Debt: The first five thousand years

[Weather Balloons]

These are pretty well done. I like the call for jubilee for sure. For some reason I get a little uncomfortable when the host uses the word "banksters" (I guess I feel it's in poor taste). It also makes me chuckle a bit though.

[bluenoseclaret]

"....since quantitative easing is not something that occurs without limitation or attention to circumstance, but rather something that occurs only in a deflationary environment when it's the only option available,..."

I am sceptical of the effects of "Q.E" has on the real ecomomy . I feel it just pours into a financial/derivative black hole.

Why not do the following instead:

Some Possibilities That Might Be More Effective at Stimulating the Economy

"..An injection of money into the pockets of consumers would actually be good for the economy, but QE3 won’t do it. The Fed could give production and employment a bigger boost by using its lender-of-last-resort status in more direct ways than the current version of QE.

It could make the very-low-interest loans given to banks available to state and municipal governments, or to students, or to homeowners. It could rip up the $1.7 trillion in government securities that it already holds, lowering the national debt by that amount (as suggested a year ago by Ron Paul). Or it could buy up a trillion dollars’ worth of securitized student debt and rip those securities up. These moves might require some tweaking of the Federal Reserve Act, but Congress has done it before to serve the banks.

Another possibility would be the sort of “quantitative easing” first proposed by Ben Bernanke in 2002, before he was chairman of the Fed—just drop hundred dollar bills from helicopters. (This is roughly similar to the Social Credit solution proposed by C. H. Douglas in the 1920s.) As Martin Hutchinson observed in Money Morning:

With a U.S. population of 310 million, $31 billion per month, dropped from helicopters, would have given every American man, woman and child an extra crisp new $100 bill per month.

Yes, it would produce an extra $31 billion per month on the nominal Federal budget deficit, but the Fed would have printed the new bills, so there would have been no additional strain on the nation’s finances.

It would be much better than a new social program, because there would have been no bureaucracy involved, just bill printing and helicopter fuel.

The money would nearly all have been spent, increasing consumption by perhaps $300 billion annually, creating perhaps 3 million jobs, and reducing unemployment by almost 2%.

None of these moves would drive the economy into hyperinflation. According to the Fed’s figures, as of July 2010, the money supply was actually $4 trillion LESS than it was in 2008. That means that as of that date, $4 trillion more needed to be pumped into the money supply just to get the economy back to where it was before the banking crisis hit.

As the psychological boost from QE3 wears off and the “fiscal cliff” looms, perhaps Congress and the Fed will consider some of these more direct approaches to relieving the economy’s intractable doldrums."

Kro

[bluenoseclaret]

Wombaticus Rex .....thanks for the links.

http://seekingalpha.com/article/274561- ... ctually-go

"..The Fed’s plan since the beginning has clearly been to extend the game as long as possible, keep the yield curve as steep as possible, and hope that global economic growth would re-capitalize these banks before the piper was called. For a while it looked like they would be able to do so. Now, not so much and I am frankly terrified at the prospect of what happens next...."

http://www.artemiscm.com/wp-content/upl ... s-End1.pdf

"...We fear deflation so much that we have complete faith in the same institutions that failed to foresee it and their judgment in scaling back an
unprecedented monetary experiment before we veer into hell...."

There seems to be a common theme.

I believe it was Max Keiser who said that there was record high bond prices in the UK. There must be a limit to this bubble.

Kro

[Wombaticus Rex]

There must be a limit to this bubble.

Probably not. My dad thought the same thing in the 70's.

[compared2what?]

"....since quantitative easing is not something that occurs without limitation or attention to circumstance, but rather something that occurs only in a deflationary environment when it's the only option available,..."

I am sceptical of the effects of "Q.E" has on the real ecomomy .

Its microeconomic effects were negligible, apart from the people-not-finding-themselves-living-in-a-collapsed-insolvent-world thing that I mentioned.

I feel it just pours into a financial/derivative black hole.

That's an understandable feeling. What it's not is a true and accurate fact. Because it did have the measurable, quantifiable macro effect clearly displayed on the handy-dandy chart on the previous page of this thread. And it did not have any particular effect on financial or derivative markets that made some inherently bad thing about them exponentially worse.

It's a short-term anti-deflationary measure, and that's all. Even though the United States was in as good a position as it's possible to be to employ it strategically without much risk simply because treasuries are what they are -- ie, a safe-haven asset on a par with gold when times are bad -- it wasn't and isn't a happy, healthy economic thing to do, by definition. Things are really, really bad.

