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"The Government Is Literally Paying Itself" - Citi Calls For Money Paradrops

Tyler Durden's picture




 

Last Friday, we posted what we thought was a watershed report by Australia's largest investment bank Macquarie, one which openly called for central bank funding of fiscal spending, aka "helicopter money", by directly monetizing treasuries. Ironically, the bank made the call despite admitting that it would not work in the long run, leading to even more stagflation and deflation. This was the gist:

As velocity of money globally continues to fall, conventional QEs have to become exponentially larger, as marginal benefit declines. If public sector is not prepared to step aside, what other measures can be introduced to support nominal GDP and avoid deflation?

 

There are several policies that could be and probably would be considered over the next 12-18 months. If private sector lacks confidence and visibility to raise velocity of money, then (arguably) public sector could. In other words, instead of acting via bond markets and banking sector, why shouldn’t public sector bypass markets altogether and inject stimulus directly into the ‘blood stream’? Whilst it might or might not be called QE, it would have a much stronger impact and unlike the last seven years, the recovery could actually mimic a conventional business cycle and investors would soon start discussing multiplier effects and positioning in areas of greatest investment.

 

British Leyland (formed from nationalized British car companies in the late ’60s) destroyed its automotive industry but for a time it provided employment and investment. CBs directly monetizing Government spending and funding projects would do the same. Whilst ultimately it would lead to stagflation (UK, 70s) or deflation (China, today), it could provide strong initial boost to generate impression of recovery and sustainable business cycle.

The report was critical for two main reasons:

First, it admitted that the conventional Fed QE approach of using banks (and excess reserves) as intermediaries, is now widely accepted as a failure (as we noted earlier) and that a more "acute" form of money printing would be required, one which nobody would mistake for what took place in Weimar Germany.

Second, and even more important to us, was that now that the seal has been broken on "very serious people" discussing monetary paradrops, it was just a matter of time before the entire sellside brigade jumped on board this brand new bandwagon. To wit:

"will the Macquarie report become the benchmark which the other penguins will ape as suddenly calls to bypass the banks become the norm and suddenly every "authority" on the topic, which so vehemently advocated for QE, admits it never worked from day one, and instead recommends that the only option left to save the world is the "nuclear" one?"

Today, less than a week later, we got the first official penguin in the form of Citigroup, which just released a note titled "Cold Fusion", which proposes a way to "transform ineffective monetary into effective fiscal policy."

See if you can guess what it entails (hint: "Bernanke's Helicopter Is Warming Up", September 13, 2013)

This is Citi bulletin summary:

  • With rates at zero, fiscal policy will be needed to offset any negative shock that hits global economies
  • The practical way of doing so is for central banks to indicate that their balance sheets will remain large permanently and keep expanding if targets are missed …
  • …opening the door for either additional spending or lower taxes financed by the central bank
  • … a (very cold) fusion of Krugman macro, Republican tax and Bernanke (2002) monetary policies
  • The policy is rates positive, so the first central bank that goes down this route will likely see its currency appreciate as the effects are felt

The details are self-explanatory but here is some more from Steven Englander:

G10 policy rates are at an all-time low but already investors are discussing what central banks will do at the next downturn. There is reason to be concerned – rates at all-time lows and balance sheets at all-time highs have not generated sufficient recovery to enable any G4 central bank to begin the normalization process. The fear is that the downward part of the cycle will start sooner than expected, precipitated either by China and EM, as our economists have argued or some other shock.

 

The first instinct is to say more QE, but if the expansion of balance sheets so far was not enough to avert a new downturn, there will be skepticism that additional balance sheet expansion will reverse a new slump. Moreover, the balance sheet expansion seems to have been reasonably effective at lowering yields  and pumping up equities, so the slippage has not been between policy and asset markets but between asset markets and activity, and there is no strong reason to think this will change. If these historically low rates were not enough to generate  a durable recovery, it is unlikely that the next 30-50bps will be enough to counter a negative shock.

To summarize: a recession is coming and conventional QE has failed. Worse, the Fed backed off its experiment at generating a reverse-psychological recovery, whereby a rate hike would have been seen as a catalyst for imminent growth (because what do they know), so the current arsenal of "tools" is useless.

Well, time to come up with a different tool. Here's Citi:

We now think that the move to central banks endorsing fiscal policy and essentially monetizing the added spending will be relatively quick and direct, in the event of a sudden slump in the global activity. When we wrote earlier on this subject we arrived at fiscal after other alternatives had been exhausted, but we now think it can be managed within the current monetary policy framework of most central banks.

Yes, the chopper.

Continuing:

The argument for fiscal policy via central bank monetization is that it directly injects purchasing power into the economy and will increase activity or inflation or  both. QE increases the balance sheet but there is no guarantee that the increased lending and spending will result. In consequence many have argued for true helicopter money which is central bank financed final demand, rather than reserves creation.

Citi realizes that calling helicopter money by its true name would be a problem, so it proposes an "innovation":

Our ‘innovation’ here is to suggest that central banks will invite fiscal spending by announcing that their balance sheets will stay expanded permanently, or almost equivalently, be reduced only under extreme circumstances, and that they anticipate additional permanent expansion if targets are missed. Effectively this eliminates the government debt from the balance sheet, since any coupon payments on the debt are remitted back to the government via central bank profits. Literally the government is paying itself, which is not a bad deal if you can manage it. Many central banks are forbidden to monetize government debt, but governments will understand that permanent balance sheet expansion is an invitation to spend more, opening the fiscal channel.

Shorter Citi: it's time to unleash the biggest Ponzi ever, "which is not a bad deal if you can manage it." If you can't, it's game over.

