MMT is Here! Start Stacking Money Like Firewood

Kids stacking German marks in the Weimer Republic

In the Weimar Republic, children played with stacks of money like building blocks, and people used wheelbarrows to move enough money to buy a small bag of groceries because the German government started printing as much money as it needed for whatever it thought it needed to do.

With the Federal Reserve now cranking up the “printing” presses to speeds never before witnessed by mankind, it’s time, at last, to think about hyperinflation and Modern Monetary Theory (MMT).

A few snapshots from last month’s journey

I know I need to go back and read what I wrote a month ago just to refresh myself. Maybe that helps you, too, but this is more than a refresher. It’s an update on how those new predictions went. Here were the key points with current commentary:

1) The Federal Reserve made the equivalent of five interest cuts since its tightening ended. I’ve said in these Patron Posts that I don’t believe it will go to negative interest-rate policy (NIRP), and so far it has not.

Interest rates on some bonds subsequently went below zero on their own, but not as a set Fed target. When I said the Fed would not go for negative interest rate policy, I was referring to the Fed’s targeted Fed Fund’s rate; and I noted last month that the market, itself, (bond vigilantes)) might press bonds into the negative interest zone, but not as a move in official policy.

It’s a side effect, and it could indicate the Fed has lost some control on interest because we rarely had negative bond rates when the Fed sat on the zero bound for years after the last crisis. I remain in the position that the Fed, based on all that we’ve read in the past year from the Fed is not interested in using NIRP as a policy tool.

2) I said the Fed would stabilized the Repo Crisis, which was out of control. That, too, has happened in just the manner I said it would. The Fed accomplished this by giving up on repos as a fake form of QE and going to all-out QE. Trying to solve a reserve shortage that was showing up in repos meant endless repos. With QE now beefing reserves back up, who wants to mess with trading treasuries temporarily to the Fed for temporary cash and paying the Fed interest when they can sell the same treasuries directly and have the Fed pay them a profit?

This doesn’t mean repo has no chance of coming back as a problem when all the government stimulus checks have to clear or when the postponed tax day hits all at once in July; but the Fed can manage cash shortages and treasury issues in the repo market much more directly and permanently with permanent QE. Now that the Fed has viral cover to say going back to QE is not its fault, it has returned to full QE. The virus made them do it.

Anyone can see by how the Fed’s repos were endlessly getting larger and more oversubscribed that it was not solving that problem until it resolved it as I said they would have to by giving up the pretense they could avoid QE and just doing “QE4ever.” That’s why I started using that term for the repos. I knew that’s where the Repo Crisis was going to end up.

The following graph from last month’s Patron Post is presented again as a reminder of how badly the Fed failed at getting bank repo loans under control by taking them over as Fed repo, even before the coronacrisis hit:

Zero Hedge

In last month’s Patron Post, I predicted the Fed would leap into what it needed to do to get this mess under control. The Fed, I argued,

needs something immediate that also helps resolve the repo crisis, which means the extension of QE4 into QE4ever…. QE is not going away because the US government has a $1.2 trillion deficit to keep financing.

Days later, they did exactly that; and, as soon as they returned to full-on QE, the Repo Crisis ended completely just as I suggested it would. Here’s Zero Hedge’s statement of what unfolded so you have an independent judge on that:

The Fed launched its “nuke” … unveiling unlimited QE (ending all trivially idiotic debates about just what “Not QE” was) and shocked markets by announcing the Fed would purchase investment grade bonds…. The only “market” left is the one where the Fed is on the other side, propping up asset prices which no longer have any link to underlying fundamentals … culminating into a free-for-all frenzy of unprecedented helicopter money in which every central bank is monetizing what every treasury is issuing.

Zero Hedge

“Unlimited QE” sounds like “QE4ever” to me. Nailed that one all the way back to September. And this quote brings us to our topic for this month’s Patron Post:

The new QE is really MMT!

The liquidity problems that created Repo Crisis will, from this point forward, be resolved by QE as quickly as they return. With the Fed doing more QE than ever before, the Fed may even stay ahead of the curve so no more repo problems happen. However, what the Fed is really doing now is implementing covert Modern Monetary Theory (MMT), wherein the government buys everything it wants to buy, and the Federal Reserve sucks up all the government’s debt issuance (monetizes the debt) as quickly as it occurs. (Not unlike the Weimar Republic.)

