What this Country Needs is a Helicopter Drop of Money

Well, it's not a concept that can be dismissed too quickly. I remember reading in an economics textbook years ago that the correct value of a trade currency is the point where the trade balance is zero. On that metric, our dollar has been over-valued for years. An overvalued currency is a currency starvation, and we are responding like an economy that is being strangled.

And if you could replace all the social safety network spending with roughly a $1,000 a month to every American Household earning less than a $100k/yr and not on social security, why wouldn't we? I believe it was Milton Friedman that first suggested this.

 

Helicopters, as the man explained. Actually, this should have been done years ago. Cash has to start churning. I'd squeeze it out of the casinos and put it to real tangible work.

 

Paul deserves some, too.

 

I just don't like the idea of getting rid of safety nets for people that need it and replacing it with just a set amount for everyone each year. Just want a one time fiscal expansion, let that money filter through the system for years/decades and just watch the economy boom. Life is so much better for everyone when people have money to spend. Small businesses, big businesses, entrepreneurs, etc. It's ridiculous that this hasn't been done already. We're entering in to a lost decade type of situation. Weirdly though, spending has increased by the most it has in the past 6 years. Not sure what is causing the spending increase.

 

Then you need to do the opposite. We don't need more money--we need faster velocity. They have an inverse relationship. If you want to speed up "churning" then you have to reduce money supply

 

If the government is spending $100 trillion a year and the GDP is $30 trillion, how long do you think we'd go before people have to start using dump truck loads of dollars to buy a single gallon of milk?

 

The reason many of you are so lost in this discussion is because you don't understand banking. Banks are the source of money. They have an infinite amount of made up money they can create. When the government issues debt, we have a system of banks that buy it at a rate that the Federal Reserve wants. People think the money has to "come from somewhere". It doesn't, it simply gets typed up in to a computer and exists on a balance sheet. When the debt comes due, they just simply replace it with new debt and absolutely nothing changes. Banks do not care because they don't lose anything, they can gain through spreads or interest payments. The benefit from this is that it becomes financial equity for the private sector. It becomes money we can use to save, pay taxes, spend, buy debt, etc, etc. We will never run out of the ability to make money. And we simply need this now more than ever. Been saying for 6 years the economy will be as sluggish as can be as long as we don't have a major influx of new money. Still hasn't happened and of course the economy is still sucking.

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Why would we spend $100 trillion a year if the GDP was only $30 trillion?

 

That's the part you are leaving out. The only way we'll be spending $100 trillion in a century is if we have had GDP grow equally as large. Our spending is already a considerable percentage of GDP, it needs to shrink not grow.

 

Why not?

First, its something both sides should be able to get behind, and it puts in place the infrastructure for exactly what you say is needed. During times of insufficient demand, the government simply increases the payments. During times of inflation, they would dial it back. Essentially what the Fed does with money supply now, only its directed at consumers rather than passed through the banks.

 

Since a lot of cash is sitting idle or simply spinning in place, I don't disagree. You know any ways to speed it up?

 

I'm sure everybody in poor countries thinks the same way. They look at the shanties they live in, their malnourished children, the corruption of their politicians, and the first thing that comes to mind is "If only we had some moolah to spend!".

Why doesn't president Maduro just print up a few quintillion bolivars and travel around by helicopter throwing it out to the people?

I understand the allure of thinking that the only reason people don't have enough money is because the government isn't giving them enough money. That's the basis for the welfare state, and what happens is that you end up with a lot of people on welfare sitting around on stumps complaining about how they don't get enough free money. If only they had a few more shekels, they could afford cushions for their stumps.

 

You're just making stuff up, lol. You have no clue what a "considerable percentage of GDP" is. And it definitely shouldn't shrink. That would be absolutely disastrous. Unless you're a huge fan of depressions.

 

Not overnight and not without consequences. The fed could double the reserve requirements for banks which decreases money in circulation or the Congress can double the national debt.

 

Reserve requirements have no relationship to the money in circulation. Doubling reserve requirements would be meaningless. The Fed can't do anything right now. It's literally time for fiscal policy changes and Congress agreeing to simply spend money. That's all that it would take. Unfortunately Congress is a bunch of clowns that believe a lot of these myths about the economy and equate government finances to their own finances.

 

Government expenditures this year alone are nearly a quarter of our GDP (4 trillion in spending versus 17 trillion GDP). That level of spending is not sustainable. The depression is going to come for sure when our interest payments on the debt become equal to the entire rest of our budget and no one else will loan us money.

 

Sure it has relationship to money in circulation. It keeps banks from being able to lend as much money. I personally think government spending fo rthe sake of spending is pointless as well. I would rather see them go after Wall Street and its fat cats at every turn to force them to create jobs or go belly up. A penny per share per trade transaction tax on all stock exchanges would slow the market and create massive revenue for the government. Create an adjusted basis tax that requires trusts and institutional investors to pay capital gains and readjust their basis for every 20 years they have held a stock; eliminate like-kind exchanges; cap the home mortgage interest deduction; require gift taxes be paid on all gifts not a principle residence regardless of value; tax life insurance proceeds for all benefits in excess of $100K; put a value-added tax on all imports; make taxes on overseas profits taxable in the US if they are earned in the country of origin of any worker that company brings into the US on a work visa (for example if Apple brings in a worker from Japan then all of Apple's profits in Japan become taxable income in the US). These are just a few things I can think of off the top of my head. The problem isn't the government not spending. The problem is that we need a more robust jobs market and Congress cannot create that. It is too busy killing private sector jobs to figure out how to create any.