At that point all that's left are the political considerations of how to implement this as policy:

If the government understands that the CB’s QE is permanent it opens the door to direct fiscal measures and increased demand. Congress may have different ideas on the virtues of additional spending, but they could be tempted by the prospect of Fed-funded tax cuts. There is nothing that forces fiscal policy to be highways and bridges, rather than low personal or corporate tax rates. There are plenty of Republican tax cutting proposals that rely on economic expansion or animal spirits to close the fiscal hole that the tax cut brings (for example, http://www.wsj.com/articles/how-would-the-jeb-bush-tax-plan-affect-you-1...). Combine such a proposal with balance sheet expansion and you have big-time money financed fiscal stimulus. Essentially you are combing Paul Krugman fiscal with Republican tax and Bernanke 2002 {link} monetary. Government spending and infrastructure could be used as well, but it is important to understand that fiscal expansion is not synonymous with government spending.

 

Politically it is difficult for central banks to outright endorse monetization of government debt, but faced with another slump and armed with ineffective policy tools, we expect that central banks will quickly give the wink and nod to fiscal measures – the Fed relatively quickly, the BoJ at the drop of a hat and the ECB with an eye to warding off the growth of anti-euro political movements. If a central bank wanted absolution for this move, it could follow a rule along the following lines -- if inflation is below 1.5% use monetized fiscal policy, between 1.5% and 3% stabilize the balance sheet,  above 3% inflation shrink the balance sheet (the Englander-rule, if you insist.)

 

The announcement that the central bank portfolios would remain permanently enlarged could have an immediate effect on inflation expectations, in addition to any impact on real expected interest rates from anticipated fiscal spending. Low policy rates at the front end and balance sheet expansion preventing the fiscal injection from pushing up medium-long term rates are a powerful stimulus combination ( I think this was Jacob Viner’s recommendation during the Great Depression). The fiscal spending means that monetary policy is pulling rather than pushing on a string so it makes both policy tools more effective.

We are not tenured economists but even we can tell you what would happen to inflation expectations: they would promptly get a "hyper" prefix.

The rates effect is very likely positive at the medium and long end as expectations of growth and inflation rise. To get the maximum activity and inflation boost the central bank may have to keep policy rates low or zero, so that short-term rates become negative relative to inflation expectations. This introduces some ambiguity into the currency effects but we think that the prospect of normalizing activity and hitting policy targets will be currency positive.

Of course, if Ponzi schemes worked then every country would just monetize its debt from day one. At least Citi acknowledges that there are risks to this lunacy:

There is the possibility that this ends up as an activity negative if the fiscal easing is promised, but not implemented, as rates would rise, effectively tightening monetary policy, without the boost form fiscal. So generating expectations without follow-through is dangerous.

Finally, lest Citigroup be accused of urging the end of the USD as a global reserve currency (because make no mistake, if and when the US launches the helicopter, this is precisely what will happen), it hedges:

We view this note as both positive and normative. The positive side is that it discusses how central banks are likely to respond if they face a negative shock when rates are already zero, and even they must be having some second thoughts on the effectiveness of QE. The normative side is that increasingly the absence of fiscal policy is viewed as one pf the reason for a less than satisfactory recovery and we outline a practical way by which central banks could endorse fiscal policy without fully dropping the idea of independence and non-monetization.

And just like that Weimar 2.0 is born.

What Citi's "innovative" proposal really means is that the idea to monetize the debt outright and to "paradrop money" is now being actively discussed among the highest circles of power, and not if but when the next recession hits, it will most likely be implemented.

Trade accordingly.

 

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Wed, 09/23/2015 - 17:45 | 6585682 lasvegaspersona
lasvegaspersona's picture

The problem is of the dollar itself. It is not 'monetary policy' or 'fiscal policy' problem. It is a failure of the medium of exchange and the debt burden it is forced to sustain. When a 100 trillion dollar world owes several times that amount in debt ....everything falls apart. The recent efforts to forestall a collapse have resulted in over planning and over building factories and other production activities and now we have too much stuff for sale in a world that is just trying to pay it's debts.

A failure of the currency, a jubilee, a hyperinflationary collapse...this will fix things. The dollar has to go and with it all the debt. Unfortunately all the paper assets have to go too.

Buildings and cows and dirt will all still have owners. These will still be there when the dust settles. Gold will be the very best asset to hold then. Silver, supported by buyers for industrial use and by buyers for investment will probably suffer as the industrial use just won't be there... and so I'm sticking with the one asset that is supported entirely for it's value as a wealth asset.

Thu, 09/24/2015 - 03:19 | 6587063 Global Douche
Global Douche's picture

I agree with you except for the silvery part. So what if industrial use isn't there? It gives greater metal for those wanting more, including myself. Judging by the significant delays in getting phyzz to buyers, I give that a simple "Meh!", even if the price is hammered lower due to the ongoing manipulation.

Besides, there's far less silver that will be available, until the prices go up, up, UP to cover costs of production and give at least some return to maintain and expand operations in a sustainable manner, which is more difficult with fewer pure silver plays and more difficult for mixed metals found in most silver operations today. Even Silver Wheaton (NYSE-SLW) states they want to pour in at least 3.5 billion USD to obtain more sources. (I'm a former SLW shareholder)

Now I turn over the floor to the SOA and other industrial metal groups for their say. As I stated yesterday on ZH to a different poster, it doesn't pass my "smell test" that metal is available at spot to industrial users, unless they can show a hedging contract or something similar where the price got locked in and remains so. If yes, good for them, although I predict some disruptions to come....