It’s illegal under the Fed’s charter, but that doesn’t seem to be hindering the Fed any. The government isn’t inclined to hold them to their charter when the government, itself, desperately wants the funding and when Trump wants the stock market up. In my view, we are now operating outside the law; and if the government is called to question on it, they’ll just rewrite the law.

Again, you don’t need to just take my judgement on that. I was glad to find more important people than I am feel that way. Said Jeffery Gunlach of DoubleLine Capital:

For now the Fed pretends not to be monetizing the debt, but soon it will transition to doing it as openly as it turned “not QE” into the QE4ever I said it most certainly really was. Transition “not QE” into QE4ever was as simple as Powell just brushing off a question with “I don’t care what you call it.” The growing coronacrisis will give the Fed the cover of “necessity” to where few will complain.

Given how quickly the things came about that I said were coming in my two March missives, I’ll probably be writing about how commonly we are all now talking about MMT by next month’s missives.

Chris Martenson of Peak Prosperity, calls what the Fed is doing the same way I see it: [Comments in brackets are mine based on what I was already thinking before I found Chris’s article.]

The Federal Reserve is now directly monetizing US federal debt. Sure, it’s not admitting to this. [Give the US until next month.] And it’s using several technical jinks and jives to offer a pretense that things are otherwise. But it’s not terribly difficult to predict what’s going to happen next: the Federal Reserve will drop the secrecy and start buying US debt openly. [Ah, there we go. See: In the next month or two, it can drop the pretense.] At a time, mind you, when US fiscal deficits are exploding and foreign buyers are heading for the exits.

The debate over whether or not MMT (“Modern Monetary Theory” see here for background and discussion) should or should not happen is now moot. It’s already here…. Now all that’s left to debate is how much larger or smaller the Fed’s government debt monetization efforts might be. Further, we might debate exactly what the government is spending all that money on. Or what the repercussions will be of the dangerous monetary road we’re now careening down…. This is a very serious and extremely important conversation to have. But it’s not being had at all.

Peak Prosperity

Martenson sees the transition the same way I do. It happened even without any discussion. That’s why you don’t hear much talk, if any, from the supposed budget hawks in the Republican Party on “how are we going to pay for this” or “what will we cut to make room for it.” They all know the Fed is going to finance it at whatever cost (“whatever it takes”). You don’t hear the press asking anything about it either. It’s covert MMT. Like telling a lie often enough until it becomes accepted “fact,” we’ll just practice MMT until it becomes accepted; then we can talk about it openly.

During Jay Powell’s last news conference, the Chairman of the Federal Reserve (and defender and champion of the largest wealth transfer to the rich in world history) was not asked a single question on this topic. Nobody asked anything about the extreme and accelerating wealth and income gaps, both direct outcomes of the Fed’s policies…. Nobody expressed concern about the Fed’s secretive actions, its direct debt monetization, or its violation of the Federal Reserve Act.

There it is again. Someone else also seeing it is patently illegal, but does that matter in this temple of doom:

Central banks are cause of inverted yield curve recessions
The Eccles Building, Temple of the Federal Reserve

That’s exactly where I was going to go with this topic, so I’m glad to find supporting voices, though you don’t hear many of them. The bankster barrens who run the nation’s money temple, appropriately named the Eccles Building, got away with going to QE4ever, which is monetizing the debt even by the Fed’s own argument (albeit an argument written long ago when they were telling everyone QE was temporary, so just being done for monetary policy, not to fund the US economy. There is no question it is being done to fund the economy now that businesses are closed.

And no one said a thing. They also got away with moving to direct corporate bond buying via purchasing bond ETFs since last month’s Patron Post. No one said a thing. Now they got away with going to MMT where the Fed purchases any volume of debt the government wants with no need to ever cover the spending with taxes. Did you notice tax day was postponed?

No one said a thing. Nothing from the president. Nothing from Mitch McConnell. Nothing from Nancy Pelosi. Nothing from the rest of congress. Nothing from the media, not even the financial press. Nothing but …


Just crickets.

