The Top 0.1% Loves A Guaranteed Minimum Income: With One Caveat

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Why wouldn't the top 1/10th of 1% love a central bank-funded guaranteed minimum income?

It is widely assumed that the super-wealthy top 1/10th of 1% are against a guaranteed minimum income (GMI) (also known as guaranteed basic income or basic income guarantee) because this would somehow limit their wealth and power.
 
On the contrary--the top 1/10th of 1% are fine with a guaranteed minimum income for households, with one tiny caveat: as long as they don't have to pay for it. But wait, you say: that's the entire idea: tax the rich and redistribute the money to those below.
 
Ah, but you're forgetting the magical power of central banks and treasuries of the world to create money out of thin air. As the top 1/10th of 1% understand, the GMI could be paid with freshly issued money--a method of funding that leaves the top 1/10th of 1% untouched beyond the taxes they already pay (substantial in many cases).
 
But wait, you say: printing and distributing helicopter money is highly inflationary. (Helicopter money refers to former Fed chairman Ben Bernanke's famous claim that deflation could be reversed by dropping money from helicopters.)
 
Not only is printing money inflationary, it soon burdens the nation with crushing debts. So goes the conventional line of thinking: printing money is inflationary and borrowing money by selling bonds leads to crushing interest payments on the ever-rising debt.
 
But what if the conventional thinking is wrong? Consider the following thought experiment:
 
1. The central bank pushes interest rates to near-zero as a permanent policy.
 
2. The government funds a guaranteed minimum income (GMI) by selling $1 trillion in freshly issued bonds every year.
 
3. The central bank buys the $1 trillion in freshly issued bonds with $1 trillion in freshly issued money. This is known as monetizing the debt.
 
4. Five years later, the government declares a debt jubilee and voids the $5 trillion in bonds. In effect, the government defaults on the bonds.
 
5. The central bank writes the $5 trillion in bonds off its balance sheet. In essence, the government and central bank balance sheets return to square one: the $5 trillion was paid out to millions of households in GMI payments, The government is not bankrupt and neither is the central bank. the writedown has no impact on the bank's other assets nor on the government's ability to sell more bonds to the central bank.
 
As for inflation: the $5 trillion in new money simply offset the massive deflationary forces of technology and global competition. If you doubt this could work in the real world, then please explain how Japan has been able to run enormous government deficits that are essentially funded by the Bank of Japan in precisely the fashion described above for 20 years with near-zero inflation and no reduction in state finances, financial stability or the central bank's ability to create new money at will.
 
Why couldn't the government of Japan void the bonds held by the Bank of Japan and clear the balance sheets of both entities? The central bank certainly doesn't need the interest income to survive; it can print however much money it wants.
 
The structural forces of deflation in Japan's economy have simply been stalled by the flood of deficit spending/new money. It turns out inflation is not the issue when labor costs are stagnant and the structural forces of technology and global competition keep pushing prices lower.
Stagnation/recession is also deflationary.
 
For all these reasons, I expect various forms of guaranteed minimum income to become accepted policy, but they won't be paid for with taxes--they'll be paid for with freshly issued fiat currency. To the astonishment of those basing their projections on the 1970s or other periods of inflation, printing and distributing money directly to households will not be as inflationary as anticipated because many of the primary global trends are massively deflationary: overcapacity, stagnation, global wage arbitrage, declining costs for technology, robotics and software, etc.
 
You print $5 trillion in bonds, I buy them with $5 trillion in new money, you default and I write off the asset of the $5 trillion in bonds. Rinse and repeat. The money was distributed to households who spent it in the real economy, supporting the enterprises owned by the top 1/10th of 1%.
 
Why wouldn't the top 1/10th of 1% love a central bank-funded guaranteed minimum income? The program puts money in the hands of consumers who lack paid work, and a percentage of their helicopter money consumption flows to the top 1/10th of 1%. It's a sweet deal for those receiving the GMI and those who own the assets and enterprises.
 
The last thing the top 1/10th of 1% wants is a desperate, politically charged underclass with no money to buy the goods and services that generate the income of the top 1/10th of 1%. The best way to keep the underclasses passive and powerless while insuring they have enough money to continue consuming is to arrange for the central bank to issue them money in the form of a popularly acclaimed guaranteed minimum income.
Helicopter money here we come.

 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
y3maxx's picture

and if helicopter $$$ doesn't work....Nobel peace prize bombs will.

wolfnipplechips's picture

Get me some, bitchez! And here I've been wasting my money on lottery tickets every week.

Stuck on Zero's picture

It's not inflationary because you are destroying the incomes of the people who are doing the work in the society i.e. the middle class.