Wed, 09/23/2015 - 17:52 | 6585713 Badself
Badself's picture

It is the littles guys turn for a break... Give a refund of all taxes paid on income less than 100K for a few years and you will see the money a flyin.

Wed, 09/23/2015 - 18:19 | 6585803 insanelysane
insanelysane's picture

I don't get the point of any of this.  The MSM is constantly saying how great everything is going including Europe and China.  Greece has been solved.  The US is ripping.  Mission accomplished!!!

Wed, 09/23/2015 - 18:22 | 6585812 Baron von Bud
Baron von Bud's picture

The US has created military chaos all over the globe with its unproductive wars killing millions. Sexual chaos with transvestite social engineering. Political chaos by undermining elected governments. Financial chaos with Facta, QE, TPP and massive off budget spending. Time to rev up the helicopters and finish off civilization. And, don't forget, we're the exceptional nation.

Wed, 09/23/2015 - 18:26 | 6585824 hooligan2009
hooligan2009's picture

pay no taxes, print money!

Wed, 09/23/2015 - 18:35 | 6585871 Faeriedust
Faeriedust's picture

Bring it on!  I have a couple of fixed-rate mortgages that I wouldn't at ALL mind inflating away.  I can keep raising the rent on the rental to cover my rising utility bills!

Wed, 09/23/2015 - 18:42 | 6585901 q99x2
q99x2's picture

It doesn't take a Q99X2 to figure out that if 93 million workers are not working that they don't have taxes to run squat. What did you think they were doing, printing money for themselves? (satire, sarcasim and cynicism)

They are banksters. That's what banksters do.

Wed, 09/23/2015 - 18:42 | 6585909 aqualech
aqualech's picture

I have a novel idea: how about if the Central Bank just does absolutely no engineering at all and maybe even goes away.  How about "do no harm"?  Who ever said that there had to be constant growth, by their system of measure?

Wed, 09/23/2015 - 18:51 | 6585959 ThrowAwayYourTV
Wed, 09/23/2015 - 19:00 | 6586000 shovelhead
shovelhead's picture

I still have a profound respect for the 3 trillion platinum coin idea but since we haven't minted it we could always add a few more trillion on for a bit of headroom.

Wed, 09/23/2015 - 19:08 | 6586039 yogibear
yogibear's picture

Bernanke's follies lives on. Helicopter print-a-thon.

No end to 0% and QE until the US dollar dies.

Wed, 09/23/2015 - 19:18 | 6586073 Lost in translation
Lost in translation's picture

Why do people use ZH to promote their own blogs?

Wed, 09/23/2015 - 19:24 | 6586089 Joebloinvestor
Joebloinvestor's picture

So for anybody with the wherewithall to take advantage of another government intervention, the opportunity to profit and then sit back and wait for the collapse is worth it.

Wed, 09/23/2015 - 19:33 | 6586118 MEFOBILLS
MEFOBILLS's picture

The money supply is currently 97% credit as emitted by private banks.  How is that working out for everybody?

Actually it is about 97% credit as money, 3% coins /bills as currency, and another 3% is in reserve loops.  Yes, that adds up to 103%

The reserve loop has a weak transmission path to real transaction economy.  The real economy is driven by credit created by private banks.  Reserves are there to help banks pay off imbalances.  For example if you hypothecate yourself in Peoria, new credit is created there.  If you spend it in Midland, then there is imbalance between Midland and Peoria.  Banking system wide there is no imbalance, but ledgers like to be made tidy, and banker in Peoria finds reserves from Midland on overnight market.

In the past, the economy had a lot more treasury money in it, especially bills and coins.  This type of money was not banker credit.  How did that work out then?  Did it cause hyperinflation?

Or go back even further in time when people dug gold out of the ground.  They could then take this metal and have it coined, and then viola – new money entered the money supply.  Did that cause hyperinflation?

Virtually ALLLLLLLLL hyperinflations in history were due to exchange rate collapse mechanisms.  This would be PRIVATE  banks creating credit to thus cause exchange rate imbalances. 

There is one case, ZIMBABWE formerly Rhodesia, where there was government printing to then cause hyperinflation.    That would be a government that killed off the producing citizens (White Farmers) and then issued new money against an eviscerated economy.  All this action did was point out what most people already know, that money volume needs to flux in relation to goods and services.

Is private bank credit volume controlled to match goods and services?  (NO, and it vectors in finance insurance and real estate.)  Does it channel into GDP type activity?  (Credit as a money type should only be aimed at GDP type activity, not finance and not transaction medium.)

 

Please think for yourself people, and don’t buy a lot of the histrionics spewing forth from media. 

Wed, 09/23/2015 - 22:38 | 6586685 newworldorder
newworldorder's picture

Thank you for all the illuminating postings. Some questions.

While the FED in total and the Ny FED in particular started as US entities, for some time now, they have become "the rich uncle with unlimited resources" that can bail out other uncles, -  Central banks - as well as a lot of other family members in the form of the 100 to 200 largest banks, brokerages, dark pools, etc.,  in the world.

Question: If that is their new role and it is accepted by the illuminati and the plebeian, what could be the problem? In the minds of the uninformed, what happens in the backgrooms of banking has never been understood or even cared to be understood. Why would this not be the perpetual money machine that everyone can sign up - to believe in?

I am not alluding to economic theory vs past reality. I am simply indicating that the man on the street does not care. As long as the checking account has money, the EBT cards work, and everyone can somehow scrape through without being denied their daily pleasures, what is the big deal?

Money, swaps, derivatives, market operations, FED, IMF, World Bank, etc, are not part of the daily reality for most if not all.

