by Alfred Adask
Control of the economy is based on two sets of powers;
1) The Federal Reserve wields the
monetary powers which include control over interest rate and over the supply of currency.
2) The U.S. government wields the
fiscal powers which include raising or lowering taxes, raising or lowering borrowing, and increasing or decreasing government spending on benefits, subsidies and wars.
For the past year, we've heard the Federal Reserve say repeatedly that:
1) The Federal Reserve has exhausted its monetary powers and is no longer capable of using previous, "conventional" monetary strategies like QE (Quantitative Easing; printing and injecting more currency into the economy) and ZIRP (near-Zero Interest Rate Policy) to stimulate the economy back to a "recovery".
I believe the Federal Reserve's claims that it's currently
helpless to do much more to "stimulate" the economy with monetary policy are true.
If the Fed's not fibbing, then only the U.S. government remains to engineer an economic "recovery" by means of its
fiscal policy. However,
2) The U.S. government is unwilling or unable use its
fiscal powers to raise taxes and/or borrow more currency to provide enough additional "stimulation" to cause an economic recovery.
* The problem appears to be debt. Since the Great Recession began in A.D. 2008, the government sold U.S. bonds (debt instruments; promises to pay) to the Federal Reserve in exchange for fiat dollars that were then spent, loaned or otherwise injected into the U.S. economy. The government went into debt (issuing bonds) in order to acquire more fiat dollars from the Fed.
As a result of its desperate determination to stimulate the U.S. economy, the U.S. government's "official" National Debt has
doubled from $9.7 trillion in A.D. 2011 to nearly $20 trillion, today. It took about 220 years for the National Debt to reach $9.7 trillion in A.D. 2011. It took
just five more years, for that debt to
double to $20 trillion in A.D. 2016.
Most Americans, if they even bother to consider the recent, extraordinary growth of the National Debt, find that doubling to be unremarkable. No big deal, right? The government can handle it, can't they?
I don't think so. I think that doubling the official National Debt
in just five years (primarily for the purpose of stimulating the U.S. economy) is scary.
First, government spent an incredible amount of borrowed currency to stimulate the U.S. and global economies and received almost nothing in return. The U.S. economy didn't collapse, but it didn't recover, either. The fact that so much additional fiat currency failed to stimulate a recovery is evidence of enormous
systemic problems that are still present and likely to soon collapse our economy.
Second, as I've argued for years, the National Debt has grown too large to ever be repaid in full or even by 50%. Sooner of later, government will be forced to admit that it can't pay the National Debt. When that happens, the whole debt-based monetary system and debt-based economy will slide into calamity.
Third, the National Debt has grown so huge that the U.S. government is at least reluctant, and perhaps even unable, to go deeper into debt. Some think we're at or near "peak debt". If so, the U.S. government can't borrow enough additional currency from the Federal Reserve and/or private American and foreign investors to stimulate the economy to the same extent seen in QE episodes 1, 2 and 3.
We seem to be between the rock and the hard place.
But what if government could cause more fiat dollars to be injected into the economy without going any deeper into debt?
* Casey Research published an article entitled, "Let's Try Giving Out Free Cash". The title alone is fascinating: simultaneously attractive (we'd all like to receive "free cash") and repulsive (how can real money be "free"?).
Yes, yes-when you were a kid, it was great when Aunt Jane gave you a Christmas card that held a $100 bill. As a child, you loved that "free money". But, as an adult, isn't the idea of "free cash" to everyone (not just you) a little unnerving?
Casey Research, in order to finally cause the fabled economic "recovery",
Central bankers are considering "
"Economist Milton Friedman coined the term 'helicopter money' in the 1960s. He said the government could drop
free cash from helicopters to
stimulate the economy. People would spend the
free money, causing the economy to grow.
According to Ben Bernanke, "Helicopter money could prove a valuable tool since it
should work even when more conventional monetary policies are ineffective and the initial level of
government debt is high."
Note Bernanke's reference to the "level of government
debt" being "high" (maybe "too high"?). Bernanke implies that "helicopter money" is a consequence of extremely high government debt. But what, exactly, is the nature of the relationship between high government debt and "helicopter money"?
As you'll read, the fundamental idea behind true "helicopter money" may be that it's possible to inject more fiat currency into the economy
without increasing the already-unpayable National Debt.
Casey Research continues:
"To implement, the government would likely
give out free cash by mailing checks to people, or depositing money directly into people's bank accounts.
"Friedman likely never took the cartoonish idea seriously. For a long time, no one else did either-until recently, when f
ormer Fed chairman Ben Bernanke said helicopter money could be
'worth a shot'."
Worth a shot"? Is that how the geniuses at the Federal Reserve run the economy? Based on strategies that
might be "worth a shot"?! Let's roll the dice and see what happens?
Again, we see evidence that no one is really in control. The economy is being run as an experiment to test new theories rather than as an entity that's well-understood and subject to predictable control.
