The Federal Reserve Picking Winners/Losers During Crisis

YouTube has the video The Federal Reserve Picking Winners/Losers During Crisis.

If only Jimmy Dore could spend more time understanding Modern Money Theory.

Modern Money Theory lays the explanation out for all of us. People want to treat MMT as a mystery that can’t possibly be true. The Fed is controlled by Congress. Congress can change the rules if they want to. The way you vote for the people in Congress is your mechanism for controlling the Fed. If you don’t know that you want Congress to do, then you won’t be able to demand that they do what they ought to. Besides knowing that the Fed should be audited, Ron and Rand Paul have no clue about what to do with the information that will come out. They do not understand MMT.

If you are interested, there are posts about MMT all over this blog.

Even without the Fed, financial staying power helps the rich get richer. A great example is the Great Depression. As everybody was losing all their assets in the stock market crash, the dust bowl, and loss of jobs, they were forced to sell whatever they had at the proverbial fire sale prices. Those who had enough money to buy these assets cheaply saw tremendous gains in wealth when the economy recovered and the value of those cheaply bought assets skyrocketed. Every time the economy goes through such a cycle, the rich get richer and the poor gets poorer. The only thing that equalizes the situation is a highly progressive income tax system with top rates at 90% or more. There should also be wealth tax along with an income tax. Increasing amounts of wealth that are never turned into realized income gives the owner economic power. That is why an income tax alone is not enough.

The Myth of “Helicopter Money”

Project Syndicate has the article The Myth of “Helicopter Money”.

MMT merely underscores the fact that the Fed faces no financial constraints on its ability to buy assets or lend; it does not prescribe any particular action in this direction – and indeed is skeptical of such policies.

Here is a simple explanation of MMT that the doubters will refuse to believe. The trouble with these explanations is that there is no interaction with the reader to handle the inevitable questions that they want to ask. If you want to ask questions, I will be willing to tell you what I think in my own words, Some MMT experts don’t like the words I use, but I think they make the point better than some experts do.

Use my Facebook post to ask questions.

Manhattan Project to prevent Hyper-Inflation

New Economic Perspectives has the article Manhattan Project to prevent Hyper-Inflation.

This is not, however, what is happening now with the fight against the Coronavirus—and the desperate effort by governments to put money in the pockets of people who can’t work and businesses who can’t open their doors to customers. So, while we’re discovering first hand and in real-time that, yes, sovereign currency issuing governments can, in fact, just create money so they can spend it—without having to collect it back in taxes, either now or in the future—we are also laying the groundwork for causing the hyperinflations described above: “A significant and general collapse” of our business and employment framework is happening before our eyes, while our government feverishly dishes out cash.

The diagnosis of the problem describes what I worry about. The solutions suggested in the article are misguided. When you give people money to spend, the productive capacity of the country must create the goods and services that people want to buy.

Taleb: The Only Man Who Has A Clue About Covid-19

Naked Capitalism has the article Taleb: The Only Man Who Has A Clue,

What is happening right now is not because all the epidemiologists and virologists around the world are wrong, but because they’re asked to make decisons and construct models about something they don’t know nearly enough about.

Call Taleb, Donald, Emmanuel, Shinzo, Angela et al. If you care enough about the lives of your people. I see a lot of rational-looking measures today, in all the lockdown variations, but I also see many countries and states clamoring for peaks to be called, and subsequent calls galore for less stringent lockdown measures. Decisions prone to be taken by politicians and epidemiologists who are -way- out of their league.

Please be careful. Call Taleb. You have nothing -more- to lose.

Here is a video that has a small part of what is in the article.

I was a fool for downplaying the value of DIY (do it yourself) masks. I wish I had been aware of Taleb’s writings on this topic back in January.

The definition of ergodic might help to understand the article.

Ergodic definition is – of or relating to a process in which every sequence or sizable sample is equally representative of the whole (as in regard to a statistical parameter).

The Use and Abuse of MMT

Counter Punch has the article The Use and Abuse of MMT.

Most of this seems correct to me, but some of it seems a little off. This article is coauthored by Michael Hudson, so I shouldn’t be questioning it.

I am still thinking about this claim

The asset-price inflation effect of money creation by banks is thus to exert a downward impact on commodity prices, to the extent that the carrying cost on bank credit reduces the net purchasing power of debtors to buy goods and services.

It does not seem right to me to call the reduction of purchasing power as deflation. Increasing costs for financing does lower the money available to buy what is being financed. However, the price of houses did not decline. The size of the house you could buy for a given amount of money did go down because the price and the cost of financing did go up. The total cost of the house went up, but in some respects the cost of the components, the house itself and the cost of financing, could go in different directions. As the mortgage interest rates dropped, the money a person could afford to spend for the house itself went up.

How the Anti-Populists Stopped Bernie Sanders

Harpers has the important and fascinating article How the Anti-Populists Stopped Bernie Sanders.

And so we come to understand the real task before us today: to rescue from the enormous condescension of the comfortable the one political tradition that has a chance of reversing our decades-long turn to the right.

