What does this have to do with a posting about economics? We should be a people capable of trying different things! Looking ahead further. Perceiving what doesn't work.
As Winston Churchill said of America - we humans can be counted on to do the right thing... after trying everything else.
My friend, the (sane) conservative economist John Mauldin, frets that the Federal Reserve might soon follow many other nations in offering Negative Interest Rate Policy (NIRP) in hope of stimulating inflation and growth:
"He has a number of reasons for this stance. In a note last week, he said the federal government is missing a chance to borrow gobs of money at super-attractive interest rates. Kocherlakota would like to see the Treasury issue as much paper as it takes to drive real rates back above zero. He would use the borrowed money to repair our rickety infrastructure and to stimulate the economy.
"It is an appealing idea – in theory. In reality, I have no faith that our political class would spend the cash wisely. More likely, Washington politicians would collude to distribute the money to their cronies, who would build useless highways and bridges to nowhere," writes Mauldin.
Alas, assuming the worst of the political caste is somewhat justified, but only because U.S. politics has been deliberately destroyed. Politics wasn't always completely untrustworthy. The "cronies" in earlier days built the Interstate Highway System and great Universities and steered our defense spending very skillfully and sent us to the moon.
Right now, the list of delayed and desperately-needed infrastructure repairs is so long that it would take ages to get to "bridges to nowhere."
You know something like Kocherlakota's proposal is essential. Because right now the Fed has just two arrows in its quiver, interest rates and QE or Quantitative Easing. And both of them have a huge, inherent flaw in today's economy.
Both of these "stimulations" -- and the earlier magical remedy of huge tax cuts for the rich -- all three produce low velocity money.
Money velocity is the elephant in the room. It is the reason why "Abe-nomics" has not worked in Japan, and why central banks around the world have dived desperately into NIRP... and why NIRP simply does not work. It is the reason why earlier Supply Side tax cuts for the rich failed to do anything but inflate asset bubbles, never benefiting Main Street. Equities get pumped up for a while, but the real economy gets next to nothing.
Both of these "stimulations" -- and the earlier magical remedy of huge tax cuts for the rich -- all three produce low velocity money.
Money velocity is the elephant in the room. It is the reason why "Abe-nomics" has not worked in Japan, and why central banks around the world have dived desperately into NIRP... and why NIRP simply does not work. It is the reason why earlier Supply Side tax cuts for the rich failed to do anything but inflate asset bubbles, never benefiting Main Street. Equities get pumped up for a while, but the real economy gets next to nothing.
Is there an approach that can apply fresh-made HIGH velocity money to the economy? Kocherlakota's notion offers a way to do that. By putting actual men and women to actual work, building and repairing actual things, with actual pay in their pockets that wage earners immediately spend, that is what makes money high velocity!
Indeed, there is every reason to believe that the endlessly promised Supply Side "magic" of increased tax revenues would come about, at last, by priming the other side... the demand side.
To be fair, John Mauldin knows this: “Quite frankly, if the Federal Reserve decides that it wants to do more quantitative easing, I would much prefer that Congress authorize the Fed to purchase a few trillion dollars of 1% self-liquidating infrastructure bonds – or, as a last resort, to do an actual helicopter drop. The infrastructure bonds would create jobs and give our children something for their future, a much healthier outcome than the ephemeral boosting of stock and bond prices yielded by the last rounds of quantitative easing. In those instances, the benefits of QE went primarily to the well-off.”
Does that sound way-too sane for the American right today? Do not make the same mistake foisted by Fox News, ascribing the current GOP frothing-insanity to some inherent flaw in "conservatism."
Fellows like Mauldin show that there is a wing over there that remains occupied by sane adults... who are now blinking in too-long-delayed bewilderment at the hijacking of their movement by monsters.
The best move for pragmatic Americans is to promise such men and women a way out. A place at the negotiating table. A couple of cabinet positions. Assurance that the high-velocity path will be overseen by Keynsians who are as wary and careful and heedful of criticism... i.e. adult... as the Bushite mania was not, all these years.
But they must give something in return. Their willingness to drop old, symbolic loyalties and incantations and help us fight down the latest confederacy fever. And admitting the obvious. That FDR and Keynes were flawed... but more right than not. They saved western entrepreneurial capitalism, laying seeds for a 70 year miracle. And if we fail to achieve a moderate-pragmatic reset, like the one they accomplished, then everything could go south, really fast.
== Be wary of genuine enemies ==
Listen to this... the Saudi oil minister in Houston frankly telling U.S. shale producers his goal is to drive them out of business.
Oh, I don’t mind a low price shakeout and some producers declaring bankruptcy. But their wells and other assets must not fall under foreign control, especially through shell companies. It is a matter of national self- interest for expensive wells to enter the US reserve, even if it means the federal government buying up some of them. That’s smart anyway! Buy low and sell high later.
Whatever. Just make it a matter of national defense policy not to let the Saudis buy-out distressed U.S. shale producers. Anyone who lets that happen is an outright traitor.
Whatever. Just make it a matter of national defense policy not to let the Saudis buy-out distressed U.S. shale producers. Anyone who lets that happen is an outright traitor.
== No more torture ==
Nineteen retired generals and admirals have signed a blistering condemnation of Republican presidential candidates who support the use of interrogation tactics widely regarded as torture. The officers also scolded them for opposing President Obama’s proposal to close the prison for suspected terrorists at Guantánamo Bay. … and “The statement by the retired brass called Guantánamo “one of the most powerful symbols for terrorist recruitment” and said torture “abandons the principles that this country was founded on, compromises our position of leadership on the world stage, and puts our troops, frontline civilians, and all Americans at risk.”
Let’s be clear. The senior U.S. military officer corps is the third best-educated clade in American life, after university professors and medical doctors. They are tested and tempered so hard, year after year, that (for the most part) they tend to be the most self-disciplined and logically focused individuals you will ever meet. And religiously devoted to subservience to civilian rule.
They are the sons and daughters of George Marshall, who should have been named “Person of the 20th Century” … and while they tried their best to hide it while serving, upon retirement a very large fraction of them have let slip that they deem both Bushes to have been among the worst U.S. Presidents, ever.
They are the sons and daughters of George Marshall, who should have been named “Person of the 20th Century” … and while they tried their best to hide it while serving, upon retirement a very large fraction of them have let slip that they deem both Bushes to have been among the worst U.S. Presidents, ever.
