What this Country Needs is a Helicopter Drop of Money

The interest you pay on debt is money you are not spending on something new. So if you pay 10% interest on your credit card, that is 10% less you have to spend on new stuff. By shooting into a crowded playground, a single person could add millions to GDP by the added medical treatments, police overtime, and coffins/graves/tombstones, but that does not mean that it is constructive or desired spending. More volume is not necessarily better and that is a fundamental problem in politicians and the economy--they think it is the right end so they don't care about the means. Just so GDP goes up, it's all good to them.

 

But it won't be safer.

Reserves enable banks to meet the ordinary day-to-day costs of business, including cash withdrawals. In the case of panics or runs, the government steps in to provide the necessary liquidity. Any other way of keeping your money will automatically be less safe.

 

Not really. Just you and Krugman, really. Only government worshiping illiberals believe in tooth fairy magic of the printing press where green slips of paper are mystically turned into wealth.

I'm not a conservative. Any educated person knows what is a false dichotomy and that there are more than just liberals and conservatives in this world.

 

You may not be a conservative but you're buying into the conservative rhetoric.

 

The federal government is in debt about 19 trillion right now. It doesn't have any money. What it has is an ability to beg, borrow, connive, or steal money from people in order to meet expenses. It is a teenage daughter who really doesn't understand the concept of money, and she's shopping with daddy's credit card.

sigh... you know, this whole thing with fiat currency has made most people economic dunderheads.

Sorry, but wake up!!!!!!!! The federal government has no money! This is why it is in debt. Arrrrrrgh!!!!! It can't just print up money without hurting people who have money. It can't just throw a new tax (do you understand why taxes are necessary to a government? I don't think so).

sigh.... I'm spent.

You socialists are a disease

 

You give me a random Austrian school economist. I give you the Bank of England:

 

Poor baby. Put your money wherever you like, it's no skin off my nose. Just be aware that it won't be safer under your mattress.

 

Absolutely. Why people would save dollars under their matresses baffles me. Invest, or purchase relatively stable commodities.

This whole notion of intrinsic value is just completely fallacious in my view: there is no such thing as objective value, it's all in terms of what someone is willing to give you in exchange. In the long term, all value drops to zero.

Do the best you can given the circumstances. That means no hoarding dollars under your mattress.

 

So why should I entrust my money with a bank?

I can all "poor baby" all you like, but you're not really giving me any incentive to keep my money in the bank, here. And might I add that you're not giving anybody an incentive to keep money in the bank. So why do we have banks?

I know you socialists love people keeping money in banks, but you're just not giving me any reason not to invest it myself. Once it's invested (oftentimes offshored), you can't touch it.

So why should I trust a bank?

 

Good article. Thanks for posting it and thanks you for your patience.

 

So in your view what would be the effect of doubling reserve requirements?

It certainly wouldn't be enough to prevent bank runs.

 

The effect of doubling reserve requirements would be a smaller amount of money (about 10c on the dollar) that banks would be able to invest in things like home loans etc.

Not really enough to make a big difference to the big banks, but it would kill off a lot of the smaller ones.

 

Doubling the reserve requirements would do absolutely nothing.

 

Reserve requirements are meaningless in modern banking systems and there is no link between reserves and banks ability to lend. Doubling the reserve requirement would do absolutely nothing. Monetary experts have been writing about this for at least 3 decades now, even Ben Bernanke wrote about how the money multiplier is not an accurate representation of how our banking system works. Some countries even have dropped reserve requirements altogether because they're meaningless. Here's a paper from the Federal Reserve about this subject.

"The recent rise in reserve balances suggests a need to reassess the link from reserves to
money and to bank lending. We argue that the institutional structure in the United States and
empirical evidence based on data since 1990 both strongly suggest that the transmission
mechanism does not work through the standard money multiplier model from reserves to money
and bank loans. In the absence of a multiplier, open market operations, which simply change
reserve balances, do not directly affect lending behavior at the aggregate level.1

Put differently, if the quantity of reserves is relevant for the transmission of monetary policy, a different
mechanism must be found. The argument against the textbook money multiplier is not new. For
example, Bernanke and Blinder (198 and Kashyap and Stein (1995) note that the bank lending
channel is not operative if banks have access to external sources of funding."

https://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf

 

It has no relationship to money in circulation or lending at all. I understand that's the high school textbook explanation of banking and the federal reserve. But even the Federal Reserve has admitted that is not how it works, there is absolutely no relationship between reserves and money.

 

It is one of the ways the federal reserve controls the money supply. It is why they raised the reserve requirements in connection with the flooding of the system with new money as part of quantitative easing. I have no idea what your high school text book tells you. You are wrong.

 

The OP is an example of the Great Fiction.. that govt can 'create' things.. they provide the necessities of life, & can just declare wealth. It is an absurd fantasy, with no basis in reality.