When Trump signed into effect the $2.2 trillion bailout package, he also authorized the Fed to issue up to $4.5 trillion in new credit to buy bad debt. Half of that was for the Fed to spend on whatever the Fed wanted, which no one is talking about. The government is ostensibly providing taxpayer seed money of $454 billion via the treasury to backstop all the bad debt, and the Fed is allowed to leverage that ten-fold.

The seed money is required to make tax payers liable for all the bad debt that actually defaults. For some inexplicable reason law requires that. In reality, the Fed will actually finance that part, too, because the treasury gets the money by issuing bonds, and taxpayers are never going to pay this debt off. That doesn’t matter under MMT where the central bank just rolls it over forever. If you’re having a hard tine making sense of this arrangement, that’s because it doesn’t.

And the MMT is also helicopter money to the masses

By giving the Fed a green light to inject money at will, the US government officially launched helicopter money.

“Very quickly we hope to stand up a very broad based lending facility that could be leveraged up to $2 or $3 trillion,” Senator Pat Toomey told reporters Wednesday. “We’re hoping it’s a mechanism to keep businesses alive for a few weeks or months until our economy can resume.”

Zero Hedge

Bloomberg referred to this as the “Multitrillion Dollar Helicopter Credit Drop“:

Call it Helicopter Credit. The Federal Reserve is poised to spray trillions of dollars into the U.S. economy…. These actions are unprecedented, going beyond anything it did during the 2008 financial crisis….

“The Fed has effectively shifted from lender of last resort for banks to a commercial banker of last resort for the broader economy,” said JPMorgan Chase & Co. chief U.S. economist Michael Feroli.

The coming rain of credit — historic in both size and scope — will be made possible by $454 billion set aside in the aid package for Treasury to backstop lending by the Fed. That’s money the central bank can leverage to provide massive amounts of financing to a broad swathe of U.S. borrowers.

Except that it’s not quite money that comes from the Treasury because the Treasury doesn’t have any money that the Fed doesn’t create by financing the Treasury because most tax payers aren’t paying money right now. Looks more like a feedback loop to me.

Just that quickly, the debate ended. I was planning to start writing about what MMT is and who are the proponents as more talk started to happen about it to where more people might be interested in this otherwise theoretical topic. Then I was going to write about how helicopter money would likely be the Fed’s new ammo in this fight, but the coronacrisis rocketed all of this into immediate existence without any public discussion. So, I’ll skip the formalities, and you can look to Chris Martenson’s provided link several quotes back if you haven’t been introduced to MMT.

It’s too late to talk about what the Fed will do in terms of MMT or helicopter money, as I planned to for this April. It’s already history. (At least, I pointed out in March’s Patron Post that MMT was coming up next on my topic list of future moves by the Fed. It just got here before me.)

Bloomberg continues …

“Effectively one dollar of loss absorption of backstop from Treasury is enough to support $10 worth of loans.” Fed Chairman Jerome Powell said in in a rare nationally-televised interview early Thursday morning. “When it comes to this lending we’re not going to run out of ammunition.”

Federal Reserve Bank of Minneapolis President Neel Kashkari puts it a little more exuberantly:

Kashkari Says Fed Has “Infinite” Amount Of Cash: “We Create It Electronically”

“This is literally why Central Banks exist. We’re the lender of last resort. This is literally why Central Banks exist. If everybody gets scared at the same time and they demand their money back, that’s why the Federal Reserve is here. We will absolutely meet those demands.”

When asked if the Fed will just “literally print money,” Kashkari admits: “That’s literally what congress has told us to do. That’s the authority they have given us, to print money and provide liquidity into the financial system. We create it electronically and we can also print it, with the Treasury Department…. This fear of where the virus is going to go is leading people to say ‘I just want cash’…. There’s no end to our ability to do that…. We’re far from out of ammunition… Your ATM is safe, your banks are safe. There’s an infinite amount of cash at the Federal Reserve.”

Zero Hedge

That’s a lot of literally going on around there. Apparently, anytime you need money, just print it. Apparently there is no limit on the Fed’s ability to do that. Kashkari is an expert on bailouts because he created the department of Things that Are Rarely Proposed (i.e., TARP) during the last economic crisis — another hush-hush program for troubled asset relief. So, we should take him literally at his word.

