QE For The People - What Could Go Wrong?

Tyler Durden's picture

Submitted by Pieter Cleppe,

A number of economists propose in the FT to implement what has been dubbed "QE for the people".

They start off quite well, noting:

"The evidence suggests that conventional QE is an unreliable tool for boosting GDP or employment. Bank of England research shows that it benefits the well-off, who gain from increasing asset prices, much more than the poorest."

As is often the case with these things, they go on to propose something even worse than what's already being implemented:

"Rather than being injected into the financial markets, the new money created by eurozone central banks could be used to finance government spending"

Government spending already benefits from QE at the moment. Since Draghi's announcement, Italian and German borrowing costs have dropped. And then we haven't even discussed all the other ways the ECB has found to prop up sovereigns, such as the cheap LTRO loans to banks, who channeled the money through to governments, especially in Spain and Italy. This is so well-known that it was called the "Sarkozy trade" - a term adopted by markets after the French president suggested that governments urge banks flush with ECB cash to buy their bonds. So why try more of the same?

Those calling for a "political Europe" should take notice that large-scale transfers have already been implemented within the Eurozone since 2010, through the EFSF, ESM and primarily (German economist Hans-Werner Sinn estimates to the tune of 75%) through the ECB. When one receives a loan with an interest rate which is lower than the market level, one receives a gift, in economic terms.

The economists argue that "mixing monetary and fiscal policy" isn't a problem because "traditional monetary policy no longer works".

They must have missed the alternative of Austrian economics. Post-World War II Germany and its relatively strict hard money policies can perhaps be instructive for a model that has been tested. Japan has been trying excessively loose Keynesian monetary policies after its bust around 1990, with negative results. But the authors seem to prefer to apply the principle "When in trouble, double".

A particular problem with financing governments through the printing press is that Parliaments are being bypassed, exactly the reason why politicians  prefer to let Mario Draghi do the brunt of the dirty work in the euro crisis.

I hope it doesn't come as a shock to anyone, but my suggestion is the following: governments should be funded by taxes alone, democratically controlled through Parliaments. Ideally these taxes should consist in one invoice per citizen, detailing the services received. Perhaps socialists may want to add a “solidarity” invoice to rich people, raising funds which can be transferred on in a transparent way to those perceived to be in need. Clearly this system is way too transparent for the sake of any political purpose and would mean the end of a whole industry of tax advisors, but perhaps it may one day serve as a model for any future new country.

An alternative put forward by the authors which goes to the heart of their "QE for the people" - proposal is the following:

"Each eurozone citizen could be given €175 per month, for 19 months, which they could use to pay down existing debts or spend as they please. By directly boosting spending and employment, either approach would be far more effective than the ECB’s plans for conventional QE"

Why be so modest and only give €175 per month, someone may suggest? However, money shouldn’t be manipulated to support economic growth. On the contrary, manipulating its value will create uncertainty and hurt economic growth.

One could compare money to a voucher in a cloak room. If Sophie has received a voucher in exchange for storing her jacket, she wouldn't exactly like it if Mario Draghi, the manager of the cloak room, gives a voucher to his girlfriend, Angela, without asking her to put up some collateral. Whereas people would know that Sophie's voucher is backed by value (her jacket), her voucher would lose value in case the voucher-supply would be increased  artificially, to the benefit of the cloak room's manager's friends.

Shall we then see hyperinflation? Warnings of hyperinflation have been wrong in the past, and some Austrian-leaning economists like Mish have been countering warnings from their Austrian friends.

Our monetary system is still not completely controlled by governments. After a central-bank induced bubble has bust, like in 2008, when one would expect prices to go down again after they have been rising in an unsustainable way, monetary pumping still may not be sufficient to counter deflationary forces. On the other hand, even modest printing may result in hyperinflation in case citizens lose trust in currency managed by the government, or if for example a remarkably solid alternative currency emerges and becomes popular, despite the fact that one needs to use government currency for contracts and taxes (let me disclose I have my doubts whether bitcoin will ever fulfill this role, but it certainly has proven to be able to circumvent capital controls).

In other words, the proposal to give each eurozone citizen €175 per month may not unleash hyperinflation, but it may counter certain natural deflationary forces, such as those in Spain, where the euro and its easy money fueled a toxic real estate bubble which left the banking system full of bad debt after it busted. If this proposed flow of "helicopter money" would effectively be injected and prop up prices, Spanish entrepeneur Conchita may decide not to open her sandwich place after all, given how rent prices would remain too elevated.