This article is far deeper and broader than I imagined it woulld be judging from its title. I had no idea I had fallen so deeply under the influence of the propaganda against William Jennings Bryant that I have heard, read, and seen in movies over my entire lifetime.

Here is an excerpt that happens to touch on the long history of The Dreaded New York Times being dreaded.

In September of that year, as the contentious presidential campaign unfolded, the New York Times announced the alarming discovery: William Jennings Bryan appeared to be clinically insane. It began with a letter to the paper from an anonymous “alienist,” or psychologist, who examined Bryan’s heredity, his heretofore mediocre career, and his behavior on the campaign trail, and concluded “without any bias” that “Mr. Bryan presents in his speech and action striking and alarming evidence of a mind not entirely sound.” Proof: the candidate was “an apostle of an economic theory without ever having a training in economics.”

Standard Money Theory and the Coronavirus

New Economic Perspectives has the post Standard Money Theory and the Coronavirus.

It might seem, as we observe the U.S. government “instantly” generating $2 trillion new dollars for direct payments and grants to people and businesses, that the coronavirus pandemic has shed a new light on the authenticity (and necessity) of modern money theory (MMT)

Maybe this explanation will hit home for those who have had trouble accepting the reality that Modern Money Theory describes.

As a multi-degree holding electrical engineer, I have learned quite a bit of physics that my non-science friends and relatives just cannot mentally accept. So I am used to people not being able to accept what is physically true. No matter how obvious the concept seems to me to be, it is so frustrating that people I know are just unable to accept some ideas that are so simple to describe. That inability to comprehend is one of the facts I have learned to accept no matter how hard it is for me to accept. So I get it when the shoe is on my foot.

Here are two examples.

I once tried to explain some of Newton’s laws of motion to my sister.

An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.

In her experience everything stopped eventually because of friction. I said, imagine a situation where there was no friction. She could not imagine it.

I once tried to explain to my father how the sound of the crack of a whip was produced.

The crack a whip makes is produced when a section of the whip moves faster than the speed of sound creating a small sonic boom.

My father could not conceive of breaking the sound barrier unless you were flying. I pointed out that the speed of sound in air was about 767 miles per hour. Rocket sleds on rails were capable of moving faster than that. To my father, that made no difference. You could not break the sound barrier while still connected to the earth.

Why Don’t Companies Have Rainy Day Funds?

N ick Hannauer and David Goldstein have an interesting eoisone of Pitchfork Economics with the innocuous title AMA: COVID-19 and the Economy.

Nick Hanauer Meme

They have quite a discussion on stock buybacks as opposed to why companies don’t use their profits to set up a rainy day fund.

The pitchfork economists left out one very important factor in the discussion. If a company were to save for a rainy day, a corporate raider like Mitt Romney would take over the company and pocket the rainy day fund. That is exactly how Romney got rich. If we don’t change the rules to protect companies who want to do the right thing, then we will have our current situation. There are no companies left who are able to do the right thing and avoid getting raided.

Is anybody asking why it is that a government would create the laws for corporations to form? The laws protect the founders of the corporation (and the shareholders) from many legal liabilities. In exchange, you would think there must be something for the country to gain by protecting corporations. What should a country get for its efforts to give special shielding to corporations? We ought to ponder that question, and put these expectations into the laws that set the rules for people forming corporations. That way, the courts are not free to come up with their own justifications for corporations. Corporations are not people who have the special privilege of using their money to bribe the government.

Bernie Sanders aims ‘to prevent the collapse of the economy’ with new coronavirus spending priorities

Business Innsider has the article Bernie Sanders aims ‘to prevent the collapse of the economy’ with new coronavirus spending priorities.

“So to prevent the collapse of the economy is far more humane and cost effective than rebuilding the economy after it collapses,” Sanders said on MSNBC Friday afternoon.

Bernie was right about a lot of things before the pandemic. Ironically, some of his ideas that were good before the pandemic might have problems during the pandemic. What he seems to be failing to take into account is that the capacity of the economy to produce goods and services is severely limited when so many people are not allowed to go to work. Bernie is planning to give people enough money to spend like they used to, but the economy is not able to produce like it used to. He has to recognize and address this obvious problem.

Maybe he and his experts can come up with something better, but the only things I have come up with so far is rationing, price controls, and a steep profiteering tax. These ideas are going to be very hard to sell to the public, but somebody has to start getting people to face reality.

The Coronavirus Pandemic Has Opened the Curtains on the World’s Next Economic Model

Naked Capitalism has the article The Coronavirus Pandemic Has Opened the Curtains on the World’s Next Economic Model.

This pandemic continues to unfold, but it will serve as the D-Day equivalent of a new predominating economic model for the world, and which in many ways was beginning to take shape before COVID-19. At its core, developed and mixed market economies will factor in the health risk and growing military cost of sustaining international supply chains against investing in high-tech production closer to their markets, and increasingly export their goods to the rest of the world.

The pandemic is the black swan event that shows us the flaw in the current implementation of globalization.