The Answer is Here!

My HeroI did not really explain MMT, Modern Monetary Theory, when I talked about it on Saturday. In preparation for this blog post I watched a few YouTube videos and concluded that it was true. MMT teaches that the way to economic prosperity and full employment is to print enough money and spend prosperity into the economy. There is no limit to the amount of money we can give our hard-pressed people. Happy Days are here again.

Former Vice President Dick Chaney was right, deficits don't matter. The obvious thing to do is print more money. There is no need to cut Social Security or Medicare. We can afford our empire with just throwing a few switches at the Department of Treasury.

Here is an interview with one of the founders of the movement, well no not really, it is just fun.



Not convinced? Here is another presentation without crash dummies. No one this pretty could be wrong.



MMT Explained Graphically!Financial salvation has arrived at the cost of a few trees for the paper. No doubt a few virtual trees will be cut as well.

Think of it! We have the chance to dwell in the Garden of Eden again. The Kingdom of God is just a few runs of the printing press away. Prosperity beyond our wildest dreams is just around the corner. We have found the pot of gold at the end of the rain ... oh, wait, never mind, that is a bad analogy.

Jesus has returned in the Form of the New Economic Perspectives.

Amen. 

Modern Monetary Theory

Are there people who think money grows on trees? Yes, Virginia there are. Sometimes you just have to shake your head in wonder. 

 What Norman does not seem to understand is that increasing the money supply cannot create wealth. There is no perpetual motion machine. You can get "Money for nothin' and your chicks for free," according to the Dire Straits song. But looking at washed-up rock stars, we can easily see the end of that path. 

If you print money, you change nothing. The same real estate existed as before; the same factories exist; no new assets suddenly appear. If the amount of money increases as in the hypothetical money volcano cartoon on the right, everything costs more. But the people in the cartoon have been lucky, they got there first so they get the advantage of using the debased money first. 

Why is there no inflation? It is simple: the money is mostly sitting on the sidelines waiting for better days—two trillion worth. The speed at which money circulates has been declining as well. This cannot last forever. But it can last a good long time. Use that time wisely. 

Here is Peter Schiff's view of Mike Norman. It includes a debate between them in 2006, right before real estate crashed. 

The Incredible Bread Machine

This documentary is from the 70's and it shows; but that is part of its charm. The early Libertarian movement has not had much success even as it became stronger and stronger. Things are less free now than the mid-seventies. So while the documentary makes some great points in a funny way, it also at the same time gives me a glance into my own past-when everyone was a hipster.

A Rising Tide?

The cliché is that a rising tide lifts all boats.  This is one of the rationales of the huge monetary easing that much of the world is experimenting with. Increasing the sea of money will cause the amount of money to increase. This is a tautology. But if you or I are sitting on the beach, and the wave comes, we might drown.  The ones with the yachts (hell, I would personally settle for a dinghy) will benefit without the risk of drowning. Yes, it will eventually "trickle down." I suppose. Maybe. But I have this picture in my head. I picture a banker on his yacht having too much champagne and complaining that the bathroom is too far away. He relieves himself over the side—into my dinghy. I suppose I need the liquid refreshment. A former Prime Minister of India would drink urine. He said you got used to it. I suppose we can get used to anything. I suppose

How does this work in the real world?

The Central bank buys assets with money they have printed. Actually it is more sophisticated than that—they push a button on a computer keyboard. It reminds me of a perverse parody of a child's taunt.

The Fed does not give money to you or me
The Fed meets that Banker behind the tree
K-I-S-S-I-N-G

The rich, well-connected, and powerful get the money first and receive the most benefit from it. I suppose it benefits Lamborghini salesmen and dealerships. I suppose it benefits Wolfgang Puck's new restaurant I saw in Palm Desert. I think I would make a great Major Domo, but where do I send my employment application?

In fact the wealthy are not doing their "part." I read where there is two trillion dollars just sitting in banks receiving less interest than the inflation rate. Not that I blame them! There is very little to invest in. In some ways we should be grateful that the rich and famous are not investing like they normally would. Can we imagine what the inflation rate would be like if this money sitting on the sidelines was actually in circulation and being used?

Make the least bad choices from what is available to you. Meditate on the words of John Wesley. Earn all you can. Save all you can. Give all you can.

Is the Gold Still in Fort Knox?

I never wear such a hat as it is well known that such hats make it easier for the government to track you. Get out your aluminum foil hat. At least that is what I thought about the possibility of Fort Knox being empty before one presentation at the Cambridge House seminars. I had only heard the goofy version of this, that Fort Knox and the gold at the Federal Reserve in New York was missing.

No, the gold is there all right, but the real question is "How much of it is pledged or lent to banks?" This is how it works. The Fed leases gold to a "gold bank" for a modest fee. The gold bank issues certificates can be redeemed for gold. The gold bank then buys bonds, often government bonds in the country that lent the gold to the bank in the first place. This has a great effect from the government perspective. They receive a fee and get to sell their bonds. From the bank's perspective they get a great spread on the difference between what they pay the central bank and the interest they receive from the bonds they buy—a win/win for both parties. Since most money center banks, the big ones, are bankrupt if they marked their assets to the price the market would give them for these assets, this allows them to replenish their capital on the sly. In fact a lot of the various oddness in the financial markets is explained by the banks’ desperate need for capital.

Pay No attention to the Banker behind the curtain. Are the banks doing this? Yes, the Austrian central bank released that they had lent a considerable amount of their gold out. How many other central banks did this? We do not know.

So is everything fine? Sure, as long as the paper gold is not ever returned to the central bank or the Federal Reserve. But if gold goes higher, and the banks are forced to return the gold and draw out the paper gold from circulation, these banks will go bust. In that case what will happen to the paper gold, the ETF? It will be worthless. If you buy gold, do not buy ETF's.

Can we be certain that this is a big a problem as I think it is? No. But there was one new interesting data point that became common knowledge. Germany has its gold stored mostly at the Bank of England, France, and the Federal Reserve. This is a legacy of the Cold War where it was feared that the Soviet Union might steal it in war. There was considerable buzz about German gold in Germany. So it was announced that all the gold would be returned—over 7 years. 

Will the German Bundesbank still love the Fed after 7 years? 7 Years.

7 Years!

7 Years?

Why not 7 months? I have no idea what is going on, but something is wrong. The probability that the gold is being double counted to drive down the price just went up—by a lot.

Here is a presentation similar to the one I saw at the Cambridge House seminars. I have my doubts about the extent of the problem, and we do risk being stuck in tinfoil hat territory, but there is no doubt that this gold lending is happening.