Mr. Bernanke's "worth a shot" language reveals just how little real control the Fed has over the economy. He does not inspire confidence.
extreme circumstances [our economy's circumstances are now deemed to be 'extreme']-sharply deficient aggregate demand [people aren't purchasing and consuming enough goods and services to stimulate the economy]
, . . . exhausted
monetary policy[the Federal Reserve has become helpless and unable to cause an economic 'recovery']
, andunwillingness of the legislature to use
debt-financed fiscalpolicies[Congress is unwilling or unable to
go deeper into debt to stimulate the economy and is therefore also, like the Fed, helpless and unable to cause an economic 'recovery']-such programs ['helicopter money']
may be the best available alternative. It would be premature to rule them out."
In other words, the Fed and the government have tried everything else and exhausted the Fed's
monetary powers and the government's
fiscal powers without success. Therefore, Bernanke recommends that the drowning Federal Reserve try grasping at the "straw" of last resort: "helicopter money".
Bernanke's reference to the "unwillingness of the legislature to use
debt-financedfiscalpolicies" strikes me as odd. He didn't expressly say so, but he faintly implied that since Congress
can't or won't go deeper into debt to stimulate the economy (as they did with QEs 1, 2, and 3), then maybe the Federal Reserve could still simply print "helicopter money"
without government being forced to print and issue more U.S. bonds.
Recognizing that government can't or won't go deeper into debt, Bernanke seems to say, "OK-let's bow to reality. If government can't issue, say, another $5 trillion in bonds to be sold to the Fed in return for $5 trillion in fiat currency, then the Fed should simply print and distribute another $5 trillion in 'helicopter money' that is
unbacked by government bonds.
The Fed would simply issue fiat dollars directly to the people or to the government, without demanding a U.S. government bond in return.
No bond; no debt.
Again, Bernanke didn't actually say that, but it makes some sense. After all, why issue government bonds to the Federal Reserve in return for more fiat currency, if the bonds will never be repaid, anyway? Why waste time printing U.S. bonds that won't ever be repaid? Why not eliminate the government bonds and let the Fed simply print however much "helicopter money" (unbacked by even the illusion of U.S. bonds) seems necessary to stimulate an economic recovery?
If the idea of issuing fiat dollars without government first selling bonds to the Fed seems fantastic, remember that both President Lincoln issued "greenbacks" during the Civil War and President Kennedy attempted to issued "greenbacks" in the 1960s. In both instances, these "greenbacks" were issued by the U.S. Treasury and weren't tied to the Federal Reserve or backed by U.S. bonds or gold. (Coincidentally, both Lincoln and Kennedy were assassinated.) My point is that a kind of "helicopter money" has actually been issued by Lincoln and was attempted by Kennedy. The concept of currency creation without debt creation is not unprecedented.
Bernanke's proposed "helicopter money" would be virtually identical to Monopoly Money. It would be absolutely nothing more than pieces of paper and electronic digits without the least trace or illusion of being backed by U.S. bonds. "Helicopter money" wouldn't even result in paying 1% interest on bonds. This "helicopter money" would be functionally identical to the quadrillion-dollar bills issued by Zimbabwe in A.D. 2009.
If so, "helicopter money" could be code for
hyperinflation-the unlimited printing of fiat currency. Has Bernanke subtly proposed the government and Fed implement hyperinflation?
Casey Research continued:
"After all, the
Fed has created 3.5 trillion new "helicopter" dollars since 2008--and given most of those dollars to 'too big to fail banks'."
Suppose my speculation-that real "helicopter money" is, by definition, unbacked by any U.S. bonds-turned out to be true. If so, the $3.5 trillion created by the Fed since A.D. 2008 would not be true "helicopter money" since it was all backed by U.S. bonds. It was not completely "free" currency since, even if the principal represented by these U.S. bonds were not repaid, they still paid interest. However, if "helicopter money" was not backed by U.S. bonds, the issue of such currency wouldn't even cost any interest.
Perhaps, the last times we saw true "helicopter money" were in our own Civil War in the 1860s, in the Weimar Republic in the early 1930s, and in Zimbabwe during the 2000's. That's when governments tried to inflate or
hyperinflate their debts away by printing pure fiat currency unbacked by gold or government bonds-but only succeeded in diminishing or destroying their own currencies and economies.
Could it be that smiling Ben Bernanke's recommendation of "helicopter money" is nothing more than an admission that the economy is so fragile, so certain to implode anyway (and soon), that Fed might just as well try to buy a few more years by instigating hyperinflation? Is the Fed faced with choosing between: 1) dying of "natural (economic) causes" within the next six months; and, 2) committing a slow suicide by hyperinflation that won't kill it for another three years?
* I believe big government's "days of wine and roses and unlimited borrowing" are just about finished.