 

I could be wrong here...but I always thought that a bank could only lend as much as it had in reserves...so double the reserve require

Now I could be wrong here (and please correct me if am) but I always thought that a banks ability to loan money was a direct correlation to the amount of reserves it had.

So if that's true...doubling the reserve requirement would mean that banks have less money to loan. Wouldn't that stifle the economy even further?

 

The reserve is a percentage of the total deposits that a bank is required to keep on hand, just in case a lot of people want to take their money out. If they have more than required, they are allowed to invest the amount over the reserve.

 

Lending is capital- not reserve-constrained


To understand why reserve requirements do no constrain lending you have to understand how a bank operates. Banks seek to attract credit-worthy customers to which they can loan funds to and thereby make profit. What constitutes credit-worthiness varies over the business cycle and so lending standards become more lax at boom times as banks chase market share (this is one of Minsky’s drivers).These loans are made independent of the banks’ reserve positions. Depending on the way the central bank accounts for commercial bank reserves, the latter will then seek funds to ensure they have the required reserves in the relevant accounting period. They can borrow from each other in the interbank market but if the system overall is short of reserves these horizontal transactions will not add the required reserves.

In these cases, the bank will sell bonds back to the central bank or borrow outright through the device called the “discount window”. There is typically a penalty for using this source of funds. At the individual bank level, certainly the “price of reserves” may play some role in the credit department’s decision to loan funds. But the reserve position per se will not matter. So as long as the margin between the return on the loan and the rate they would have to borrow from the central bank through the discount window is sufficient, the bank will lend.

So the idea that reserve balances are required initially to “finance” bank balance sheet expansion via rising excess reserves is inapplicable. A bank’s ability to expand its balance sheet is not constrained by the quantity of reserves it holds or any fractional reserve requirements. The bank expands its balance sheet by lending. Loans create deposits which are then backed by reserves after the fact. The process of extending loans (credit) which creates new bank liabilities is unrelated to the reserve position of the bank.

 

At first, probably so, but taking on less debt is not a bad thing for consumers. The more expounded version is like this: The banks have less money to loan and therefore people have a greater need for more currency. The greater the need for businesses for more currency encourages them to expand their operations into new ventures in order to acquire enough new currency to do things like pay their employees, have cash in the registers, and to throw Benjamins at the pole workers during the CEO's luncheon at the Gentleman's Club. It is a more glacial process especially after Obama flooded the system new money, which is why I prefer just taxing the hell out of rich people and corporations and cut to the chase.

 

Reserve requirements range from zero (for under 15 million) to 10% (for over 110 million). That means they can "invest" or loan out a pretty big crapload. A Bank worth 110 million is only required to hold 11 million (in case a lot of people want to take their money out) so they are loaning out 109 million. Double the reserve requirement and you remove funds available for loans.

Seems to me that would hurt the economy.

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Taking on less debt means less money is flowing through the economy and that means less tax revenue and fewer jobs.

 

Banks lend irrespective of their reserve position. Link

 

The reason there is a reserve is to make sure that banks can survive a bunch of people taking their money out of the bank.

Banks offer nothing more than the ability to safeguard your money. They have vaults and guys with guns who are hired to make sure that nobody can steal your stuff. That's their entire reason for existence. They're trying to come up with other ways to be of service, but that's their primary function. The way they make money by providing this service is to have a bunch of brainiacs that know how to invest that money we trust them with. The fractional reserve system is a way of letting banks know that they've got to keep at least some money on hand, just in case I want to go shopping.

Your idea is that if only they didn't have to keep a certain amount of money on hand so that I can withdraw some money to go shopping, then that's bad for the economy. Sorry, but removing that necessity to keep at least some money on hand is removing their reason for existence. I'm not going to give my money to some bank that thinks it's okay to turn around and say "sorry, but we don't have your money right now".

I'll figure out some other way of keeping my money.

 

Hmmmm

There are two types of money in a fractional-reserve banking system operating with a central bank:[14][15][16]
1.Central bank money: money created or adopted by the central bank regardless of its form – precious metals, commodity certificates, banknotes, coins, electronic money loaned to commercial banks, or anything else the central bank chooses as its form of money.
2.Commercial bank money: demand deposits in the commercial banking system; sometimes referred to as "chequebook money"

When a deposit of central bank money is made at a commercial bank, the central bank money is removed from circulation and added to the commercial banks' reserves (it is no longer counted as part of M1 money supply). Simultaneously, an equal amount of new commercial bank money is created in the form of bank deposits. When a loan is made by the commercial bank (which keeps only a fraction of the central bank money as reserves), using the central bank money from the commercial bank's reserves, the M1 money supply expands by the size of the loan.[3] This process is called "deposit multiplication".

 

Not according to this

https://realfreeradical.com/2014/01/04/banks-can-lend-out-excess-reserves/