We live in a matrix world of money, where illusionary Central Banks digital money is mixed with earned money of all labor, to levitate all markers to infinity. As long as the illusion can be maintained, the piper is forever silenced. The only problem that arises, is if one is not earning sweat labor money and is not able to tap into the FED/Banking money spigot for various goodies.

I am not advocating any of this, but that is what I am seeing in the game called American/Western life.

Wed, 09/23/2015 - 19:40 | 6586148 Herdee
Herdee's picture

Hurry it up now.I want free paper fiat in order to buy silver and gold.

Wed, 09/23/2015 - 20:55 | 6586155 MEFOBILLS
MEFOBILLS's picture

Before private bankers linked up their reserve loops, they could not command the economy.  The linkage happened fully with Federal Reserve … actually New York Fed (wall street).

In those days private banks needed Treasury money.

In the case of Greenbacks, it was emitted directly from the Treasury.

If there was an imbalance in double entry ledgers between Peoria and Midland, they settled with Treasuries. Treasury money fluxed in economy along with bank credit.

Banker creditors always pretended that their “paper credit” issuance was the same as Gold, and later the same as Treasury money.

Now, they scream about how Treasury money is going to cause inflation – when in the past they had to have it to balance they system.

During Greenback era, up to 60% of money supply was Greenbacks.  No hyperinflation then… in fact there was not enough greenbacks circulating and there was deflation problems.

Biggest problem was call loans.  During harvest season loans would be called and greenbacks would be pulled out of stock market.  Merchants needed greenbacks during harvest season so people could buy and sell produce, but this caused stock market to collapse on a seasonal basis.

Bankers actually wanted more greenbacks to deal with call loan problem, or they wanted some way to flex money supply so they would not get stuck with unbalanced ledgers and non -performing loans. 

There were similar screching and whining about things back then, but what animated people then and now, is their desire for usury and rent takings.  

 

 

Wed, 09/23/2015 - 19:49 | 6586173 MEFOBILLS
MEFOBILLS's picture

So if Treasury type money is injected into a banker/credit money supply then what happens?  Is it hyperinflation.

The only time that happened was Zimbabwe under unique circumstances.  The rest of the time it was too much private credit formation per unit time, with bear raids/shorting mechanisms.

What really happens is the money goes into GDP type activity, where it leave a trail of production.  Say, new high speed rail, or new highways, or improved buildings.   That is, if it is spent correctly..

This type of money can then go on to pay off private bank debts.  This means that banker does not hold debts on society. 

Oh horror of horrors, people can actually work their way out of debts.

The U.S. constitution article 1 section 8 requires Congress to control Legal Tender.  Banks create private credit as money, which is a doppleganger for money.

To suggest that real money is going to be a problem and cause hyperinflation is absurd, and flies in the face of what really happened in the past.

 

http://www.monetary.org/paper-money/2013/01

Wed, 09/23/2015 - 19:56 | 6586195 Advoc8tr
Advoc8tr's picture

Am I missing something (other than a brain) this is not the same as "Helicopter Money" as proposed by Macquarie and as used by our Gov during the GFC where currency / credit is given directly to the citizens ... this is giving it to the government without the associated downside of having to pay it back.  The stimulus would go staright to defense spending etc rather than as widespread and diversified consumer spending.  I guess if they do embrace moving taxes to zero to win elections then the outcome is synonymous but there is no guarantee that governments will do that.

Wed, 09/23/2015 - 20:01 | 6586216 MEFOBILLS
MEFOBILLS's picture

So, how about the dark ages?  That was when land was enclosed and gold consecrated to the vaults.  There was poor economic activity because land is the basis for all economics.  Also, the money wasn’t present, so there was no easy way to trade across time and distance.

How about the Great Depression?  There was food on the ground that rotted, because labor could not be paid.  There was no money.  

During roaring 20’s people hypothecated themselves with banker credit, then gambled it in stock market.  This then caused market prices to rise, which then made stock paper look good, which then allowed more credit creation, to then increase the market in an unwanted positive feedback cycle.  It is something like the screeching on a microphone when it gets positive feedback.

Eventually the credit bubble pops because it fueled nothingness.  Trading of paper back and forth rather than really producing something that people need and want is not GDP type activity.  Property bubble was same thing.  Property just changing hands does nothing to make new housing at a good price, it just enriches those who are doing the transactions.  It is heat and waste, driven by new banker credit.

The idea is that money supply needs the right mix of money types.  A money supply that is 97% private banker credit cannot work.  It is not volume controlled relative to goods and services production.  It does not vector into GDP type activities.  Usury on this money type is buried in debt instruments and they constantly grow demanding ever more from futurity. 

OOOOH the horror, a money supply that has real money in it.

OK, so what is QE aimed at the bloodstream?  It effectively is something like treasury money because it will not be swapped not for TBills. 

 

Or, there will be new development banks that will emit something like credit, but it won’t really be credit because the debt instruments will never be redeemed.

Wed, 09/23/2015 - 20:03 | 6586223 ArmyofOne
ArmyofOne's picture

So owning gold would be good?  No?

Wed, 09/23/2015 - 20:03 | 6586224 goldenbuddha454
goldenbuddha454's picture

Citi voicing an opinion on QE  is like George Stephanopolous asking for contributions to the Clinton Foundation.

Wed, 09/23/2015 - 20:13 | 6586278 MEFOBILLS
MEFOBILLS's picture

What about the fears that this type of money cannot be recalled?

How about Taxes?   They recall the former treasury money.

How about private debts, especially if economies are in debt deflation?

This type of money will go on to pay down private debts, which is not hyperinflationary.