One has to wonder how much longer people will want the Fed’s cash at this rate of literally printing money in non-literal electronic form. That’s the gist of MMT — that governments can essentially create as much debt as they want and just keep rolling it over with endless money creation from their central banks used to pay the debt.

Let’s hope Neel Kash&Karry understands money printing better than he understands the meaning of the word “literally” when he says “we are literally printing money … in electronic form.” Because, if they literally print it, you can, in the very least, burn it in your wood stove to heat your house when it becomes worthless.

Kashkari is anticipated to be Powell’s replacement, so that bodes well for the future.

Now, how much did it cost to buy the government’s approval for this literally unlimited ammunition? $1,200 per taxpayer to buy the taxpayers’ silence!

Global dollar shortage spinning out of control

Since our last Patron Post, the Fed has started “printing” dollars for other nations to resolve their dollar shortages, too. That could create a problem in that I don’t think the Fed can resolve the dollar-shortage of other nations without risking serious inflation in our nation.

If you’ve read here long, you know I have not been one to write arguments fearing hyperinflation ever on this blog. (And we have not had any in all that time, except in assets where I said we’d see inflation.) Nor have I persuaded people to buy gold. I’ve said for years that the Federal Reserve’s policies would not create inflation outside of asset markets like bonds and stocks because that is where the money was circulating thanks to the low capital0-gains tax rate that entices money to be made where it is taxed at a lower rate (and where it is more easily made through markets the Fed can directly rig — bonds most directly and stocks secondarily as the place the bond money runs to for greater gains in the Fed’s low-interest environment).

Now, however, we are entering a different era. When countries now want to cash in US treasuries to fund their own stimulus programs, the Fed is giving cash for those treasuries. Creating money for other nations could change the inflation dynamic at home, depending on how all the cash flows.

The world doesn’t have a dollar shortage in the sense that dollars are hard to get. It has a shortage in the sense that no one wants the currency of most other nations in the present coronacrisis, so dollars cost a lot relative to those currencies. The devaluation of those currencies in respect to the dollar means many emerging-market nations could default on their loans that are denominated in dollars. That would primarily be loans to US financial institutions. To keep the exchange rate down so other nations don’t default on their dollar-denominated debt, the Fed has been pressed to create more dollars.

This is a catch-22 that is binding the Fed into money printing: Create the dollars for other nations to cash their treasuries, and create dollars to fund the US government now that other nations aren’t buying US treasuries, or watch those nations and institutions within those nations default on US debts and then created the dollars anyway to bail out the debts, or watch the US institutions fail right alongside the foreign ones!

We’re at that point where I’ve been saying things are going to spin out of the finite Fed’s control. There are other factors in the Fed’s creation of dollars outside the country, but I’m staying with the basics here. In simple terms, I understand it as a shortage in the sense that other currencies are deflating too much relative to the dollar, which creates a loan-default problem for the US.

Here’s where the pinch gets tight and where we risk turning into the Weimar Republic: The Fed can never create enough dollars to balance all of that for all nations because some nations are in such bad shape in their own trade that the exchange ratio between currencies is tens of thousands to one. If we even try to balance it with respect to half the currencies out there, we would have to devalue our currency enormously by creating a lot more of it. This could cause hyperinflation domestically in the US if the central bank of the United States attempts to balance the hyperinflation other economies are facing.

With the Fed creating money for the government to give away to citizens (true helicopter money) and creating money for other countries to ease their “dollar shortage,” now might be a time to buy gold to protect yourself against the possibility of hyperinflation, except good luck finding any. All the employees of gold mints and gold mines are sheltering at home, and central banks appear to be messing with the system to make sure no physical gold is available.

There are, however, serious mitigating factors to the hyperinflation risk: I’m not sure that hyperinflation will be a problem, for the same reasons the Fed believes it can get away with all of this money printing, but watch for signs of it all the same.

The great demand for dollars does give the Fed some room to create more money; but the US economy has its own direct circulation of money and devaluation of our own currency within our own economy is not primarily affected by it is value relative to other national currencies or how available the dollar is to other nations. So, how much we see prices affected in the US will depend on how much of the money the Fed creates for other nations circulates back into the US (at least to some extent).