That's not to say that in all circumstances it would be wrong for Central Banks to increase the money supply. In a system where money would be entirely private, the market may still opt for a system whereby the monetary mass increases in case value is created (after innovation, for example) and decreases in case value is destroyed (after natural disasters, investment bubbles or wars, for example). Going back to the example of the cloak room, it's obvious that more vouchers are needed when new people arrive with jackets. If the government takes over the money supply from the private sector, as it has done everywhere, it should attempt to mimic what would happen in a scenario of private money.

In the case of Spain, that apparently means allowing deflation. I have understanding for those who claim that it's just madness to allow deflation in such a highly (privately) indebted country, but if that is true, it probably means we need to look at how to best organise defaults, rather than distorting decisions regarding saving and investing through manipulation of the value of money, as the authors propose. In the case of Spain, that means restructuring the banking system, something which has been done to a certain extent, with the help of a 40 billion euro bailout, but clearly not sufficiently, given the high amount of remaining bad debt. In the case of the whole eurozone, it means looking at alternatives to the current, dysfunctional currency union.

Given the massive mistakes which were made by central banks from Weimar to Bernanke and the relentless attempts to use the printing press to finance governments (after all, the Bank of England was set up to finance the King's wars), it probably shouldn't take much to convince people of alternatives, and not more of the same, right?

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ebworthen's picture

Debt jubilee for citizens:  students, retirees, mortgage holders - everyone in the 99%.

The past 20 years in financial markets has been a debt jubilee for the banksters and the corporatocracy, so why not?

Oh yeah - how would they get the little people to scrub their toilets, mix them drinks, and cook their lobster bisque.

Never mind.

walküre's picture

Debt = wealth

One man's debt is another man's wealth

The Jubilee would obviously slash the wealth of the 0.001% and we can't have that.

Well, we might just have to take it back one day.

Publicus's picture

What could go right! I'll take a couple billion.

NoDebt's picture

Ah, more money printing to cure the problems of money printing.  Wonderful.  Put it on my EBT card.

 

Harbanger's picture

Long wheel barrels for real.  Deflation is a central banks biggest enemy, + the Plebs can then invest in stawks again right before it crashes.

Harbanger's picture

"The Jubilee would obviously slash the wealth of the 0.001% and we can't have that."

Really? How exactly would that happen.

TheReplacement's picture

The 99 would no longer be indebted to the 1.  They would lose the perpetual wealth of reproducing debt slaves.  Gold is supposed to be a store of the value of labor it took to mine, yes?  What if you could skip the gold and simply live off everyone else's labor?  Different kind of wealth.  Ultimate kind of wealth, in their eyes.

Bunga Bunga's picture

Because somebody's debt is somebody's else wealth.

Harbanger's picture

http://en.wikipedia.org/wiki/Debt_of_developing_countries#Recent_debt_re...

Debt relief is nothing new and doesn't help the countries in which it's been implemented.  The system they have which created the debt remains after forgiveness and new debt returns.

Elliott Eldrich's picture

"Debt relief is nothing new and doesn't help the countries in which it's been implemented.  The system they have which created the debt remains after forgiveness and new debt returns."

Yes, this is true. It is also utterly inevitable when you have a debt-based fiat currency regime in place, since the only way money can even exist is as a debt instrument, and if you pay back all of the debt in such a regime you end up with zero currency in circulation.

It's kind of like saying "people who get pushed into a pool end up wet, and what losers they are for being wet, we should hate them." I'm thinking it may be more appropriate to hate the bastards who set up the rotten, vicious game that victimizes us all instead. Silly me.

Seek_Truth's picture

The article switches gears very swifly from the Title's stated premise.

The title is "QE For The People - What Could Go Wrong?"

But the first half of the article itself should be titled: "QE For The Government - What Could Go Wrong?"

QE for the people would involve handing an equivalent amount to every man, woman and child who is a citizen. The article only touches briefly, in the second half, on what the plusses and minuses of that approach would be.

But since Pandora's box is already opened: Good enough for the goose, good enough for the gander.

OldPhart's picture

Back in 2008 a blog proposed giving every individual tax payer (1040 &(a, ez)) $100,000 with the stipulation that they must buy a car.

The logic was that the auto crisis would have been reversed, a lot of mortgages would have been paid down/off, and other debt settled:  Banking Crisis solved.

At the time the estimated cost was over $11 trillion.  Reviewing, the estimate was a little overshot.  Number of returns filed for 2007 were 96,251,167.  At $100,000 each that would come to $9,625,116,700,000.  A bit less than $10 trillion that would have been a direct injection of capital while relieving distressed homeowners of debt.

