Tuesday, May 12, 2020

Have You Had Enough Stimulus? Part Deux

I've been beating the dead horse of creating money out of thin air for the life of this blog, so this is part two only in the sense of a post with a similar name in early April.

I heard today that House Democrats are working on another stimulus bill, this time in the vicinity of $3 Trillion.  It's all very preliminary at this point, but the Financial site The Motley Fool reports on what they're seeing in the early discussions.  Note that this is not an exhaustive list -- the actual bill is over 1,800 pages long and you can only imagine what sorts of handouts for favored groups are included in this.
  • Almost $1 trillion for state and local governments;
  • Another stimulus payment to individuals;
  • Hazard pay for essential workers;
  • $75 billion for coronavirus testing and contact tracing efforts
  • Instead of expiring at the end of July, the $600 weekly boost to unemployment benefits would last through January;
  • $175 billion for rent, mortgage, and utility assistance for affected households;
  • Funds for election safety and to help make voting by mail easier;
  • Money to help the struggling U.S. Postal Service.
Thanks to the first three (four? who knows?) packages, the US Debt Clock shows our total debt has ballooned to over $25.1 Trillion.  The Motley Fool isn't very confident that anything that passes the house will pass the senate and points out some obvious contentions, such as those last two bullet points.  That doesn't mean that something won't pass, though it's just a matter of how much pork gets pushed through.

How big is a trillion dollars?  I thought I'd pass along a couple of visualization exercises that are my favorites.  The first one is that the number of seconds in a year is within 1/2% of pi times 10 million (that was in a freshman physics class nearly 50 years ago and stuck in my mind).  So what?  That fun fact leads to simple visualization; if someone sat at a window and threw out a $1 bill every second of every day for a year, they'd throw out just over $31 million.  Make it an 8 hour day (1/3) of a year, and it's $3/second to throw out $31 million and so on.  To throw out $3 TRILLION at $31 million/year would take 96,774 years - and 10 weeks.  Clearly we'd need to step up our game.  If you can imagine something that threw out $95,066 per second, 24/7/365, or $285,200 every second for an 8 hour working day, that would get you there.

In the first year of this blog, I used some visualizations from Demonocracy.info and I was pleased to find they're still there.  They present a series of pictures on the national debt (they stopped updating the numbers back in '17 when the total debt was a mere $20 Trillion.  Ah, the innocent days of our youth.)  Here's $1 Trillion in pallets stacked with $100 bills. 


One Trillion Dollars.  
 Each of those cubes you see is a pallet of $100 million in $100 bills.  At the far end you can see an American football field with a Boeing 747-400 parked on it. You can see the White House with both wings to the right.

Just triple that area and you get the $3 trillion they're talking about for this spending bill.  Alone.

Look, I know that there's a lot of suffering out there, I just think this is exactly the wrong thing to do.  When someone has a compound fracture, you don't just give them a pain reliever; you fix the problem.  This is a band-aid.  We're doing Modern Monetary Theory and that's going to end in a worse disaster than we have now.  This could be the thing that destroys the economy and the entire western world.  



16 comments:

  1. We need to go on the gold standard, except there is only so much gold on the planet... don't get me started. Just don't.

    The Donkeys see endless pork. I'm sure that SOMETHING along the lines of give-aways to friends and family will happen That's what Congress does every year. Naturally, the scope and the crisis (oh my) will justify a much larger SCALE.

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    1. I know you've dropped by here for a long time, but were you here in December of '11 when I did that article on whether we could return to a gold standard?

      There's only so much gold, but there's only so much of anything on the planet except numbers in a computer. Which is what they're creating. It's an old truism that paper money eventually returns to the value of the paper it's printed on. We appear to be on the fast track to Wiemar Germany or Zimbabwe.

      If you're thinking gold at $35/oz. you need to consider other approaches.

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    2. We need to go on the gold standard, except there is only so much gold on the planet...

      There is no need to represent the value of everything in the money; there is no way to represent the value of everything in the money, because "everything" includes the money.

      Stop thinking about the monetary commodity as something special; Gold is just a metal, often put in the shape of coins or ingots. If you want to make electronics, that metal is useful. Since there isn't a lot of that metal, it is dense in value, which is convenient for trade.

      It is easy to point to things which are more valuable than all the Gold that exists; one example is the whole North American continent. But since transactions of this size are rare (Louisiana Purchase) the fact that Gold isn't valuable enough to trade for the continent isn't a strike against Gold as money.

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    3. A bigger part of the problem here is that you, the central planner, are trying to legislatively pick (declare a monopoly) for some particular thing to be money. Stop that. The traders will coalesce on whatever object they prefer as money, and without your legislative meddling they can change the object they are using for money when that seems useful. Maybe this week kegs of nails are used for money, maybe next year cows or cigarettes or gold coins or SAE 1/2" steel washers.

