medium of exchange.

    I think you misunderstand the nature of the fed’s balance sheet. Look at a ten year chart; clearly there is no limit to how far they can expand it. Remember, they are creating the “assets” that go on that side of their ledger. Of course somewhere there is a practical limit; i assume it is when confidence collapses. That is a psychological event, not a numerical or monetary one.

    They are now ‘pushing on a string’ in classic parlance. Meaning, people are scared to spend, and the velocity (not quantity) of money is WAY down. That’s why no inflation. That’s why no real economic growth. You can create all the money you want, but if the public is not in an expansionist, creative mood/mode, it won’t make any difference. We’re at that point, which is why the fed is saying and doing so many strange things. The normal game is over.

    The same dynamic is why europe has gone to negative interest rates. Something you will likely see here in the USA soon enough….

    PS Could someone help Ralph refill his prescription?

     
  5. Ralph P. Torello

    May 6, 2016 at 10:18 AM

    Ralph’s “prescription” is AUTOMATICALLY re-filled. Anytime you walk into a Wal-Mart, McDonald’s, or any glorified opium den – you receive a dose.

    You incessantly and others (Al Adask) bring up interest rates. Why? Who even borrows? What borrowing do you think goes on in the first place here in DFW? Dallas is powered mostly by small businesses. Big Business is a fraud and doesn’t worry about borrowing.

    Interest Rates never were very important. They were never much of anything. The words “discount rate” started flourishing in the 1980’s – and perhaps you know, perhaps you don’t – the number of lives lost in, for example, DFW was so large – that money had no meaning at all.

    In 1990, I was 15 years old. I worked at one of maybe 4 functioning restaurants in Richardson, Texas. It was a “Braum’s Ice Cream & Dairy.” I was at J.J. Pearce at the time – studying my butt off. I was accepted at Harvard in 1993 – but went to M.I.T. While at Braum’s Ice Cream & Dairy – at this Ice Cream Store ALONE – I think 40% of the employees died due to military & drug violence.

    In 1990/1991 – You could walk in to Richardson Savings Bank – say… and tell them “I need a few thousand dollars” – and they hand you the money, and not even give a crap about even asking for what account you had with them!

    That’s a fact! When you ask – why is Dallas 40% Hispanic now – it’s because we DIED. The WHITE DIED! 1983-1994 was 40% attrition of the population of Texas. Al Adask used to know this – and wrote about in the Anti-Shyster magazine.

    Words like “Discount Rate,” “Federal Funds Rate,” never had any meaning at all! They are ways to “allude” to the greatness of New York City and J.P. Morgan, Carnegie, Rockefeller, Vanderbilt – they hey-day of America – when industrialists built up the North-East. They didn’t care much about interest rates – they utilized finance/money to build sky-scrapers, buildings, telephones grids that had never existed, the world’s first electric grid (first on planet earth)… etc…. Money & Banking built American starting largely with Ulysses S. Gran’ts Administration (1875 approximately) and continued until the 1930’s/1940’s (Herbert Hoover & FDR). In the 40’s, 50’s, 60’s, 70’s it was WAR, WAR, WAR. Tora! Tora! Tora!

    The “Discount Rate” has never, here-to-fore, had any meaning at all other than as a tool for “the clowns” to give us motivational speeches on television. If I had a good idea – and the idea was for a small business, the difference between 0%, 1%, 2% & 3% means ABSOLUTELY NOTHING…

    If I have a “big idea” for “Big Business” – the majority of work is to related to interest rates – it’s related to hiring labor, finding natural resources, getting zoning cleared with the government, etc…

    Don’t joke about drugs, prescriptions, or medications with me or anybody – you probably receive more medications every time you turn on your water faucet. It’s how the Office-Cubicle-Space “the illuminati” (if you will) work!

     
  6. timmy

    May 6, 2016 at 10:56 AM

    I would suggest not telling other people what to do, or not do. And I don’t drink tap water. If you think that them moving to negative interest rates has no meaning or effect, I wish you luck. You’ll need it. You confuse my observation of facts with my endorsement of the policies driving them.

    They control the system in place and the levers. Rambling and raving erratically changes nothing. I believe one key to life is to deal with reality AS IT IS, not as I wish it would be.

    There is probably a free counseling center somewhere in your county. If you don’t want to go to a government one, you could probably find a church or non-profit provided place. Give it a shot. You never know what will help…

     
  7. Ralph P. Torello

    May 6, 2016 at 11:07 AM

    Huh? That’s exactly how “bad guys” talk.

    #1) Condemning people as of in need of being confined, incarcerated, or having their freedom/liberty taken from them is the true mark of the beast!

    #2) I have presented facts – that I know are true, and shown how those facts would support my “opinions” about what *really* *is* the total uselessness of the “discount rate.”

    The Discount Rate and Federal Reserve Bank are figments of the 1980’s and Reagan-Bush-Gorbachev Administration’s attempt to Whitewash all the wars of the years 1940-1975. It was *not* in *any-way* a return to the Big Business ideals of the America’s Hey-Day:

    For Instance:

    * Vanderbilt: and agriculture
    * John Pierpont Morgan: Banking, Subways, Telephone Grids, & Trains (Manhattan)
    * Carnegie: Big Steel (the world’s first steel company)
    * Rockefeller: Big Oil (the world’s first oil corporation
    * Ford: Automobile’s (the world’s first automobile corporation)

    Most people in Dallas are *very* *very* ignorant of American History. I am not saying that this is the case with you, because I haven’t heard enough. Never-the-less “proclaiming the virtues and values” of a sensible interest rate HAS ALWAYS BEEN A DISMAL FAILURE at bringing back the 1920’s and Peace-Time-Economic-Expansion of yesteryear.

    It largely started with Reagan-Bush-Gorbachev – and achieved nothing but P.R., propaganda and LIES….

     
  8. Michael

    May 8, 2016 at 3:44 PM

    I would say Timmy is correct about the Fed being able to continually print and the issue with velocity. The problem with the velocity is the corporations are hoarding record amounts of cash and/or buying back stock which really does nothing for the economy. Monetarist Milton Friedman was also correct that helicopter money will work. What they worry about when it comes to helicopter money is people not spending enough and paying off their debt instead which would have the reverse effect and why it is the last resort. If we don’t get out of the QE/NIRP/ZIRP/HM phase the IMF will take over and we will be moved to a Global Currency with SDR’s and may not even know it.

     

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