So long as the new money keeps circulating in financial markets, it only inflates the prices of financial assets; but if it ever overflows into Main St. in the US then it will create huge inflation here, just as it has created asset inflation on Wall Street while circulating there. The more you start throwing hit everywhere, the more likely it is to start circulating, at least, in the Main Street economy.

There is a mitigating factor for hyperinflation with respect to MMT and helicopter money, too: We are now entering a naturally disinflationary economic environment. When people are not at work, making money, they’re not spending much money; prices tend to drop due to lack of demand. For example, people certainly are not demanding as much fuel. So, we see fuel prices plunging, though that has been compounded by a price war between Putin and Opec, which appears to have been resolved.

Point is, we’re in a generally very disinflationary environment. So, that buys the Fed room for now and time for you to keep an eye on inflationary pressures until maybe the precious metals market opens back up if you are so inclined.

The MMT money is not inflationary right now because it is merely making up for money people are not making because they’re forced not to work.

How your stimulus checks are MMT

When the government issues you a check that the Fed finances, that’s money falling from the sky. It’s immediate money going to the masses that they don’t have to work for, which is what is meant by “helicopter money.”

The Treasury financed the checks now going out with a temporary form of financing called Cash Management Bills (CMBs) at slightly higher interest than regular US treasuries typically require, but these CMBs already issued will result in bonds being issued very soon to move that money to lower-interest financing. CMBs are only intended for very short-term management of treasury cash flows, such as getting a jump on getting the government coronavirus stimulus checks out without having to auction all the bonds necessary first.

For perspective, here is what had to happen immediately to the treasury’s balance sheet in order to have enough money in the government’s bank account (at the Fed, which is the government’s banker) for the first issuance of helicopter money to the general public:

Total Treasury CMBs could easily exceed $1 trillion by the end of April to cover the helicopter money and other bailout programs the government has promised to fund immediately. You can see, the Fed will have its work cut out for it to create that much money in order to purchase that much in treasury bonds and keep doing it in the months ahead.

[That] amount which will soon have to be rolled over/refinanced as the Treasury cash balance will soon tumble and it won’t be able to repay CMB maturities.

Zero Hedge

That is to say the US Treasury won’t have enough money without issuing some longer term of debt. Meanwhile, tax receipts have plunged to almost nothing because of the government’s postponement, so the Fed needs to get on the money-creating ball.

When the Fed finances helicopter money like those stimulus checks going out, it’s less likely to create inflation when it is making up for the shortage of cash in people’s hands created by their being forced out of work by the government. So, there may not be any immediate inflation from MMT at this level. Seeing no inflation may, however, beguile both Fed and government into doing more and more of this easy money, even as the nation moves back to work, until it does start to become a problem.

We’ve all seen how tempting it is for the Fed to create money just to pump the stock market up. Once it becomes a problem, its hard to back out because people and businesses allow themselves to become dependent on it.

Money is losing its meaning

It’s not a stretch to think the Fed and government could lose control of all this money movement since it is in far greater amounts than they’ve ever tried to manage. Bloomberg notes that “Money is Losing its Meaning“:

Doing “whatever it takes” to save the global economy from the coronavirus pandemic is going to cost a lot of money. The U.S. government alone is spending a few trillion dollars, and the Federal Reserve is creating another few trillion dollars to keep the financial system from collapsing.

These numbers are so large that they no longer have any meaning; they are simply abstractions…. Former Fed Chairman Paul Volcker once said in an interview that “it is a governmental responsibility to maintain the value of the currency they issue. And when they fail to do that, it is something that undermines an essential trust in government.”

Under a fiat currency system, the government says that a dollar is a dollar. Its value relative to things such as other currencies and gold is determined on global markets. Gold is considered to be an objective store of value, and the metal’s rise in dollar terms can be expressed another way, which is that the dollar fell in gold terms.

And if there are too many dollars in circulation, the monetarists would say that the value of those dollars has diminished, eventually leading to higher prices for things. That theory hasn’t worked too well in the last decade, because inflation has been low and stable, but it is too soon to declare it discredited.

It’s time, in the very least, to keep a close eye on inflation. Clearly Bloomberg sees the risk of high inflation if this runs out of control. That’s not to say it will, but the risk of hyperinflation is now being mentioned in mainstream media, and hyperinflation has been the main argument against MMT, though MMT says the government can create any amount of debt it wants and have the central bank fund it so long as it is not creating inflation.