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  2. indyjonesouthereMay 12, 2020 at 10:09 PM

    We haven't had money since the 60's. What we have is currency that is composed of debt instruments. We have Federal Reserve NOTES. It will work as money until we loose confidence in the government. Then it will have no more value than the BONDS issued by bankrupt corporations.

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  3. You're spot on. This isn't a dry run for Modern Monetary Theory, this IS Modern Monetary Theory.

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  4. The list of recipients you show is a fraction of the total.
    Tucker Carlson nailed it tonight.
    A bill written by idealogues and lobbyists.
    There's money in there for small business loans for lobbyists.

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  5. $600 stay home from work incentive lasts until January...after Inauguration day. Curious....

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  6. "worse is better"
    "grind them between the millstones of taxation and inflation".
    We are looking at a threesome between Lenin, Cloward, and Piven.

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  7. How bout just ramping up the testing ? Quarantine those which have it.
    End of problem in short order.

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  8. "I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle." - Winston Churchill

    Weimar/Argentina/Zimbabwe/Venezuela: straight ahead.

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  9. See, here's the thing. Dollars are currency, not wealth. As conservatives, and not liberals, we understand that wealth is created, by hard work, by ingenuity, and by perseverance. If money is not printed out of thin air for that new wealth, the price of everything goes down (fewer dollars available per unit wealth).

    This may be an acceptable continuous redefinition if all we did was make widgets and trade them, but we also have things like real estate markets, bond and stock markets, contracts for large purchases, and other stuff that suffers (or cannot function at all) under deflation.

    The key to monetary policy is to keep the amount of wealth and the amount of currency in balance. That is impossible to do using gold or any other finite resource. As long as we create wealth, we must increase the money supply -- by printing it.

    The opposite, of course, is that wealth destruction causes rampant inflation if money is not taken out of circulation. This, I believe, is why we have inflation every time a Democrat in office. It is not because the Democrat causes angst and uncertainly, but because they literally destroy wealth.

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    1. The key to monetary policy is to keep the amount of wealth and the amount of currency in balance. That is impossible to do using gold or any other finite resource. As long as we create wealth, we must increase the money supply -- by printing it.

      This is both unnecessary and harmful. There is no need to actively manage the number of currency units, and attempt to increase the total currency amount to match the amount of overall material wealth increase. The reason this is unnecessary is because individual buyers and sellers can instead change the numbers on the price tags.

      Suppose you're on Gilligan's island. Some years you have an increase in the amount of fish you catch, and other years you have an increase in the amount of oil you pump. That is merely the situation, and you don't need to cover it up. There is no need to try to total up fish and oil so the central bank can pick the right number of leaves to use as currency.

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    2. The reason this is unnecessary is because individual buyers and sellers can instead change the numbers on the price tags.

      Which is precisely inflation and/or deflation, which is destructive to long term contracts and business planning. The exchange value of metals can go up and down, too. How would you like to have spent $10,000 filling up a drawer with silver, only to have its associated value drop to $1000 in a year?

      Basing a currency on one item, whether it be silver or gold or oil, subjects the entire economy to large fluctuations. "Printing money" isn't making it from thin air, it is basing it on the value of all items. Thus it is much more immune to the vagaries of individual markets. The reason the dollar is the world's reserve currency is because it is more stable and predictable over time than any other.

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    3. Anonymous: individual buyers and sellers can instead change the numbers on the price tags

      Malatrope: Which is precisely inflation and/or deflation

      You are confusing "currency inflation", where government officially counterfeits fiat currency, and "price inflation", where marketplace participants notice there seem to be a lot more fiat currency units being spent lately by that government crony business that got the "stimulus", and now my savings which used to be x percent of the total fiat currency units are now 0.85x percent.

      which is destructive to long term contracts and business planning

      Oh boo hoo, I'm sorry that technological innovation by some clever and industrious person has upset your plans, which assumed the world would be unchanging forever and the retirement savings you collected in 6502 microprocessors would always be a good choice to make a personal computer from.

      "Printing money" isn't making it from thin air, it is basing it on the value of all items.

      "Warehouse receipts" are honest, they are paper claim tickets for existing physical assets in storage. But after people get accustomed to the tickets, government bans convertability to prevent bank runs; which is to say government protects the thieves and bans the competition which keeps the system honest. That then allows banksters to "print money", which is making it from thin air, which is fraud. I can't redeem a US federal reserve note token for anything else at a federal reserve bank. The US dollar is backed only by taxation; it is an extortion futures contract.

      The reason the dollar is the world's reserve currency is because it is more stable and predictable over time than any other.

      Historical record is, reserve currency status lasts about 100 years before the marketplace takes it away. Portugal, Spain, the Netherlands, France, and Britain previously had reserve currency status.

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