BuddyEffed's picture

It doesn't matter how much money you print.   We live in a world of "things".  And it's not a virtual world like an "Internet of things".  

For the most part, printing more money does not affect the way that "things" are manufactured and produced.  Mainly, printing money and distributing said monies just changes who can afford to buy those "things", and who can afford to manufacture those "things".

This comes to mind : http://web.archive.org/web/20111112074159/http://www.zerohedge.com/news/...

As far as "things" go, it's kind of like a zero sum game, where money only appears to be in the driver seat.  The 0.01% know this, and they know the likely trends.  Look for the trends in real "things" and you will have more insight and be able to see more clearly through smoke and mirrors.

Instead of GMI, how about GMT.   Guaranteed Minimum Things?  Delivery on either will prove difficult with the current trends.

BDI anyone?  Electricity production?  Miles driven?  Get real.

TheRedScourge's picture

GMI makes sense, so long as you replace the welfare system with it. The result is you can get rid of all those welfare administrators who soak up most of the welfare money themselves.

Georgia_Boy's picture

Not going to happen.  By definition we are talking about those who cannot manage money.  When they blow their GMI for the month in three days on the usual trivial things and then come crying to the government saying "Baby need shoes!", do you think the typical sociology-major government welfare drone is going to tell them "Nope sorry, baby will have to go barefoot till next month and that's your problem now?"  GMI will be in addition to welfare ... what, are you trying to starve the children you bigot?

mkkby's picture

Don't know WTF you're talking about.  If you spend out your EBT card in 3 days, you don't get more until the 1st of the month.  Baby goes hungry until Sharonda holds up a liquor store.

But you do make a good point.  We already have guaranteed income.  It's called welfare, soc security and all the rest.  Nothing new in this hair brained article.

kraschenbern's picture

Buddy, I think you nailed it.  The only reason people work, thereby producing things to buy, is to earn money to buy things they want.  So money is an inducement to work.  If the money is free, no inducement to work.  No work, no things.   QED

SMG's picture

The Oligarchs are going to give the people just enough to prevent unrest until they kill most of them in WWIII.  It's a brilliant and really evil plan.  

Also try warning anyone that the life they're living is an illusion.  They're not real receptive, so you can't save them.

mkkby's picture

That is EXACTLY what welfare is.  A way to keep the inner city hoods quiet so the rest of us can work and live in peace.  Not working too well, is it?

cdevidal's picture

How is it that seemingly-intelligent people like Charles Hugh-Smith don't realize that Japan != United States? Just because money printing did not cause runaway inflation over there does not mean the same strategy will not cause utter failure over here.

ThroxxOfVron's picture

The MMT fuck-tards will destroy the nation with this idiocy.

I have already personally argued with that douche Mosler about this very subject.

It could only work in a 100% closed society with NO imports or exports, NO emmigration or tourism of any kind, absolute independence of ALL manufacturing and energy and technology and FOOD requirements for the duration of any such program.

The US will be beseiged with emmigrants and illegals and passport jumpers and perpetual foreign students desperate to milk the welfare state forever.

Further: there can be NO government debt financing from international or external sources under such a regime as taxation can never be raised on a welfare nation to retire debts.  Any debt sold would require some form of collateralization -likely distint collateralization of individual and identifiable 'citizen' taxpayers -HUMAN BEINGS will be SOLD.

 

IF any such Jobs Guarantee Program or Guarenteed Minimum Income is implemented there will be no wage pressures and everyone will be forced into subsistence wages by the corporations which will become fully subsidized state protected cartels owned/run by a distinct rentier Oligarchy and attendant perpetual neo-federal bureaucracy.

This is the ultimate neo-liberal ploy for instituting a feudalist/facsist state.

bbq on whitehouse lawn's picture

The planet is a closed system. Yes everyone would be dependent on the US dollar for transactions like it or not. That means no where to hide your wealth, no where to run where the US dollar was not king. One ring to rule them all.

TheRedScourge's picture

It will work until suddenly it doesn't. Like everything the government's economists try.

plane jain's picture

That kind of sound like what we already have to me.

IF any such Jobs Guarantee Program or Guarenteed Minimum Income is implemented there will be no wage pressures and everyone will be forced into subsistence wages by the corporations which will become fully subsidized state protected cartels owned/run by a distinct rentier Oligarchy and attendant perpetual neo-federal bureaucracy.

zeropain's picture

Middle class is just destroying earth for distactions and fast food.  Better to have middle class consume less and have the poverty class better feed.  Better for earth and less revolutionaries.  