The problem I see is what happens when you go down that road, become dependent on that kind of financing, and then the inflation starts to show up? The question in my mind is “How far can the Fed and Gov. push the outside of this envelope without creating inflation?”

We’re about to find out. The piece being quoted is a guest editorial in Bloomberg, and not one of the publication’s own editors, but I think its presence there shows the concerns of hyperinflation are moving more mainstream as the Fed and government move in consort to the new frontier of MMT. As the Bloomberg article goes on to explain the concern,

It took a while, but it seems as though the U.S. government has decided that it has no constraints on its spending, as long as the Fed continues to monetize government borrowing by purchasing the debt issued to finance expenditures. It’s not crazy to think government spending may reach $10 trillion – for just one year! And the numbers will go up from there.

Nobody really knows how this is going to turn out. In smaller economies, runaway government spending has resulted in hyperinflation and social unrest, such as well-documented cases in Venezuela and Zimbabwe. Many think that wouldn’t be possible in the U.S. given the dollar’s role as the world’s primary reserve currency. Perhaps, but it’s not one of those questions we’d really want to experiment with.

Argentina, which has more or less been practicing MMT for some time, proves that it’s hard to put the inflation genie back in the bottle.

Well, experiment, we shall. It may be like fear some have over the Cern particle collider creating black holes. It doesn’t seem out of line to ask “What do you do if one gets out of containment while still subatomic in size and keeps growing? How do you even find it in order to stop it? Given the oddities of quantum mechanics what if it materializes in the center of the earth where you can’t get to it?”

The Fed is now playing out of its league after already proving via the Repo Crisis it predictably created yet couldn’t see coming that it could not manage things inside of its league. Unlike Cern scientists, it is also not playing the realm of the esoteric but at the core of everyone’s daily activity — money. It is not playing with infinitesimal particles but with vast amounts of great-big things.

Getting away with doing this for now has created a lot of support for the fantasy that you can just give people a basic living as many MMT proponents push. That’s where I ask, “What happens if you get dependent on it?” Taking it away may not be politically possible if people start to expect it and lean on it.

If MMT and/or guaranteed minimum income take hold as permanent programs, they will create economic distortions that I admit I have not thought through; but I’ve seen the world enough to be certain there is no such thing as a free lunch, so I am certain the idea is terrible. In the very least, we know that people value less that which they don’t have to work for. We call valuing money less … “inflation.”

The highly fallible Fed

Before going nearly that far, the Fed has noted how massive its current operations already are, as I pointed out in a recent regular post:

Lorie Logan, who is the head of the Fed’s open markets, i.e., the head trader of the world’s biggest hedge fund, commented on the Fed’s unprecedented intervention, and takeover, of capital markets, saying that “the scale of these purchases has been unparalleled, totaling about $1.6 trillion in the past four weeks

Zero Hedge

The question is “Does the Fed know what it is doing, and can it manage and contain this better than Argentina did?” The US believes it is exceptional and that the Fed is infallible, but even Ben Bernanke has said the Fed murders expansions and was responsible for things getting as bad as they did in the Great Depression.

I think the Fed is responsible for the dot-com bust, the Great Recession and for the problems that exist beneath the surface of the present recession as well — problems the Fed doesn’t even acknowledge, just as it didn’t acknowledge it was creating a reserve cash shortage before the Repo Crisis by leaning on its member banks to soak up all US treasuries as the Fed rolled them off in its tightening days.

The unforeseen (by the Fed) Repo Crisis, which came about due to dependency on the money supply created by years of the Fed’s quantitative easing, proves there is every possibility things the Fed believes it can do and does do will go bad and cannot be unwound later. The only way the Fed solved the Repo crisis was to redo all it had unwound and more.

Logan went on to say,

“Supporting smooth market functioning” does not “mean eliminating all volatility. In well-functioning markets, prices will respond rapidly and efficiently to new information.” Except, of course, when the information is negative and the Fed has to buy everything that is being sold as it just did in the past 3 weeks. But then again, this is the same Fed which thinks the US population is too dumb to understand what is going on….