I don't really know what else to say. QE1 was necessary, not just here but globally. The other rounds are a little more equivocal and also more than a little inherently not-good-news-ish. They've kept the housing market from going into free-fall. And they can probably keep doing that lone single thing for a long, long time without doing much damage elsewhere. That's something. But it isn't real recovery. Or even a step towards real recovery. It's just a way of keeping the patient alive, more or less.

Why not do the following instead:

Some Possibilities That Might Be More Effective at Stimulating the Economy

"..An injection of money into the pockets of consumers would actually be good for the economy, but QE3 won’t do it. The Fed could give production and employment a bigger boost by using its lender-of-last-resort status in more direct ways than the current version of QE.

Well. For the sake of thoroughness, I feel obligated to note that, via many twists and turns, the current version of QE will probably ultimately indirectly keep people in their homes in larger numbers than they'd be without it, in conjunction with the other rounds. But that's obviously a very attenuated and not very noticeable benefit, on the ground.

Apart from that, I agree that direct assistance would be better, though not necessarily cash, exclusively. We don't do much of that here, however. Because we don't believe in helping people in need. We believe in freeloaders and low taxes. Not me, personally. I just mean it's the national ethos.

It could make the very-low-interest loans given to banks available to state and municipal governments, or to students, or to homeowners. It could rip up the $1.7 trillion in government securities that it already holds, lowering the national debt by that amount (as suggested a year ago by Ron Paul). Or it could buy up a trillion dollars’ worth of securitized student debt and rip those securities up. These moves might require some tweaking of the Federal Reserve Act, but Congress has done it before to serve the banks.

I'd rather see something a little more WPA-ish. We could use the infrastructural and cultural boost.

What on God's green earth do you think it would accomplish to rip up $1.7 trillion in government securities? It's true that it would lower the figure that appears on the balance sheet as debt. But those are not liabilities. They're assets. The taxpayer profits rather than loses by their existence.

Another possibility would be the sort of “quantitative easing” first proposed by Ben Bernanke in 2002, before he was chairman of the Fed—just drop hundred dollar bills from helicopters. (This is roughly similar to the Social Credit solution proposed by C. H. Douglas in the 1920s.) As Martin Hutchinson observed in Money Morning:

With a U.S. population of 310 million, $31 billion per month, dropped from helicopters, would have given every American man, woman and child an extra crisp new $100 bill per month.

Yes, it would produce an extra $31 billion per month on the nominal Federal budget deficit, but the Fed would have printed the new bills, so there would have been no additional strain on the nation’s finances.

Sure. But they'd be....what's the phrase I'm looking for? Oh, yes: Creating money out of thin air.

In exactly the way that can lead to hyperinflation, assuming the wage-inflation element develops. I mean, it would be politically impossible even if it were advisable, of course. So there's also that.

It would be much better than a new social program, because there would have been no bureaucracy involved, just bill printing and helicopter fuel.

And high inflation, maybe hyper.

The money would nearly all have been spent, increasing consumption by perhaps $300 billion annually, creating perhaps 3 million jobs, and reducing unemployment by almost 2%

Wait. What? Where does the job creation come in? Also how and why? What's the hedge against inflation?

None of these moves would drive the economy into hyperinflation.

I really have to stop responding line by line.

According to the Fed’s figures, as of July 2010, the money supply was actually $4 trillion LESS than it was in 2008. That means that as of that date, $4 trillion more needed to be pumped into the money supply just to get the economy back to where it was before the banking crisis hit.

Hm. I have to check something. Maybe I'm confused. As I easily am. But on an interim basis, I'm reasonably sure that the thing about that is:

No, it doesn't!

IOW: That's not really how monetary policy works, per my understanding.

As the psychological boost from QE3 wears off and the “fiscal cliff” looms, perhaps Congress and the Fed will consider some of these more direct approaches to relieving the economy’s intractable doldrums."

I don't think it really has a psychological boost, per se. That's kind of the problem with it. It's not stimulus spending.

I very much hope they do take a more direct approach, though.

[compared2what?]

I believe it was Max Keiser who said that there was record high bond prices in the UK. There must be a limit to this bubble.

Kro

One could say the same thing about gold. As a commodity. I'm not sure I'd say it this minute. But still. It's inflated. Or was quite recently, anyway.

[compared2what?]