Instead we had $billions given to car companies, idiot programs like 'cash for clunkers' that immediately drove up the low end price of a used car, TARP, Shovel Ready Jobs, $16 trillion pushed into US banks, and another $16 trillion secretly provided to European banks...with thousands of homes seized and other assorted bullshit.

That the thieves/whores/useless idiots of our war criminal government, along with 'our' central bank, chose to do what they did should be enough to drive anyone with just one marble left in their noggin to realize that we have an illegitimate government and should take action to help others recognize the fact.

That the court system not only allowed this, but abetted the crimes, is proof that the courts are in the same criminal pool.

Other than the rank and file military, a good 90% of those in government should face war crimes charges at the Hague.

As to the odious debt left behind, not one dollar was created on behalf of the American people.

 

TheReplacement's picture

Yeah but after about 2.5 hours of that program a new care would cost $125,000.  Free "money" doesn't work.  But yes, it would have been better to blow up the system by sharing whatever wealth was being conjured rather than confiscate it and use it to control everyone.

malek's picture

 proposed giving every individual tax payer (1040 &(a, ez)) $100,000 with the stipulation that they must buy a car

Then compact cars would have become almost unaffordable by now.
You sure that wasn't some Eco-fashist blog?

BigJim's picture

The idea strikes me as the least worst option.

Fundamentally, since 2007 we appear to have been bouncing around 'the Minsky moment', ie, we're at a debt saturation point. Asset prices are unsustainably high, and CBs (and the governments they're in cahoots with) cannot allow their prices to fall. Hence ever declining (real) interest rates. But these measures solve nothing, because they don't reduce debt levels. So, the question is: how do 'we' reduce debt levels without unfairly handing money out only to selected groups (bankers and debtors). Obvious - we hand it out to everyone.

But instead of dolling out a huge wad like 100,000 in one lump to everyone (which would spark a huge inflationary hump), handing out (say) 1,000 a month would be much less disruptive, if i) interest rates were raised, and ii) if the recipients were obliged to pay off any debts with it.

I would infinitely prefer to be in a free market monetary regime where competing currencies are issued by private institutions, and no bailouts of any kind. But we are where we are.

Harbanger's picture

That's exactly what they will do, it makes perfect political sense.  The Fed is not getting their desired inflation as the banks are hoarding the cash, corps are buying their own stocks and it's going into emerging markets.  You wan't to see hyperinflation? First you must throw money from helicopters.

LawsofPhysics's picture

Moral hazard, what's that?

retribution must be paid...

blowing winter's picture
blowing winter (not verified) ebworthen Mar 31, 2015 12:14 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com

fzrkid's picture

Bush tried this in what 2008 giving all tax payers below a certain threshold a $600 check with a speech saying GO SPEND....

Needs to be BIGGERer

ThroxxOfVron's picture

"Hang 'em high. "

High, low: -who cares as long as they hang?

I'm not actually picky about whether we use gallows, trees, lamp posts or basketball hoops either....

TheReplacement's picture

Y'all best not be polluting my trees with those dangly demon drapes.  You are going to have to use someone else's land for hanging those vicious criminals.  And no, you may not bury them on my land either.  If anyone thinks Fukashima is toxic...

Shizzmoney's picture

LOL "QE to the people".

Pretty sad that governments have to step in and cover the rising costo f living they created, and not the banks and corporations that bankroll and run the government.

But we knew that already.

There will never be, "QE for the people" unless it is run "By the People"

disabledvet's picture

"When in trouble bubble" is more like it.

 

Yet again individuals are paying more in taxes than corporations and "financial enterprises.". Long after all of us have lost our jobs, savings, station, standing, etc " the entity lives on."

The Navy, Exxon, "terrorism." The whole thing is a scam when it comes to being paid for.

 

Clearly "post 9/11" has been a poor jobs program...let alone a good small business creator.

 

We always have the Manichean Struggle of course.

 

Who needs Switzerland when you have TBTF?

 

The only way to beat this system is to believe in something larger.

 

Trying to imagine something bigger than the US Navy is really hard right now.

 

I can and I have of course...but even that is not enough.

Usurious's picture
Usurious (not verified) Mar 30, 2015 8:45 PM

 

 

<CCC>

Cancel the USURY, Close the banks & Castrate the banksters.........

fudge's picture

Cancel the USURY

Qard Hassan ;-)

dexter_morgan's picture

how is giving money to the government QE for the people. Just give the people the money directly and eliminate the thieving middleman

Isn't that what we're doing already and we see who that benefits.

booboo's picture

Someone should notify the media, call a regulator, call your congressman, tell a priest. We're fucked ain't we?

TheReplacement's picture

Just get married and you'll never get fucked again.

