Have you ever seen something and thought to yourself “what a great idea?” I remember so many of these situations in all facets of life, let’s look at a few of these in the financial world and then look at the very latest brainiac proposal.
Just since the turn of the century we have seen program after program that was sure to “fix” the problem. “The problem” of course is at least twofold, our money is fake and too much of it has been borrowed. I can remember thinking during the Bush years what a foolish idea it was to order Fannie Mae and Freddie Mac to lower their underwriting standards. This of course was done to “help” people (who had no business or capability financially owning a home) buy homes and increase the percentage of home ownership in the U.S. I thought to myself “wow, what a great program!” Either don’t provide any financial information at all …or … just lie about it because they don’t require any proof or documentation at all.” Like my piece written yesterday from another vantage point, “what could possibly go wrong?”
I watched as interest rates were lowered to 2% (unheard of at the time since the 1950’s) into and after 2001. This would surely fix everything we were told. And then again going into and after 2008 when rates were pushed to zero, what could go wrong with this? I wrote at the time and it still stands, “lower rates and freely printed money cannot solve a solvency problem, it will only alleviate a liquidity problem.”
Then came the acronym programs, the most famous being TARP. What a great idea this was? Plunder the Treasury for $700 billion and spread it around to the banks, this would surely reflate things with “bazooka” like power. Well, it turns out that this $700 billion was not even the mayonnaise or mustard on a ham sandwich compared to the $17 trillion of “secret loans” given out globally by the Fed. Looking back, why did we even need TARP? The Fed could have simply pressed their magic button a few more times and instead of lending $17 trillion …they could have done the extra $700 billion. But, why not hamstring the Treasury a little and burden the population while you’re at it? In my opinion, this was merely an early “trial run” just to see if they actually could cram something down the American people’s throats …unfortunately it worked.
The next program was QE 1, 2, 2.5(lite), 3 and 4. What a great idea these were, reflate everything that’s worthless and actually damage the real economy. Doesn’t matter though, it helped the banks and this is exactly the “charter” or mission statement of our “nonfederal” Reserve. Somewhere along the way back in 2011? The idea of a $1 trillion platinum coin was trial ballooned. This would wipe out our debt completely we were told! Hallelujah! What a great idea! Take 10 ounces of platinum worth maybe $15,000 and strike “$1 trillion” on it (don’t forget the eagle and the flag) …give 15 of these coins to the Treasury so they can then cancel out $15 trillion of debt. Simple right? I do want to remind you that this was really and truly talked about but not officially proposed, if I recall it was around this time the Chinese began to tell us to “get serious” about our finances. I can only guess the Chinese thought they had the wrong channel on and were watching a Saturday Night live rerun!
You do see the problem with all of these “schemes” right? NONE of them “really pay” anything. They all either borrow money or “falsify” actual payment. In reality, each and every plan was an attempt at “defaulting” without actually doing it “officially.” Before I get to the subject of “something for nothing,” I’d like speak a little about a question which comes up from time to time. While the “question” itself is not rampant and wildly asked, the “concept” is lived and believed every single day. I did not realize this in 2009 until after the election, I saw a few You Tube videos of people jumping for joy saying “this is great, Obama’s gonna pay for everything, free rent, food, TVs …blah blah blah, we’re saved!”. Can you guess where this is going? The question goes like this, “why doesn’t the government just print the money? No one would have to pay taxes and for that matter no one would even have to work …everyone would just get a check each month and life will be grand. Why doesn’t the government just do this?”
Well guess what? As absolutely foolish as this question is, the Council on Foreign Relations has actually proposed a variation of this! To the U.S.? Well yes, and to ALL global central banks! The CFR put out a paper written by Mark Blyth and Eric Lonergan suggesting that central banks “print less but transfer more.” Sounds wonderful doesn’t it. The best part is the “humanitarian” aspect of the paper. They propose only the bottom 80% of earners to receive anything. Who could possibly object to this? And the most ignorant part is? It’s not inflationary!
It’s not inflationary? Really? Just as nothing done so far would not be inflationary either, right? The BLS (and thus Federal Reserve) tells us there is no inflation, what little there is, is running under two percent. Let me say this, if inflation was truly only running at two percent in the U.S. and globally there would not be rioting and looting. I don’t know of any product or service that’s ONLY up two percent over the last year except for one category …salaries. If two percent was a real number, there would have to be something that costs less than last year, what is it? Two percent is a joke, I guarantee the cost of Skittles for their unicorns is up at least 10 percent over the last year, who are they trying to kid? Themselves?
Think about this, so all of a sudden the bottom 80% of wage earners suddenly have money in hand, what are they going to do with it? Run to the bank to deposit it? Put it in the stock market? Heck, judging by recent volume numbers, even those with money are not doing this! No, the great unwashed will take this money and buy stuff creating more demand (which is what the CFR is proposing) and thus putting a strain on supply. “Supply,” you know, that thing that happens to fill up Walmart shelves? How could this scheme not be inflationary? All of a sudden a significant portion of the population wants filet mignon instead of turkey hot dogs, everyone all at once will want “better stuff” and more of it. Even Keynes would call this inflationary and he wasn’t right about many things to begin with.
Seriously, where exactly does the money come from if it’s not “printed”? Will it be borrowed? If so, from where? Who lends it and who has to pay it back? The bottom line is this, since the beginning of time there has never been any way to get “something for nothing” …and if you do, that “something” is worth exactly that, nothing! Actually I should rephrase or add to this. You cannot get something for free unless it is taken from or stolen from someone else, period. Food, houses, plant and equipment, and just plain “stuff” does not now nor never will just “appear” for free unless it was commandeered away from someone else who earned it.
Sadly, the CFR is not some sort of fringe crazy group that governments and central banks dismiss out of hand. They should mind you, but this is not the case. Unfortunately this proposal is only the first and surely not the last “great idea” to save the world which comes from those who got us into this mess in the first place. I would suggest this instead. Instead of hoping or relying on dollars being generously dropped from Ben Bernanke’s helicopter, you will be better served exchanging some of your existing dollars for gold or silver now. This way you will not get into dog fights over what is helicopter dropped nor disappointed when you find out it will purchase very little. I cannot believe in my wildest imagination we have arrived at this point. Even the dullest knife should know that something for nothing does not exist on a macro scale.