The money would nearly all have been spent, increasing consumption by perhaps $300 billion annually, creating perhaps 3 million jobs, and reducing unemployment by almost 2%

Just a thought, but the closest real-world analogy to that kind of increase in cash available for job creation via consumption which springs to mind would be the 1920s. So I think, though I'm not certain, that what you'd really get from that would be something akin to: First, consumption leads to Cadillacs becoming popular. Then cash availability leads to everybody opening Cadillac dealerships. Then pretty soon there's nobody left to buy a Cadillac who can't buy one from himself. So all the dealerships fail. And then there's a run on banks.

Maybe not, though.

[JackRiddler]

There must be a limit to this bubble.

Probably not. My dad thought the same thing in the 70's.

Of course there is, we're just not going to predict the timetable or the sequence.

[bluenoseclaret]

Number of views on the subject of "Quantitative Easing":

1....Why QE2 Failed: The Money All Went Overseas...07/11/11 11:....Ellen Brown

"On June 30, QE2 ended with a whimper. The Fed's second round of "quantitative easing" involved $600 billion created with a computer keystroke for the purchase of long-term government bonds. But the government never actually got the money, which went straight into the reserve accounts of banks, where it still sits today. Worse, it went into the reserve accounts of foreign banks, on which the Federal Reserve is now paying 0.25-percent interest.

Before QE2 there was QE1, in which the Fed bought $1.25 trillion in mortgage-backed securities from the banks. This money, too, remains in bank reserve accounts collecting interest and dust. The Fed reports that the accumulated excess reserves of depository institutions now total nearly $1.6 trillion....."........

.....As for "quantitative easing," if the intent is to stimulate the economy, the money needs to go directly into the purchase of goods and services, stimulating "demand." If it goes onto the balance sheets of banks, it may stop there or go into speculation rather than local lending -- as is happening now....."

http://www.huffingtonpost.com/ellen-bro ... 92621.html

2....How about quantitative easing for the people? ... Anatole Kaletsky AUGUST 1, 2012

".....

Suppose the new money created since 2009, instead of propping up bond prices, had simply been added to the bank accounts of all U.S. and British households. In the U.S., $2 trillion of QE could have financed a cash windfall of $6,500 for every man, woman and child, or $26,000 for a family of four. Britain’s QE of £375 billion is worth £6,000 per head or £24,000 per family. Even if only half the new money created were distributed in this way, these sums would be easily large enough to transform economic conditions, whether the people receiving these windfalls decided to spend them on extra consumption or save them and reduce debts......."

http://blogs.reuters.com/anatole-kalets ... he-people/

3...Who Benefits From QE?....September 25th, 2012.

"....U.S. households’ real estate assets are still languishing at $16 trillion, down sharply from $23 trillion in 2007 – however, the Fed’s quantitative easing programs have helped households’ stock market wealth bounce back to $21 trillion, close to an all-time high.
Importantly, the movement in stock prices relative to house prices is an excellent gauge of wealth polarization, and hence the relative strength of top-end versus mainstream consumer spending.....

."
http://www.247bull.com/who-benefits-from-qe/

4....Does Quantitative Easing Mainly Help the Rich?...14 Sep 2012

"...Economist Anthony Randazzo of the Reason Foundation wrote that QE “is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality.”...."

http://www.cnbc.com/id/49031991/Does_Qu ... p_the_Rich

5...The Federal Reserve’s Quantitative Easing 3.0: Who Benefits and Who Won’t? September 15, 2012 by jackrasmus

"..

But QE3 will have no more effect on job creation, housing, or general economic recovery than has its predecessor QEs. QE is not about boosting jobs, housing, or the real economy. QEs are about subsidizing investors and boosting stock, bond, derivatives, and commodity futures markets and therefore the capital incomes and returns of investors, both individual and corporate.............
....The significance of the Fed’s QE3 move therefore is there will continue to be free money in unlimited amounts to banks and investors to hoard or to speculate and play with, while it’s cuts in spending and disposable income for the rest of us...."

http://jackrasmus.com/2012/09/15/the-fe ... -who-wont/

6...Does Quantitative Easing Benefit the 99% or the 1%?... George Washington on 04/29/2012

"..Paul Krugman says that QE, expansive monetary policy and inflation help the little guy (the 99%) and hurt the big banks (the 1%).

Of course, followers of the Austrian school of economics dispute this argument – and say that it is only the big boys who benefit from easy money.

As hedge fund manager Mark Spitznagel argues in the Wall Street Journal, in an article entitled “How the Fed Favors The 1%”:......