Too easy.

I Write Code's picture

Government spending is not for the people, it's for the government.

QE for the people is called $10,000 to every man, woman, and undecided.

A big, fat tax cut comes pretty durn close, though.

TheReplacement's picture

Government spending is for the bank since it is all financed and that means the bank gets transaction fees, handling fees, filing fees, and principle and interest payments (mainly interest).

QE for the people would also be for the banks.  See above. 

A tax cut is close to the same as QE for the (working, nonworking, citizen, legal alien, illegal alien) the people.

In all cases, the working people have to pay it back for eternity to the bank.

Oldwood's picture

Money is not about money it is about power, specifically control. To actually gift the money to the public would be willing surrender of that power, which they will NEVER do. Taxation and government spending are to direct our financial behaviors, financial being our principle exercise of liberty and freedom.

TheReplacement's picture

I bet the first candidate to mention QE for the people wins in 2016.  Scratch that.  The one that bids the highest wins.

kowalli's picture

It's for THE people, not for people as All men and women.
This is the difference

They are not telling lies, they just dont tell all truth...

Dragon HAwk's picture

Every time they see they might have to declare a recession they drop a few pennies or give a tax break or rebate.. just to delay the inevitable.

Radical Marijuana's picture

Due to the history of civilization being based upon systems of lies backed by violence, which became more sophisticated systems of legalized lies backed by legalized violence, it is essentially IMPOSSIBLE for any better monetary system to be developed.

MASTER OF UNIVERSE's picture

Wrong, I'll take my 'QE for the people' in _physical gold bullion_, BuckO. $30 Trillion in physical gold bullion should just about be enough, but I'll let you know if I'll need more, eh.

TheReplacement's picture

Is that in today's dollars or QE dollars?  QE dollars it is.

Here is your ounce of gold sir.  Don't spend it all in one place now.

nmewn's picture

Full-Fucking-Retard.

The only reason we don't have (yet) full on Weimer Republic now is because QE never gets to the public. Its digital, nothing, vapor, wrapped up in digital cellophane bundles, sitting on digital pallets, in the ether.

It now manifests itself in digital common stawks, which also have zero value, the actual money was taken at IPO, the only "value" lies in what some other stooge is willing to give you for it. There is no legal claim on property or machinery or title with common stawks...its-fucking-vapor.

So clearly the thing to do is increase the price of hamburger to $1,000 dollars a pound and cook it with dollar bills.

Friggin nuthouse.

PoasterToaster's picture
PoasterToaster (not verified) nmewn Mar 30, 2015 9:13 PM

Is it smarter to let the rich continue to print trillions for themselves while the people have nothing?

Oldwood's picture

The ideal would be to extract ourselves from direct dependency on the formal financial economy in favor of a more direct service and barter one. refuse to borrow any money, remove as much cash as possible from the banking system and minimize our exposure. The needs we have developed are the dependencies they hold over our heads. If we were willing to accept the lifestyle and hardships of a century back, it would go a long way towards our freedom...but we won't, because the modern life is far easier.

cornfritter's picture

I was liking what you were saying, then you fizzled out (capitulated) at the end :-(  Truly, people should aquire a plot and be working toward a self sustaining way of life, where self governance and good relations with your neighbors is central theme (and hopefully a faithful life, but I'd settle for moral and honest behavior by earths inhabitants generally).  As you pointed out, convenience costs.  Properly, you invent and fabricate the tools to make your life more convenient.  Or trade for the tools others have built.

Nature credits, man debits.

TheReplacement's picture

That would be perfect really.  Work on the assumption that the people, have nothing dollar wise, find alternate means of facilitating transactions.

What would those trillions in dollars buy then?

fudge's picture

Friggin nuthouse

bad hair day ?

:-))

nmewn's picture

;-)

Well not really, I had to replace an exterior door yesterday which was a little frustrating but I just fail to understand how compounding the very real problem .gov and its bank has created in bailing out the "financial industry" by covering the sidewalks & streets of America with fiat will solve anything.

It won't, it will obliterate whatever remaining purchasing power their fiat has and they know it.

The debt-money has to be repudiated as fraudulent, the only way out of a ponzi is to call it the rigged ponzi it is and arrest the bastards who started and perpetuate it in the first place.

Hence their very real problem and these endless red herrings like "Public QE", they're not going to arrest themselves.

fed_depression's picture

All the loose US QE money is now being used to bet against (in sizable positions) the weakest other central banks in the world.

 

They didn't think of that one did they?

Omega_Man's picture

I am going to take the PV of the FV of my share of the helicopter money and buy some silver today!

(of course at .25%)