The_Dude's picture

Thanks for your input Malthus.....

Hail Spode's picture

Bingo.  They are feeding the middle class into a debt-shredder to protect their status as long as possible.  Where the scheme in this article breaks down is where the debt is "written off".  The wealth of the ruling class consists largely of debt claims on the wealth of others.  If THEY take the write-off they lose their status.  They will transfer the bad debt to the public treasury where it will be "written off", but that can't be done indefinetely because it represents a destruction of "wealth".  Someone has to take the hit- that someone is every citizen contributing more than they take out- IE the middle class.

American Dreams's picture

This certainly would work, but there is one prerequisite, the US Dollar could no longer be the worlds reserve currency. 

Know your enemy

AD

Ruffmuff's picture

It is already present. Old people collecting entitlements. Some people pay and pay and then die, never to get shit. Others barely work and live to bitch and bitch some more. 

There will always be a bottom of the barrel. America's bottom is the middle in many countries. But we still bitch and moan.

Those pretentious cocksucking rich fucks, think they are special. "See my fancy car, and big house".  Then the rest of the bunch of wannbees go after the same shit.

Go hop on the hamster wheel and run all you want. Count those elusive digital numbers in your fed owned bank account, brokerage accounts or you pile of gold.  IN the end it will not mean but a pile of shit and continued broken thoughts.

Dr. Richard Head's picture

The Fed has zero interest (both literally and metaphorically) to give the plebes anything. 

Theta_Burn's picture

Well no they don't...until those bumps (off) in the night start being reported.

One question tho, just who is guaranteed this income? the productive middle-class? or the ones already getting a minimum income?

What was the point of this article?

No... the only thing guaranteed in the plebes future is conscription..

bbq on whitehouse lawn's picture

It would be the rest of the world that "guarantees" this income. They sell labor for US dollars as long as they do this you can guarantee all you like.
Its a way of tieing everyone to the US dollar, supplier and consumer.
Everyone would get a SS check that they would then use to pay their taxes. it works untill WW3.

Azannoth's picture

This might be a last ditch effort to save the System, .. does not make the idea any more reasonable or sustainable, it might buy another 10-15 years or so, then KAbOOOM!

plane jain's picture

If you concede that our current system is just make believe, keeping score with promises backed by nothing at all, why not?

Seems like we are at (or near) peak everything, including peak humans, barring some kind of injection of resources from outside our planet.

And it is looking like we may have passed peak employment.

Posted this a couple of times, but really is a mind bender. Coming soon...computers that do damn near everything left to do that robots and other machines don't already have covered. Per this guy even the so-called knowledge workers will be less in demand as you will need only a handful of knowledge workers to conduct the artificial intelligence of a super computer that can think and learn.

https://www.youtube.com/watch?v=t4kyRyKyOpo

So, yeah, why not a guaranteed minimum income while we wait for our excess population to die off naturally? Beats war, famine, and disease in my opinion.

Mike in GA's picture

This is something I've posted a few times that seems more and more prescient as policies like this get seriously debated.  Well worth the read.  Just as it starts getting depressing and you think there's no way out, an alternative is introduced...

I watched the TEDX video and it is sobering.  Thanks for posting that, Plane Jain

Scoobywan's picture

Wake me up when there's a robot to do the brakes on my car, unclog my toilet and fold clothes without being setup, turned on, positioned, operated and observed, powered down, maintained, and stored.

Robots have a long way to go to being mainstream, and driving around specifically built warehouses, and welding the same 2 pieces of metal together over and over don't count.

bbq on whitehouse lawn's picture

For a robot to put brakes on your car, you would need to buy a new car, for unclogging the toilet you would need to buy a new toilet, so on and so forth. Its possable untill the power goes out then you dont have a car or toilet but thats a problem for another time.

de3de8's picture

Like the free shit train is different than the helicopter?

LawsofPhysics's picture

Unfortunately, that which cannot be sustained, won't be, period.  Instead of pockets of hyperinflation, similar to pre-WWI and WWII, the entire planet gets to experience just how fast "low prices" becomes shortages...

 

we all know the TPTB will never admit that inflation exists, hence we go straight to shortages...  ...just like the former Soviet Union the prices will always be "low" and everything will be "fixed"... 

 

All because we the people failed to let the bad businesses and bad banks fucking fail!!!

 


Theta_Burn's picture

How can you say that?

Just look at the sceaming suckcess of GM & Dodge.. )

Matt's picture

Unconditional Basic Income, in place of existing social programs, costs less and delivers more. The trade off is that lots of government workers would lose their jobs if they abolished SNAP, unemployment, welfare, and replaced it with an automated system that just gave everyone $1000 every month.