"The Fed is transferring immense wealth from the middle class to the most affluent, from the least privileged to the most privileged. This coercive redistribution has been a far more egregious source of disparity than the president’s presumption of tax unfairness …."
"... and why government bonds are 'peaking' and gold is about to explode - as the safe-haven 'tie' between the two is about to be smashed apart..."

http://www.zerohedge.com/contributed/20 ... it-99-or-1

An Interesting Article:
It’s the Interest, Stupid! Why Bankers Rule the World..........By Ellen Brown..., November 08, 2012

"....In the 2012 edition of Occupy Money released last week, Professor Margrit Kennedy writes that a stunning 35% to 40% of everything we buy goes to interest. This interest goes to bankers, financiers, and bondholders, who take a 35% to 40% cut of our GDP. That helps explain how wealth is systematically transferred from Main Street to Wall Street. The rich get progressively richer at the expense of the poor, not just because of “Wall Street greed” but because of the inexorable mathematics of our private banking system............"

http://www.globalresearch.ca/its-the-in ... ld/5311030

Blue..."I am sceptical of the effects of "Q.E" has on the real ecomomy .."

C2W..

Its microeconomic effects were negligible, apart from the people-not-finding-themselves-living-in-a-collapsed-insolvent-world thing that I mentioned.

You appear prone to a touch of exagerration., I would appreciate any evidence for such a sweeping statement.

C2W.......

And high inflation, maybe hyper.

You do like to get a tad exciteable...

Kro

[slimmouse]

If i might be permittied to bust a few stupid mental bubbles throughout the course of this discussion.

QE has kept more people in their homes? Id love to see some evidence of that C2W.

The overall result of all of this is really very simple. The banking elite have sold the taxpayer a pile of toilet paper consisting of their own bad bets, which are now guaranteed by the rest of us. Its as in your fucking face as it can be. The winners have all run off with billions in bonuses in their pockets, the poor losers who have only made millions, pass that bill onto us.

Quantative easing. Dont give me that bullshit.

The Greeks seem to know it, as do the Spanish, along with increasing numbers of the rest of us. To me this isn't about people on the street wanting/expecting something for nothing. Its about a system thats fixed.

Fucking economic experts on T.V. Cut to the quick. Oh but you cant, cos you either dont understand shit, or if you do, youre scared of the consequences of saying what the real problem is.

[compared2what?]

You appear prone to a touch of exagerration., I would appreciate any evidence for such a sweeping statement.

Sure.

QE has kept more people in their homes? Id love to see some evidence of that C2W.

That's not actually what I said.

...

It took me a long time and a lot of effort to figure out how the secondary mortgage market worked. And I don't feel like knocking myself out repeating the whole thing for the benefit of someone who probably just won't respond if I do succeed in doing it cogently and clearly. So look it up yourself if you care.

ON EDIT: Sorry, slim. My bad. I can do better.

First of all, I would never try to give you bullshit, as I know perfectly well that you wouldn't take it as a gift.

Second of all, the both of you: YES. The money went to banks. That's true enough. I do not dispute it. I also do not cheerlead for QE. I just maintain that it did what it did.

Third: WRT slim's inquiry, the reason I said "ultimately" and "indirectly" and used all that other qualifying language in connection with the probable keeping of people in their homes in larger numbers than they would have been if the Fed hadn't bought up Freddiie-Mac- and Fannie-Mae MBS is that that's how Freddie Mac and Fannie Mae work: Ultimately and indirectly.

I'm actually not a fan of those agencies either. Because they're really only equivocally effective at doing what they're supposed to do for the same reason that QE does not provide direct relief to anybody but banks: The United States just doesn't do direct public aid, most of the time. Refuses to do it. That's a very longstanding problem. It's perpetuated by plutocrats in and/or funding both parties, but primarily and more absolutely so by the right. They get away with it by scarifying the public about debt and taxes. And that's been true in really almost exactly the same way for almost a century, with a little occasional fluctuation here or there.

Anyway. Freddie Mac and Fannie Mae are fucked up. And I also genuinely found the mechanics of what they do/how they work difficult to understand. Had to read about it a lot, then read about other stuff, then ask people to explain it to me, and so on. But fwiw, the most comprehensive explanations that I found online were at Calculated Risk. If you want to search for whatever info you're looking for there.

He's got an orientation. But everybody does. And at least you can read around it since he's thorough. Even still. I found it weedy.

