It explains why inflation isn't taking off (disregarding those prices at the grocery store and my favorite hash house, I guess) despite very low interest rates. It also illuminates the problem that has arisen because such bank lending that has taken place has not gone to fuel productive activity. (Stock buy backs may be an example of such unproductive use of low-interest corporate borrowing though that's just my thought and not something mentioned in the article.)
You'll learn that lenders are in fact tightening up on lending standards rather than choosing to goose the economy as the Fed desires. This also interferes with the Fed's master plan to stimulate more lending at lower rates to allow borrowers -- who are not watching productive investments pay off and enable proper debt service -- to pay off earlier high-cost debt with new lower-cost debt to keep the wolf of money destruction/deflation from the door.
If the banks won't lend/goose then it seems the Fed might have to consider direct lending to the unwashed to keep inflation going. This isn't "helicopter money" exactly as that appears to involve a gift to the unwashed whereas the authors speak of "direct lending" with the Fed playing the new role of lending bank.
If the Fed manages monetary policy with the same tools of the last decade, inflation is not likely to rise meaningfully. The Fed understands the trap its monetary policy leaves them in.[1] To escape, the Fed may consider printing money. We suspect doing this via direct lending efforts is their way out of the trap.I could have chosen a different title for this piece but, regardless of the monetary realities referred to in this quotation, I just have to regard that bit of elite contempt for the law like a cut diamond the size of a basketball. Life in a "law as optional" society and don't I love it. Interstate Commerce Clause limitations? Gone. Natural born citizen requirement for president and vice president? So yesterday. Congressional declaration of war? "terrorism," boss, and don't you forget it. Federal health care catastrophe? Right there in Art. I, Sect. 8, Darlene. U.S. District Court orders with nationwide effect? Sooo? Federal right to have an abortion? Plain as day, slick.A popular rebuttal to our synopsis is that it is illegal for the Fed to make direct loans. That is very true, but neither is the Fed allowed to buy corporate bonds. They chose not to abide by the Federal Reserve Act and Congress did not stop them.
As long as congressional oversight is weak and the public is blind, the Fed has the tools. If the Fed wants inflation, they can get it.[2]
Anyway, back to the main event. There's probably little difference between helicopter money and direct lending, as what politician with the customary gelatinous spine won't recoil from any serious (LOL) attempt to force repayment of said "debt." So, bogus "debt" (if it ever happens). And no mandate for helicopter money either, unless the Fed's mandate is actually "pursuit of the good life."
Cut to the chaise lounge, the abhorrent deflation seems to be inevitable as monetary and fiscal tools are losing their mojo in a big way and Mr. Debt Service never, ever ceases to come round on the hour to demand the vig. In irons as the sailors would say.
I'll close with observations I've made before. It's tragic that so much of our national life is now being determined by tiny, tiny groupings of Wise Men and Latinas at the Fed and in the Supreme Court, to name but two. WTF on that, brother trucker.
And . . . underneath the Fed's 2% inflation target[3] is the reality that 2% inflation necessarily means that, according to the Rule of 72, $1,000 your grandson might put in the bank today will be worth $500 in 36 years (plus some pittance gained from the going rate of interest on his account). That means that your grandson is guaranteed a life on the treadmill, if nothing else, just to stay ahead of inflation and keep what he had in the first place.
Life as a Wal Mart greeter looms for the elderly who failed to turn the hamster wheel fast enough to adjust for the wisdom of a benevolent Fed and its precious 2% inflation target and navigate the shoals of risk-on investing. Built in instability, impermanence, anxiety and confusion.
And did I mention the astronomical loss of purchasing power of the dollar since 1913 due to the Fed's "stewardship"?
And yet this is all "normal" brought about in part by the swashbuckling Janet Yellen.
Denzel himself couldn't stop this runaway train.
PS -- For some healthy perspective on this see Peter Schiff's insights into vat ees goink on. I salute him for his most important insight that "this" just isn't "capitalism." It's a dog's breakfast of central planning and socialism that bears as much relationship to real-deal capitalism as a Happy Meal does to a medium-rare rib eye feastaroonie.
Notes
[1] "Under our economic construct, unproductive debt needs more debt at lower interest rates to sustain it. At some point, and we are likely near, or at the point, it needs inflation to reduce its burden" say the authors, debt that can't be repaid being deflationary.
[2] "The Fed's Bazooka Is Broken – Will Direct Lending Be Next?" By Michael Lebowitz and Jack Scott, ZeroHedge, 9/30/20 (emphasis removed).