If government is so deeply in debt that it can't go much deeper into debt, government has only four options left to escape or at least postpone its current debt problems: 1) raise taxes; 2) cut benefits and spending; 3) expressly repudiate the existing National Debt by declaring (admitting?) it's bankrupt; and/or, 4) initiate
hyperinflation to stealthily reduce the real value (purchasing power) of the government's debt; or
Raising taxes is bad politics since it will make the masses scream.
Likewise, cutting benefits and spending is also bad politics since it will make government dependents riot.
Government would rather expressly declare WWIII than declare/admit that it's bankrupt.
That leaves hyperinflation as the only option that won't (initially) make the voters scream. An episode of, say, 50% hyperinflation could effectively reduce the existing debt by 50%. If we had 90% hyperinflation, the existing debt could be reduced by 90%. Once the existing debt was sufficiently reduced, creditors might again be willing to lend massive amounts of currency to our government.
If "helicopter money" is a pure, fiat currency that's unbacked by U.S. bonds and therefore doesn't add to the National Debt, it sounds like a code for
Ben Bernanke expressly recommended "helicopter money". Was he really recommending hyperinflation as the "next big theory" to be tested on our experimental economy?
* Relatively speaking, "Happy Days" may be here again and might remain until after next November's election. After that, Katy bar the door! Our happy daze of big borrowing, near-zero interest rates, low inflation, low taxes and substantial entitlements and subsidies may vanish into the mists and myths of time. America may soon be forced to face and accept economic reality rather than economic fantasies like QE, ZIRP and "helicopter money".
I doubt that any of us will like the coming reality. I also doubt that any of us can stop it from coming-not even with "helicopter money".
Good News/Bad News for English Pensioners
by Alfred Adask
24hgold.com reports in "UK's Royal Mint will sell pension investors gold they can never see" that,
"The Royal Mint in England is to open up its gold vaults to UK pension investors. The Royal Mint will make some of its gold bars available to investors wanting to hold it in tax-efficient pension pots.
"For UK citizens, this is the first time that Royal Mint gold bullion has been authorised by HM [Her Majesty's] Revenue & Customs . . . for holding in specific pensions.
"Investors are to be offered a choice of bullion, from Royal Mint Refinery 100-gram and 1-kilogram bars, to Signature Gold-a service that allows customers to purchase and own a share of a 400-ounce gold bar."
Sounds pretty good. However, here comes the punch line:
"Pension investors purchasing gold bars through the Royal Mint
will not be able to take delivery of their purchases as they will be placed in storage in 'The Vault,' the Royal Mint's secure storage facility in Wales."
And, according to the title of the article, pension investors won't be able to even
see the gold they've allegedly purchased.
So, the good news is that English pensioners can invest in physical gold to protect their pensions.
The bad news is that they'll not only never be able take delivery of the gold they've purchased-they'll never even be able to
see their gold.
It's kinda like buying an alleged Canadian gold mine where you can never look into the mine or remove any of the alleged gold. How can you really know if there's really any gold in that mine?
It's also a little like the U.S. government and Federal Reserve claiming to hold about 8,200 tons of physical gold that belongs to the People of The United States of America that We the People have nevertheless been unable to audit or even see since A.D. 1953. Government's refusal to let us see and audit
our gold inspires conspiracy theories that
maybe our gold is
In fact, given the close relationship between the governments of the U.S. and England, it wouldn't be surprising if one of those governments had secretly sold off most of its gold, the other would've secretly done the same.
In any case, when English pensioners invest in gold allegedly held in the Royal Mint that can't be seen and won't be delivered, how do those pensioners know that there's really any gold in the Royal Mint? Are they really buying some physical gold? Or are they just giving their currency to the government under false and fraudulent pretenses and in return for non-existent gold?
* This whole story sounds so bizarre, that I can't help suspecting that it signals that the English government is colossally stupid or colossally desperate.
Can the English government really believe that the English people will buy into to a scheme where government will sell gold that can't ever be seen or delivered?
If so, I wish that the English pensioners would give me a call because I, too, have several tons of gold to sell that can't be seen or delivered. (I keep it in a shoe box on the shelf in my closet.) Plus, when it comes to selling unseeable, undeliverable gold, I'm confident that I can give pensioners a much better price than the Royal Mint.
* This Royal Mint story makes me wonder if the English government is so broke and so desperate that it will scrounge up cash any way it can-even by selling non-existent gold.
I can't believe that the English government is trying to sell gold that can't be seen and won't be delivered out of ignorance. I must therefore conclude that the English government is so broke that, out of desperation, it will grab any cash it can find or finagle.
This Royal Mint story suggests that England's government may be on its last fiscal legs.
Who knows? Maybe Brexit was so fiercely opposed by former Prime Minister David Cameron and many government officials because they knew the English government was nearly bankrupt and feared that the potential financial consequences of Brexit could push that government into collapse.
We shall see.
In the meantime, if you happen to know any Englishmen interested in purchasing some gold that can't be seen or delivered, have them gimme a call.