[bluenoseclaret]

Evening C2W

I state..."You appear prone to a touch of exagerration., I would appreciate any evidence for such a sweeping statement."

Sure

You reply witha graph about inflation. Would you care to explain?

Thanks about the secondary market, I will look into it.

Don't forget there is always a better way of doing things. ( Whether Right/Left ..who cares....."Regulatory Capture"..with regard to government comes to mind)
Political Economy, most definitely should be scutinised..

Kro

[compared2what?]

Evening C2W

I state..."You appear prone to a touch of exagerration., I would appreciate any evidence for such a sweeping statement."

Sure

You reply witha graph about inflation. Would you care to explain?

Honestly, I don't think I would. If you're happy and satisfied with your understanding of the matter, I'm happy and satisfied with it on your behalf. ***

Thanks about the secondary market, I will look into it.

Don't forget there is always a better way of doing things. ( Whether Right/Left ..who cares....."Regulatory Capture"..with regard to government comes to mind)
Political Economy, most definitely should be scutinised..

Kro

Word.

_________________

*** ON EDIT: I meant that in an amiable, not a dismissive way. It's just a way of saying that you seem committed to your position, as I am also. And we disagree on some points. Which is fine.

[bks]

c2w? wrote:

Because they're really only equivocally effective at doing what they're supposed to do for the same reason that QE does not provide direct relief to anybody but banks: The United States just doesn't do direct public aid, most of the time. Refuses to do it. That's a very longstanding problem. It's perpetuated by plutocrats in and/or funding both parties, but primarily and more absolutely so by the right. They get away with it by scarifying the public about debt and taxes. And that's been true in really almost exactly the same way for almost a century, with a little occasional fluctuation here or there.

Because of this, it's important to take note of the exceptions, and ask what it is about them that pierce the elite consensus on direct aid. The most visible and obvious example of episodic direct aid is FEMA (post-Sandy, for instance). On the basis of a single visit and a couple of phone calls come government cash, directly deposited to personal bank account, completely painlessly. It was rather shocking.

So what allows for direct aid in these cases? For one thing, no huge centralized industry that handles home rebuilding (b/c then it would be just as easy to put money on account with Home Depot or whatever as it to give people their own money to do with what they want). The semiotics of natural disaster are another: hard to argue for austerity with images of life destruction all over the TV (whereas wiping out home value doesn't play as well on TV). Visibility is the key, IMO. Making financial crime/disaster visible will weaken the resolve against direct aid.

Also, QE is not really designed to help the public, I'm afraid. If it were, it could come with strings attached (as could other means of FC remedy) requiring that the money/credit be loaned or otherwise enter the real economy here in the good ol' USA (by, say, imposing a limit on arbitraging activities for any QE participant). Any system proposed to put restrictions on QE would of course both be objected to on right-wing ideology grounds, and also would instantly be gamed. So instead we have QE: a not-so-covert means for recapitalizing/mega-capitalizing banks.

[compared2what?]

Evening C2W

I state..."You appear prone to a touch of exagerration., I would appreciate any evidence for such a sweeping statement."

Sure

You reply witha graph about inflation. Would you care to explain?

Oh, all right. Briefly: The thing to note in that chart isn't the inflation, it's the deflationary plunge in '08/'09.

In one way or another, most mainstream economic thought would see that as a sign of near-total collapse of the global economy, under the circumstances. Meaning, for example "Milton Friedman and John Maynard Keynes would both regard it that way, though they'd disagree as to why and what to do about it."

The reason there's room for debate is that it's only happened in that way in the United States once, in the 1930s. So they're basically bickering about the details of The Great Depression. Causes, solutions, blah blah blah.

...

So. That's most mainstream economics.

As usual, the Austrian school holds that everyone else is completely wrong, because: (a) the problem is inflation, whether there is any or not; (b) the cause is government interference with markets; and (c) the solution is to just let everybody slug it out privately in one great big nature-red-in-tooth-and-claw free-for-all that's somehow ultimately good for the people who would obviously lose it.

But I've never been able to make heads or tails of the Austrian school. It's always sounded like one great big rationalization for "I got mine" to me. So, you know. That's definitely a blatantly biased summary of their position. But it's all I've got.
________________

Anyway. Plainly, I can't offer evidence of something that didn't happen. Because nobody can. But fwiw, there's a broad basis for thinking that chart was a picture of imminent catastrophic collapse, under the circumstances. What to do about it is a much more hotly disputed question. And there you have it.