[3] An inflation rate that it somehow conjured out of its dual mandate of price stability, SHMG, and maximum sustainable employment! Out of curiosity, what fisking "price stability" do they have in mind?
4 comments:
I remember my grad school macroeconomics class talking about Bretton Woods and how we went off the gold standard. He was deliriously happy that this happened. Now, as I recall, there were some good arguments for going off it but now, looking back at my time-fuzzed memory of the class, there were very few arguments presented - post facto and moot as it was - for remaining on the gold standard.
As to the stock buybacks. IMHO a lot of things in industry changed; one of which is the shift to the Migrant C-Suite. It used to be that executives, for the most part, came up through the company. Thus, they knew the company, knew many of the people, and had an emotional vesting in the success of the company.
Today's C-Suite often has none of that. E.g., a good friend of mine just got laid off by his employer. The company itself was bought by a capital firm which is wringing it dry of profits. Everything, no detail untouched, is being squeezed to create profits that fuel the C-Suite bonuses. Then, when the husk is dry, they'll depart for the next target. Regardless of the destroyed company and devastated lives.
Following up is this post with which I agree:
https://gunfreezone.net/im-sorry-but-i-have-to-agree/
“Me-first” capitalists are the CEOs who lay off an entirely factory, outsource production, kill a small town, and drive thousands into bankruptcy to pocket a fat bonus.
And yes, when the last American factory worker is laid off so the next holding company manager can make another billion, I suspect a lot of people will be stood against the wall.
Offshoring may may products (somewhat) cheaper, but IMHO what this represents is a wealth transfer from the people who are laid off because of this, to the C-Suite that reaps the financial rewards (plus, of course, the stock holders).
I have a friend who can't draw a breath without wondering if she can help someone. Lovely lady but no boundaries. That's the extreme one way, the other is not giving a hoot about those whose lives you touch.
If one faction of shareholders voted to buy back shares to increase their own dividends I can understand that. That deprives the corporation of a certain amount of ready cash and is not an investment in productive expansion (or simple maintenance). Corporation loses but shareholders win. Awful? Probably not. The "business judgment" rule protects management from shareholder suits and arguably feathers the nest of the odd executive.
Awful? So shareholders prevailing occasionally seems fair. Life's a bitch.
Management initiated buybacks to maximize compensation deprive the corporation of operating/investment funds, disproportionately reward management, and sprinkle a little on a probably large number of shareholders to the tune of an extra 15 cents per share dividend (if one's declared).
Management and shareholders don't have to be like my friend but you'd think that something like business ethics might moderate this phenomenon. Especially as the amount involved in all buybacks is freeking enormous. They are part of what you describe. Destructive, short-term blood sucking.
Obviously, corporations can take on attributes of overly centralized, globalist operations where an Indian CEO might just not care for the welfare of workers in South Bend. Or the CEO can involve what you describe, an officer just not firmly rooted in the company. Personally, when I've dreamed of entrepreneurial success it's involved the pleasure of developing a motivated, creative family of employees who all prosper with me along the way. So the thought of having no regard for my employees and the future of the company is foreign to me. There is cruelty in having employees train their cheaper foreign replacements.
It doesn't surprise me that the gold standard went undiscussed. Why would our political and intellectual class ever engage in a careful study of available options AND their ramifications? Over a hundred years after the end of the greatest slaughter in history until that time and the political class is still utterly clueless about the dangers and unbearable costs of war. Welfare, unconstitutional federal health care, income tax, civil rights madness, regime change, nation building, Russia baiting, monetary lunacy, fiscal diarrhea, mad social engineering, embrace of anarchy and revolution? Completely unexamined. There is NO national debate on anything and anything threatening to develop is beaten down with "anti-Semitism," "hate," "racism," "Nazi," "capitalism," and the like.
Mitt seems to have made a fortune in skinning troubled corporations. I can't say there's no role for shock therapy for enterprises on their last legs. If a smaller but functioning company emerges then some group of executives and workers survive to work another day. Somehow there seem to be a lot of "f^^k you" vibes to that way of making a living, esp. where I have no doubt that Bain Capital, if that was his company, made out bandit-like in the process.
Oh well. Scavengers do play a vital role in nature so why not in the business world.
Also a wealth transfer to China even if individual Chinese workers still only make a pittance.
The tragedy of our times is that the left and particularly the political elite are acting as your describe. We're collectively eating our seed corn, treating whites and productive citizens like dirt, and trashing every remnant of a great culture for trifles, lies, or fantasies. The civilization is being looted.
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