Injection of exogenous money, which means it is created outside of banking system is exactly what got world economies out of deflation. 

In the case of U.S. is was reconstruction finance  corporation.. about $1T.  In Canada it was debt free money straight from BOC.   In Germany it was MEFO BILLS.

With regards to Germany’s earlier hyperinflation, the Reichsbank was PRIVATE during that period under Morganthau plan.  This was forced on Germany by private banking cabal in the U.S.  It was private banks in Germany would create credit like crazy and also were allowed to print tangible notes.  It was shorting exchange rate maneuvers by private raiders that caused hyperinflation, and underlying pressure was unpayable debts due to Versailles treaty.

Germany was not allowed to export , to then get hard currency, to then pay off dollar/pound/franc denominated debts.

So, the foreign denominated debts grew with usury, and made increasing demands on exchange rate.

Schact was put in charge of Reichsbank and immediately started stomping on the face of privateer bear raiders and others who were destroying Germany.  It was renewed government control of central bank and hence volume/type control of money that stopped the hyperinflation.

 

So sorry if real history does not comport with all the bogus assertions made in the media.  

Wed, 09/23/2015 - 20:25 | 6586317 MEFOBILLS
MEFOBILLS's picture

And we all know where that helicopter will hover ...  over the Hamptons

 

QE is hovering over the hamptons now.

QE is a liquidity swap aimed straight at reserve channels of banks.  This then allows finance to borrow at .25 percent or lower.  Banks actually get paid interest on money held in reserve accounts to prevent rate collapse to zero. 

People in the Hamptons can then borrow cheap money (banker insiders) to do carry trades, or maybe buy back their companies stocks.  Or they can work out deals with each other via securitizations and then siphon off usury as insurance.

 

QE aimed at blood supply would actually rev up an economy with credit aimed into gdp type activity rather than banker channels.

QE aimed at blood supply would mean helicopter flys away from the Hamptons.

The bottom loop of the economy, where labor and producers live, is in depression.  Most of the wallet money they can get through desperately selling their labor, vectors away to pay debts.  Finance is a parasite and it is killing its host.

Wed, 09/23/2015 - 20:30 | 6586335 black dragon
black dragon's picture

technology to replace banks and money  http://www.bioscalar.eu/en/devices-dr-meyl.html

Wed, 09/23/2015 - 20:37 | 6586354 blindman
blindman's picture

the bankers are literally paying themselves.
there,
fixed
it
for
you.

Wed, 09/23/2015 - 20:50 | 6586356 honestann
honestann's picture

I'm sorry, but the article lingo wasn't clear enough for me.  So let me ask the question directly.  Does this so-called fiat "money" created out of thin air come along with an equal quantity of fiat debt [plus interest] (that must be paid back), or is this scheme different in that they just create fiat "money" without creating the fiat debt + interest along with it?

One of the problems of all modern discussions is... the neo-lingo talks about creating fiat "money", while in fact they are creating even more fiat debt than fiat "money".  Which obscures almost all fiscal and economic discussions for everyone who doesn't themselves always say to themselves "whenever they create fiat money, they are creating even more debt".

Why this is important should be obvious... DEBT IS A DRAG on economic activity.  And so, even though the drag on economic activity comes later than the boost of [largely malinvested] economic activity, the DRAG IS ALWAYS LARGER.  Which is why the fiat money-is-debt system is inherently self-destructive in the long run.  And in case anyone here doesn't get it, the long run has arrived.

PS:  The negative (actually disastrous) consequences of this phenomenon is much worse when past debt is simply "rolled over" (paying past debt by borrowing more), because the past debt accumulates exponentially.  And this is indeed how all governments work today, as well as many corporations and increasing numbers of individuals via government-promoted debt scams (including college borrowing and no/low/unverified qualification loans for cars and homes).

Wed, 09/23/2015 - 21:26 | 6586491 Crocodile
Crocodile's picture

The BORROWER is slave to the LENDER; God always used an economy of words with vast implications...love Him!!  You to.

Thu, 09/24/2015 - 19:01 | 6590785 honestann
honestann's picture

I really do admire people who can convey ideas, thoughts, information in clear and concise ways.

Sometimes people do that in ZH, convey an idea in one or two sentences that took me a few [dozen] paragraphs.  That's very impressive, and often humbling.

However, since I have a strong personal need to understand topics deeply, I typically grovel through endless aspects and issues within and relevant to topics before I gain what seems like a plausible grasp of those topics.

And so, when I decide to express myself on many topics, I do have the tendency to spew a great deal more background than is necessary to simply state my opinion.  I guess my assumption is, others who are still grappling with the topic may find one or more of those elements helpful to gaining their own personal understanding.

Nonetheless, I really do love concise statements... especially when they say just as much as my long-winded babble.  That really is very impressive when it happens.

See, there I went and did it again.  Doh!  :-o

Wed, 09/23/2015 - 20:38 | 6586364 Kreditanstalt
Kreditanstalt's picture

In other words, forget the banking system...just give the counterfeit "money" directly to governments.

Wed, 09/23/2015 - 20:39 | 6586367 MEFOBILLS
MEFOBILLS's picture

 

It is bankers like City talking about QE aimed at GDP type activity, then something weird is up. 

 

It is not their normal banker propaganda schtick.  The fact that government in U.S. is not re-asserting it Constitutional money "coinage" mandate is more disturbing.  Yet even more disturbing ...that bankers have to tell government what to do.

The parasitism runs deep.