Logan then elaborated by saying that “during the unprecedented disruption caused by the coronavirus pandemic, a great deal of new information arrives every day about the outlook for specific markets, such as housing, and for the economy as a whole. These changes in the outlook should move the Treasury and agency MBS markets irrespective of the Federal Reserve’s purchases.”

And work together on it they are as the Fed now soaks up all debt the government needs to issue to fund its fiscal stimulus, which is pure MMT.

Logan tried to deflect blame stating that “today’s crisis is different, having originated outside the financial system, in an enormous challenge to public health.”

That’s the old, “None of this is our fault.” I’ve said all along, and so have several of my readers in their comments, that there is no doubt the Fed and government will both use coronavirus as a scapegoat for their own failing policies. However, as ZH also points out,

[That,] of course, [is] also a lie, because had companies not spent $4 trillion on buybacks in the past 4 years and instead had allocated the money to a “fat tail” fund, none of the insanity observed in the past month would have happened.

Those stock buybacks were made possible in part by the Fed’s easy money and ultra-low interest (as well as by the government’s tax breaks and the deregulation the government started allowing them back in the eighties). In the very least, we could have faced it with less intervention. Logan, then, claims the Fed learned a lesson from its past bailouts:

Yet the lesson of the previous crisis still applies, and the Federal Reserve has taken it to heart in responding to the recent stresses in funding markets, Treasury and MBS markets, and credit markets.

She doesn’t say what the lesson is, so let me fill that in for her. The Fed learned that people get mad when all the free money goes only to banks. So, did the government. So, this time they’re making sure enough spreads out to all taxpayers to buy their silence.

I believe she thinks the lesson is just that the Fed didn’t do enough to bail out banks quickly enough:

“The past month demonstrates that the Federal Reserve will use its tools aggressively to keep markets working so that credit can flow to households, businesses, and state and local governments throughout our economy.”

Translation: the Fed will buy as many trillions more as it needs to completely disconnect all prices from fundamentals and create a Potemkin Village economy so vast, the USSR will be spinning in its grave.

And no one blinked, except at The Great Recession Blog, Zero Hedge, and a few other sites of that ilk.

As for my claim the Fed will scapegoat the virus, Morgan Stanley’s Michael Wilson, wrote,

We think the nature of this recession–the unprecedented suddenness and trajectory of the contraction centered on a health crisis–has provided absolute cover for policy makers to go well beyond traditional support. As such, the bad actors of the last cycle are getting bailed out.

Zero Hedge

It’s a good thing for the dollar that the Fed and their central friends have the gold market cornered in order to protect their currencies. (They appear to be doing their best to make sure you cannot take gold as your way out.)

Here is the dependency risk: Giving people a free living, such as some congressional proponents of MMT advocate, has never made them better people. If they need it because they are badly disabled, I’m all for it. Otherwise, I think a productive society is a healthier society, and free lunches create languor, which turns to laziness, which eventually becomes atrophy and waste.

Finally, it results in deterioration as human nature has shown people become weaker in character the more they get everything for free.

Yet, MMT is a big argument that surfaced in this election cycle along with guaranteed minimum income for everyone, and the coronacrisis is conditioning us to accept that.

It’s like thinking you can live without exercise and stay healthy. MMT is the lazy way out of a problem we created through massive financial profligacy. It says, “Let’s not just double down on our profligacy; let’s go an order of magnitude higher an accelerate out way out.” That’s what we tried in the Great Recession. Now it requires yet another order-of-magnitude increase.

I don’t see how that can end well, though I don’t know the path by which it will become disaster. I just know the principles underneath it have always led to the effects I just described.

Still, I have little doubt we will go that way. Coronavirus is already helping us get used to it as the government pays people to sit at home.

In conclusion for the moment … and then something really big

As I said in last month’s Patron Post:

This should make it clear that for the past decade the Fed has had just two big tools in its box — interest cuts and QE — and that those are worn out.

They’ve pulled out all their old familiar bailout programs and done them like never before. They’ve also gone to buying corporate bonds directly through exchange-traded funds (ETFs), and equity ETFs surely aren’t far behind. Until the government stepped in, nothing the Fed did could even get the stock market to stop falling.