Federico Pistoni on Unconditional Basic Income trials in India:
https://www.youtube.com/watch?v=-vnB16E36EQ 

Anusocracy's picture

The potential set of recipients are those who don't need to reproduce.

Matt's picture

Unless you mean everyone, that doesn't make sense. Unconditional means no conditions, everyone gets it.

Anusocracy's picture

So in a short time the unproductive weeds in the garden will displace the entire crop.

That's why socialism is a failure.

Matt's picture

Yes, radical socialists like Milton Friedman, Gary Johnson, and all those other libertarian socialists.
https://www.youtube.com/watch?v=-vnB16E36EQ 

homebody's picture

Monopoly anyone.  Wealth can only be increased by production.  All the rest is FLUFF.

Clowns on Acid's picture

Or... by rolling good dice.

OpTwoMistic's picture

Works until it doesn't. Then the rest of the world hangs the bankers and employees.

Mandel Bot's picture

Hocus Pocus. Money isn't wealth. It is a claim on wealth. Real wealth can only be created by adding value.

All printed money eventually reverts to its intrinsic value, Zero.

agstacks's picture

Hello-

Thank you for your inquiry regarding the Guaranteed Minimum Income (GMI). Based on the information you provided, you are not currently eligible to participate in the program (on the receiving end). We will be reaching out soon however to address new tax guidelines and how you can help support this program.

Warmly,
Y

Dr. Engali's picture

Wiping 5 trillion of the books doesn't come without consequences. If .gov declares a debt jubilee and the fed wipes 5 trillion off it's balance sheet that debt doesn't just disappear, it shows up in massive destruction of the currency, which is their goal in the first place. The question becomes, what happens to the faith in the fed's funny money after the fact.

Kidrobot's picture

So you're saying the mere posting of a journal entry ushers in the consequence?  Not likely.  Just like national debt has yet to materialize into any significant consequence world wide.  

The only real potential for consequence, as this article mentions, is 'a desperate, politcally charged underclass with no money/food'.  But central bank policy guarantee this to be a non issue, through things like GMI.

GMI will pacify the underclass there now, and the middle class that will be there in the future.  There will be no abrupt crash.  

Dr. Engali's picture

Wipping away 5 trillion is no mere journal entry. That 5 trillion was used for real goods and services. Based on your statement the fed could buy up all of the government debt and just wipe it clean with no consequence to the currency. If you think that our printing and national debt is not showing up in the world then you aren't paying attention.

Kidrobot's picture

Was used.  Past tense. Economy already benefited from it.  Writing off a loan/receivable (from issuing currency) doesn't negate the past economic benefit.  

An 'expense' on the back of a currency maybe.

But my point is that anyone can see that a large and growing oustanding receivable (growing national debt) is JUST AS INDICATIVE as the 'wipping away' (realization) of the loss.  Hence, a mere journal entry.

And that is precisely what they have done, and the world has done.  So what exactly is your definition of consequence? 

ThroxxOfVron's picture

"So what exactly is your definition of consequence?  "

The banking and insurance and retirement systems are all to some extent or other predicated upon the continued issuance and payment of vig on the issuance.  What backs the banks if there are no treasuries?  Where is the low-risk portfolio of the annuity/insurance management spectrum going to be re-allocated to?  

Let us not even contemplate what would happen to trillions of notional leverage in the derivative stacks if the base collateralization asset that has been re-hypothecated God only knows how many times is suddenly called in for absolute liquidation.

GernB's picture

What happened in tech in 1999, what happened in home loans in 2008. What is happening in the stock market and oil now. Deflation, inflation, and bubbles are real. How many lost decades does Japan have to have before people admit it hasn't been working and more and bigger is not the answer.

What increases prosperity is not more money, it is producing more goods with less resources. In short, the more goods available to buy around the world the less they will cost and the more prosperous we will all be. Anything that leads to producing less goods for more manpower, raw materials, etc makes us all less prosperous. To the extent you encourage people not to work, you rig the system to produce less to go around. People cannot buy what does not exist and prices will go up as the supply of goods decreases.

This system may appear to do something in the short term, but once prices equalize the poor will still exist and will not be able to afford a the new minimum standard of living. So a new minimum guaranteed income will be needed at a higher level. The cycle will continue until rampant inflation collapses everything.

Farmer Joe in Brooklyn's picture

Precisely.  When the US becomes the only buyer of US debt, we've got a very large problem.

_ConanTheLibertarian_'s picture

Tyler, we can't read the picture...