Wed, 09/23/2015 - 20:58 | 6586372 RMolineaux
RMolineaux's picture

Whle the Pope is visiting, perhaps we can ask him to intervene with the Almighty to save us from those lunatics who are proposing "fiscal measures," like lowering taxes, to reignite the world economy.  The biggest obstacle to economic growth in the US currently is the mal distribution of income.  What is needed is a decent minimum wage which will remove the subsidies that low wage employers are currently receiving in the form of food stamps, welfare and housing assistance for their employees.  This will enable the only kind of fiscal measure that will lift the economy namely infrastructure investment with all its multipliars.  This is the lesson of the thirties, in defiance of all the current disciples of the "free" market.  The siphoning off of taxpayer money into warmaking is both destructive and useless. 

Shortly before his assassnation, Kennedy issued an executive order to expand the issuance of silver certificates which were then still in circulation.  This would enable the president and congrress to bypass the Fed's blockade of monetary expansion and restore some of the congress´s authority to coin money as the constitution provides.  Currently, the Fed is indulging in massive monetary expansion, but it is all going to the Wall Street crapshooters.  We need money in the hands of producers.

Wed, 09/23/2015 - 21:23 | 6586487 Crocodile
Crocodile's picture

Since the Poope is an anti-Christ; I assure you he has a direct line with SATAN only...certainly not with Christ.  Then again, since you are not able to discern this truth, then you should be very SCARED since their are only two families on earth.  Those for Christ and those opposed to Christ; those opposed fight against the most powerful being that has always existed & always unsuccessfully.

Wed, 09/23/2015 - 21:33 | 6586510 RMolineaux
RMolineaux's picture

If there is a god, it is the same one that everyone prays to, regardless of the book they use. 

Wed, 09/23/2015 - 20:46 | 6586390 MEFOBILLS
MEFOBILLS's picture

Debt that is just ink on ledgers is effectively debt free money. 

When China's state banks forgive loans, which they do all the time, they have printed debt free money.  The debt ledger no longer can recall its former credit, as debt instrument was torn up legally.

All money is law.  Even private bank credit must take on some form of law..say to make their credit good for paying taxes.

Whenever people talk about debts, one should ask, What kinds of debts?  Where are they?  What are the claims?

In the U.S. public debts have their interest rebated to the treasury; this then lowers taxes.

Private debts are people working to pull money out of money supply to then give to banker.   Banker then gets the usury for the simple act of his former keyboard entries.  All the interest is paid up front on the loan, so seigniorage also vectors to banker.

If a country owes foreigners debts denominated in their currency then that is a lot worse than being denominated in your own currency.

So, one has to ask about the nature of the debts...this question virtually never comes up.  

Wed, 09/23/2015 - 21:19 | 6586475 Crocodile
Crocodile's picture

Bankers for Bankers best interest.  Can't let those asset prices deflate; that is our bread & butter.  SHUN THEM ALL!

Wed, 09/23/2015 - 22:09 | 6586609 Westcoastliberal
Westcoastliberal's picture

This is already happening in Socal.  The South Coast Air Quality Management District (SCAQMD) is offering a "Replace your ride" program where if you qualify, your old junker might be worth up to $9,500 on a clean air car like a Prius Plug in.  Doesn't have to be new, but point being, this serves a dual purpose; (1) gets polluters off the road and (2) direct stimulus! 

Wed, 09/23/2015 - 22:13 | 6586619 MEFOBILLS
MEFOBILLS's picture

Ciphering out the article and putting it in ‘more’ plain language.  Maybe not that plain – but I try:

If a central bank wanted absolution for this move, it could follow a rule along the following lines -- if inflation is below 1.5% use monetized fiscal policy, between 1.5% and 3% stabilize the balance sheet,  above 3% inflation shrink the balance sheet (the Englander-rule, if you insist.)

Bankers insist that they own monetary policy, that is creation and destruction of credit.  They emit new credit along with a debt instrument and they then recall their credit over time…as loan is paid down.  Of course, they won’t admit to the downsides, that their credit is largely aimed at things that are not useful, and their debt instruments will grow and make claims in many ratios higher relative to the former credit.  Debt instruments make more claims on credit money supply than credit created.  This is usury, an unbalanced deal, where banker gets to harvest people and property during depressions, to then rip up debt instrument.  It is a power relation, where people have to come to bank to then bend over to get a debt loan.  The banker gets to hold debt instrument, and the interest fluxes toward banker. 

Shouldn’t your neighbor be loaning you their savings?  Shouldn’t older generations be making loans of their saved money to younger generations without a damn banker standing there in the way?  So, banker has inserted himself in human relations as a parasite.  He stands between trading people, getting in the way and taking.

So, credit bankers really shouldn’t own monetary policy, but they insist they do.  However, they cannot insist that they own fiscal policy i.e. taxes.  That is a step too far and obvious overstepping of bounds.

A quick view of Wynn Godley’s sector equations shows clearly that people’s savings are somebody else’s debts.  That is how a debt money system works – somebodies debt is another person’s savings.  In the case of Government debts that are not paid back, then that is people’s savings.  In other words, there is little transaction medium or savings without government debt.

Where does government debt come from?  It is typically deficit spend.

So, the “absolution move” would allow government to deficit spend or give some sort of paper to a central bank, which then creates money.  This money is then spent as “monetized” fiscal policy below 1.5%.  Next step up allows bankers to stabilize balance sheet, meaning they get to recall their former credit and make loans in some sort of balanced arrangement, with their hand on the interest rate knob of course.  And of course, bankers still get to decide where to allocate credit, especially if it benefits them.  (Is this how a sovereign people should govern themselves?)

Above 3% inflation, bankers get to call in loans at a greater rate than they make new ones.  This then drains the money supply of its former credit.  Credit when it returns to ledger disappears into nothing.  What comes from nothing returns to nothing.