The ONLY SOURCE of wealth is from production. You have to create food, housing, clothing, goods, or services. Printing fiat money creates nothing. It would not help an ailing economy, but only DILUTES the real wealth of the nation. It is like cutting your cocaine with powdered sugar.. it only weakens the effect of the drug, or requires more of the diluted material to accomplish the same thing. Fiat money is just dumping cheap filler into a non productive system. It breeds dependency, & kills productivity. It is the fantasy of the left, who seem to think that every need of man is held in big govt store houses.. and generous liberals want to open the doors to everyone, while greedy conservatives want to horde the stuff for themselves. But that is a delusion. There are no govt store houses. Food has to be grown, worked for, & brought to market. SOMEONE had to work to create the food, housing, automobile, clothing, & every single necessity of life that some seem to view as a natural right.

Our economy, & that of greece & other failing socialist based nations, is failing BECAUSE of flawed economic policy, especially relating to the currency. You could give everyone $1 million dollars EACH, & it would not increase prosperity. It would only collapse the currency, because it has no basis. We are coasting on fumes at the present. The QEs have merely diluted the currency, inflating the real value with massive dumps of declared money.

IMO, this is the major problem in the nation.. people do not understand the basics of money. I have called it 'the greatest mystery of the 21st century'. Confusion, obfuscation, & propaganda are constantly buzzing around while simple economic truths are ignored.

http://www.politicalforum.com/polit...5537-greatest-mystery-21st-century-money.html

 

Almost the entire world has just dropped the American dollar. It's just paper with ink. The only thing given it value is a thought. The American people believe it holds value, it does not. We live in a world of debt. If your not in debt, your not an American.

That's why the American founders said there shall be no notes, I.O.U., the government can coin money. The thing about coins, is they hold value in them. Gold or silver is in the coin, this would stop expansion of government. They can't print gold or silver. The entire monetary system is fraudulent, a scam, monopoly. The consequences are catching up, and a dark one is almost here. It was my favorite president that first introduced the paper money, or iou note. Abraham Lincoln

I'm revising my favorite president. For that one incident a long time ago, is finally catching up with the founders warning.

 

That's what I'd like to see happen, but I'd bet $.90 on every $1.00 would leak to some unintended location. I'd rather just free up cash to people who NEED to do some spending at the local hardware or grocery stores.

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They can only lend some multiple of what they have in reserves.

 

You literally just made this up. The reason it has value is because of the $17 trillion+ of goods and services you can trade for it.

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The federal reserve does not control the money supply that way. You are wrong, but I'm sure you'll never try to understand why. So keep carrying that belief that the federal reserve themselves says is not true.

 

People use money to buy things, the government can create money. I have no clue what the rest of the babbling here is. Austrians have to do a lot of talking to make very simple things somethings they're not, lol. I'll give you a hint... producers don't care where you got your money from.

 

TYhe federal reserve seldom tries to control money supply that way but that does not mean that they cannot control money supply that way. Here let me help you out

Money Supply=Monetary Base × Money Multiplier. If the fed ups the reserves it is taking away from the Money Multiplier and therefore lowers the Money Supply. If the fed set the reserves at 100%, the economy grinds to a halt, but according to you that would have no effect whatsoever on the money supply.

 

I understand the basic text book definition of a fractional reserve system. What I'm telling you is that is not how modern banking systems work. The Federal Reserve cannot control the money supply by adjusting reserves as there is no multiplier and over 90% of deposits/loans in the banking system are not reservable.

And this is not some conspiracy, the Federal Reserve says it themselves.

https://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf

"Casual empirical evidence points away from a standard money multiplier and away from
a story in which monetary policy has a direct effect on broader monetary aggregates. The
explanation lies in the institutional structure in the United States, especially after 1990. First,
there is no direct link between reserves and money—as defined as M2. Following a change in
required reserves ratios in early 1990s, reserve requirements are assessed on only about one-tenth
of M2.4 Second, there is no direct link between money—defined as M2—and bank lending"

"Nevertheless, it is the link between money and reserves that drives the
theoretical money multiplier relationship. As a result, the standard multiplier cannot be an
important part of the transmission mechanism because reserves are not linked to most of M2."

"For perspective, M2 averaged about $7¼ trillion in 2007. In contrast, reservable deposits
were about $600 billion, or about 8 percent of M2. Moreover, bank loans for 2007 were about
$6¼ trillion.6
This simple comparison suggests that reservable deposits are in no way sufficient to fund bank lending. Indeed, if we consider the fact that reserve balances held at the Federal
Reserve were about $15 billion and required reserves were about $43 billion, the tight link drawn
in the textbook transmission mechanism from reserves to money and bank lending seems all the
more tenuous."

 

The current problem isn't the money supply, or solved by "dropping money from helicopters."

The current problem is a lack of confidence in the current administration. When people or business owners have extra money today, most hoard it in expectation of needing it in the future. You don't have a clue what Keynes wrote or meant concerning "expectations of the future" and uncertainty. And this isn't the first time I have written about it in these threads either, but you are still stubbornly ignorant.

Enough said.

Steve

 

You just made this up. Sorry if I don't believe your made up theory, lol.