I recapped the problem of diminishing returns from all these plans in last months’ post based on the precedent set by Japan from its asset purchases, and I talked about how all of these program have seen diminishing returns, especially in Japan.

As noted in my second Patron Post last month, the Fed’s explosion in Repo operations this year got lots of bank involvement, but it was a total face plant for stocks. The stock market immediately did the opposite of what the Fed hoped for by crashing down the largest intraday point waterfall in history. It acted like a baby throwing the spoon from its mouth to make it clear that it didn’t want any more of that stuff. (It’s too bad the Fed never listens to me.)

I also noted that the market immediately priced in a return to Zero Interest-Rate Policy (ZIRP). Therefore, I predicted in that post that any move by the Fed to ZIRP would have no effect because it was already being taken for granted. About a week later, March 15, the Fed dropped its floor rate to ZIRP. As I predicted, the market just kept right on falling! Zero interest in Zero Interest-Rate Policy.

So, both of April’s Patron Posts proved spot on as to what the Fed would try first and as to how completely those moves would fail. The program just got accelerated.

I now think the coronacrisis has slingshotted us right past the next thing I said the Fed would do, which is buying equities. I think the Fed knows it will get full acquiescence for just about anything it wants to do from the public, which wants salvation, and from politicians, who want to calm the public. So, I don’t know that the Fed will even waste it’s time getting approval for stock purchases. It might, but that will be a sideshow compared to where it wants to go after MMT and helicopter money.

The Fed already knows from observing Japan that central banks purchasing stocks turns into nothing but a quagmire anyway. I’ve read some people who think taking ownership of all corporations and all property a has been the Fed’s conspiracy all along. I still don’t buy it. If you have the ability to create money out of nothing, why do you need to take ownership of corporations that have to be run? Why do you need to repossess everyone’s home when you, according the Fed Prez. Neel Kashkari have unlimited ability to create money at will. If the Fed or its member banks wanted to repossess homes, they could have repossessed a whole lot more during the housing crisis of the Great Recession than it did. Instead, the Fed pressed banks to stop repossessing homes. Who wants a bunch of homes to maintain when you can create money inside your own money reactor?

Owning and overseeing all the corporations in the nation is a colossal amount of work for a contagion of banksters whose money who “mint” their own money by the trillions. So, I don’t see that conspiracy ever happening. If it does, the blowback would be enormous.

Ultimately, the public isn’t going to go along with a fully centrally-planned, Fed-owned economy if it means no one can own shares or own homes. All of the Fed’s power comes from the people via the congress. So, let’s look at what the Fed will more easily find license to do with money, which it does control, without incurring a landslide of revolts all over the nation and where (again) their own words show us they want to go, as that has served us well so far on this journey.

COVID-19 is a game changer. As I noted in my last Patron Post,

There is … nothing so opportune as a global crisis to create public demand for a global solution.

So, where does the Fed go for new ammo that will 1) more satisfactorily fit its need to create money in order to end a foreign dollar shortage and 2) create helicopter money for the US government to distribute to the masses and 3) create mountains of money to fully fund the government’s now bottomless appetite for more deficit funding and to offset its massively plunging taxes?

Since everything blew up by an order of magnitude in barely more than a month’s time, I need to fast-track my predictions even beyond MMT. The Fed may rush right past the next thing I said would likely be the next step, which is stock purchases. Such purchases to a small extent may happen, and moving to clear approval of MMT will become legally essential if anyone raises objections. since the Fed is already doing it.

While stock purchase and official MMT approval may be the immediate next steps; I think the crisis is accelerating us toward a bigger step than that, so I’m going to rush ahead so as not to find myself playing catch-up again.

I’m writing two Patron Posts again this month because of how quickly things are moving. The next one will be about going cashless — coronacashless — at least moving to a central bank digital currency as a first step, even if cash is kept around for the transition. Since the coronavirus has established new reasons to go cashless and to make the move more quickly, maybe we’ll call the new currency “the corona” like the old British “crown.”

Given how much the coronavirus has accelerated all these other central bank moves, the year of central bank digital currencies may be here already. I think the world has entered a new epoch. So, my next Patron Post will be the biggest step of all. See if you can’t get a few people interested before it comes out in a few more days so they don’t miss that big wakeup call of their lifetimes.

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