Let’s never mind that most of the money supply is needed for savings and transactions.  That type of money should be debt free as all transactions and savings should not be taxed with interest.  Think of it like baseband power, it is necessary to run an economy, and this demand will be fairly constant.  There is some S shaped activity due to seasons and crops, which should be taken care of with sovereign credit.

The real solution is sovereign money and sovereign credit.  No discussion about that in the media.  This would be private banks that do not create credit, they work for fees.  The money supply has been nationalized, but not the banks.  State banks are too much intrusion.   Why should government hold debt instruments on its people?  

It seems the best we can do is have private central bankers forcing some sort of weird QE to then get direct spend into producer’s hands. Money is latent demand when held by somebody ready to spend. This is why they want to inject it helicopter style, because the way it is aimed now it does not become demand.

 

 It will be just enough injection of money, so parasitism can continue.  It will take the heat off of private banking system so people won’t see the obvious defects.  It will keep the people in permanent debt bondage to those who create credit.

Wed, 09/23/2015 - 22:19 | 6586633 VWAndy
VWAndy's picture

Team suck scores again. How much is the tab for this going to be? So I can raise my prices again. I just did that what two flipping weaks ago. Kinda makes me want to sit on my inventory for a bit longer.

Wed, 09/23/2015 - 22:42 | 6586696 moneybots
moneybots's picture
  • The practical way of doing so is for central banks to indicate that their balance sheets will remain large permanently and keep expanding if targets are missed …
  • …opening the door for either additional spending or lower taxes financed by the central bank

 

But that is not helicopter money.  That is more government debt.  Helicopter money would be debt free.

Wed, 09/23/2015 - 22:58 | 6586735 Demdere
Demdere's picture

Seems like a good idea to me, but only if we take all of it back from the banksters.  Otherwise, all we do is buy our own property back, and they still have all the $.  What good will that do?

Wed, 09/23/2015 - 23:28 | 6586813 JR
JR's picture

Calls for the “People’s QE” are signs that “the economic system that was ushered in at Bretton Woods that received its first significant blow in 1971 and that went on life support in 2008 is close to dying.”

Bionic Mosquite explains:

“Until price inflation becomes politically painful, any and every monetary crank experiment will be tried – money is no object; they can print more!  They will return to greenbacks. They will drop $10,000 into every bank account.

“By the time they try every experiment, they will have consumed untold trillions in productive assets – consumed by unproductive users.  They are spending untold wealth on a patient that is certain to die soon (at least soon in empire-years). …

“They are willing to pay any amount of (someone else’s) wealth to find a cure.  They should take sound words of advice from the sage, Les Claypool: ‘There ain’t no cure for suicide.’”

Thu, 09/24/2015 - 00:40 | 6586917 jmcoombs
jmcoombs's picture

Not sure re how it'll be woven in to this situation, but I expect the Democrat nominee for Pres to announce forgiving all student debt. Is over 1trillion dollars. You know you can see that one coming.

Thu, 09/24/2015 - 03:50 | 6587085 Sorry_about_Dresden
Sorry_about_Dresden's picture

Amen brother!

I have a fancy degree as a chemical engineer and just got fired from the local supermarket for no reason that I can think of. I still have tons of debt. Even if I get a decent job it will never be enough to pay that loan.

The market shifted while I was in University in 2000, all the jobs evaporated and all the industry went to China.

I need relief. There are not enough jobs to go around and we are left fighting for scrapes working as a grocer clerk. And those jobs aren't secure.

Will this country going to recover or are we going to be buried by Asia and squeezed by M&A. 

Thu, 09/24/2015 - 06:22 | 6587177 Raoul_Luke
Raoul_Luke's picture

It is the result of the Keynesian quest for increased "aggregate demand."  When the policies are all focused on the demand side, in an international economy, there is no guarantee that the production it facilitates will be domestic.  That's why the Keynesian policy agenda is doomed to failure (and why they serially scream for moar "stimulus").  If you free up markets and focus on letting smart industrious citizens start and expand businesses, you will get your "aggregate demand" in the best possible way, according to Say's Law...

Thu, 09/24/2015 - 01:39 | 6587006 MEFOBILLS
MEFOBILLS's picture

We live in a matrix world of money, where illusionary Central Banks digital money is mixed with earned money of all labor, to levitate all markers to infinity. As long as the illusion can be maintained,

 

Yes, it is a matrix.  Most people don't want to take the red pill.  Even 911, which blatantly defies the laws of physics, has been accepted as fact by the mass of non thinking sheeple.  Humans are defectives, but that doesn't mean you have to lie to yourself.  

Don't tell yourself lies, and don't pass on lies ... we at least have that much control.

"You take the blue pill, the story ends. You wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in wonderland, and I show you how deep the rabbit hole goes." 

Thu, 09/24/2015 - 01:45 | 6587008 truth vs fraud
truth vs fraud's picture

I have been hearing that QE3 never stopped.  The FED just sent free money to other banks who did the QE3 so we wouldn't see it.  If that is true, and I think it is, then the economy has fallen down even with more QE and now, on top of that comes QE4 and the Weimer Republic.  The FED knows QE does not work, is lying about it being stopped, and is going to double or tripple it.  If we could see the FED'S accounting, we would be horrified!

Thu, 09/24/2015 - 03:20 | 6587064 GreatUncle
GreatUncle's picture

Pre 2008 the money creation was through the leverage on lending and inflated assett valuations.

2008 QE implemented because the old system could not generate enough.

Now they attempt to hide the money creation because we were not supposed to see what they were doing.

Where they fail is not realising the growth of the money creation hidden or not has to occur otherwise you stagnate.

In addition they run out of finite assets to buy,game over if the FED owns everything.

Thu, 09/24/2015 - 06:11 | 6587166 overmedicatedun...
overmedicatedundersexed's picture

well without Justice, claw backs and jail time, the basis of any economic recovery is lost..the reason qe has failed is There is no justice for the tbtf- somebody needs to go to jail, and it ain't the poor kid selling cig's on NYC streets.

Thu, 09/24/2015 - 05:02 | 6587122 explosivo
explosivo's picture

Does this mean I'm getting a phone?

Thu, 09/24/2015 - 05:19 | 6587135 kotfare17
kotfare17's picture

This is Court Martial stuff.

Anybody who would even try to push for such lunacy, will be arrested and sent to Court Martial, in my view.

 

USD would die instantly as world currency. WW4 would ensue, since ww3 is under way right now.

Thu, 09/24/2015 - 06:18 | 6587172 Raoul_Luke
Raoul_Luke's picture

This is getting ridiculous.  The velocity of money is cratering precisely because of all the central planning and the big government that goes along with it.  You cannot increase it by doing more of the same.  Get the government out of the way and let a few million budding entrepreneurs get the velocity of money increasing once again.

Thu, 09/24/2015 - 20:01 | 6591059 Constitutional.Reset
Constitutional.Reset's picture

This Bankster news has presumptions to hide the truth.
-----------------------------------------------------

I ask your support H.R. 25 The Fair Tax Act because it is a good and necessary part of "The Dovetailed Solution" to our fiscal cliff and many other problems.

"The Dovetailed Solution".

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

Duly authorized voters are the sovereign authority owning the corporation of the United States of America. They own equitable title and they own legal title in that they may impeach trustees at will or for cause satisfied thru grand jury indictment for any breech of duty to the only legitimate beneficiaries – the citizens of the United States of America.

The owners cannot except by fraud and treason be deemed to have pledged their assets and their persons as surety for their corporation's debts.

There is no court of bankruptcy that can conceit sovereignty over the incorporated United States of America and its owners short of fraud and treason by the offending court's officers.

By employing Fair(federal retail sales)Tax and three currencies simultaneously it is possible for the people of the USA to personally win in the inexorable race-to-the bottom of existing fiat currencies that all major trading nations use.
There is no legitimate reason that the corporation of the United States of America cannot be authorized to orderly work out its dollar denominated assets and liabilities (including contingent off-book items) by working with three freely exchangeable currencies.

These three freely exchangeable currencies are:

1) the federal reserve note dollar to be used for redeeming all dollar denominated assets and liabilities (including ALL taxes and government purchases);

2) a constitutional money coined of steel and other high-energy useful materials , tradeable by convenient redeemable certificates having a one to two standing with existing stocks, These material are a useful store and transport medium for the value of our essentially surplus natural gas. The terms of redemption delivery should be FAS certain foreign ports. This currency will become the world's favored currency of trade. We will be paid both

A) by printing for export the certificates in circulation and

B) by market hegemony in these high energy materials.

3) a Ben Franklin specified script of treasury issue in an amount equal to the sum of domestic consumption such that inflation and deflation is minimized over all.

A state collected federal retail sales tax will replace ALL other federal taxes. As the economy grows the amount of the Ben Franklin specified script will need to be issued by the treasury. This issue will be made as a federal sales tax prebate/dividend made equally to every duly authorized CITIZEN. Federal welfare of all types may be justly eliminated along with every hand-in-your-pants federal bureaucracy. And so as a result a decrease in those state hand-in-your-pants bureaucracies dependent on the federal teat and mandate.

This tax structure will largely eliminate the enticement for people to become illegal immigrants. And will cause almost all illegal immigrants to become properly legal immigrants.

There are details for this. The remaining illegal immigrants would likely have extremely criminal motive to be here.

As the federal reserve's dollar is diminished in use and utility the problems with the dollar and its Federal Reserve bankster fractional reserve crew can be worked out until no longer significant.

State Chartered non-fractional reserve banks may disburse the citizen dividend/prebate in Franklin script, make loans in Franklin script, and employ (upon citizen choice of use) the existing dollar banks as contractors for this activity. New loans denominated in fractional reserve dollars will not need to be made illegal - they will disappear by market force.

The same sunset will take dollar denominated Social Security and other forms of federal intervention. As Beneficial/Equitable owners of the nation citizens receive an inheritable and gift-able but not otherwise alienable Medical Trust and Education Trust account.
Also the problems of the student loan bubble and the end-of-life medical expense bubble will slowly vanish by market forces.

All this while Americanly exceptional Liberty & Prosperity grows as fast as its people embrace it.

https://www.facebook.com/groups/FTgrassroots

 

Thu, 09/24/2015 - 21:42 | 6591399 Phoenix901210
Phoenix901210's picture

Holy shit!

Thu, 09/24/2015 - 23:23 | 6591650 rex-lacrymarum
rex-lacrymarum's picture

Economic growth has nothing to do with "spending". Printing more money (regardless of the specifics employed) doesn't create one iota of additional real capital. All it does is dilute the purchasing power of already existing monetary units and distort prices across the economy. This in turn leads to malinvestment and ultimately even more capital consumption. In other words, these proposals amount to "how can the central planners impoverish us even more quickly and thoroughly". 

Fri, 09/25/2015 - 00:25 | 6591756 Phoenix901210
Phoenix901210's picture

... and the ECB with an eye to warding off the growth of anti-euro political movements.

Interesting line.

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