Sunday, July 21, 2013

Can't vs Won't

The esteemed Vox Day writes...

"And ask yourself this question.  If the Fed/USG can simply "print" credit money between them and "stimulate" the economy through massive urban bailouts, why are they not doing so already?  This solution would appear to kill three birds with one stone:

1. Preventing the insolvent cities from defaulting
2. Making up for insufficient private and public spending
3. Reducing unemployment via subsized local government employment.

So, why would neither Ben Bernanke nor Barack Obama be pursuing, or even proposing, such an economic program?  What is it that prevents them from "fixing" these three problems in this manner?"

Would that make the Fed money?  That is after all the primary objective of the corporation in question.  Given that the Fed has said that it is projecting to start losing money as early as 2014... I tend to think that the Fed believes that this kind of ramp up would not make it money... and would in fact cost it profit.

The problem with this whole post is its insinuation that the Fed isn't doing something, so it is therefore in capable of doing it.

This is obviously not the case... I say that... because well...

This exists.

We already established in the debate that delivery systems are not nearly as important as Vox makes them out to be.  George McGovern's guaranteed minimum income may have been rejected by the public so long ago... but are you so sure it would be so soundly rejected today?

I'm not.

They can get the money into the system.  Spending really isn't that hard... and when you make up the rules to the system... you get to change them as you see fit.

So they absolutely can do it.  The question becomes why don't they?

Well... the most obvious answer is they don't really believe it would do the things Vox is suggesting they think it should do.  Or... they think that there are costs to doing it that outweigh those benefits.  Also... they may fully intend on doing all of this... and they just haven't finished letting those who need bailing out twist in the wind yet.

They could be using this as a teachable moment.  They could also be letting things crash deliberately so they can buy up real property cheap later.  For example if I thought gold was going to sky behooves me to get everyone else to think its going to crash... and then to perhaps even cause a crash if I am able.... so I can buy up massive amounts of gold for nearly nothing before the price jumps start.

This happens people.  We have real historical examples of it; British treasuries after Waterloo for example.

The best answer though... is the Fed probably just doesn't think its nearly as bad as we do.  They think things are getting better... and these are just the pains of switching back from a stimulus based economy to a real one.

The Fed isn't omniscient.  I already demonstrated that they have no idea how much money is even out there.  About many many things... they are totally clueless.  They are blinded by equations that they have always assumed were correct... but which are in fact... totally useless.

Evil?  Incompetence?

Why not both?


Eric Wilson said...

My hundred trillion dollar bill!!!!

Eric Wilson said...

Also, tht Rothschild thing has gotten a lot of play. That story just seems a bit too pay for me. Not saying it didn't happen, or couldn't happen, or won't happen, but something about it is fishy. It just seems too convenient.

Eric Wilson said...

Pat not pay. And that not tht, of course

Peter Garstig said...

You list a few possible reasons why they don't do it. That's all fine.

But the more important question: will they do it some time in the future or not? What are they waiting for? Aren't there enough reasons to do it now for Detroit? What could possibly change for them to do it in the future?

Stilicho said...

Sure, the Fed can inject money into the system. What they can't do is make the banks that are the recipients of that injection loan it to non-credit worthy borrowers. After the debt-deflation induced crash, they may find the banks (or Congress)to be more tractable, then it's Katy-bar-the-door.

Nate said...

How many credit worthy borrowers did Zimbabwe have?

Stilicho said...

How much credit did Zimbabwe have? Phase 1, deflate the credit, phase 2, inflate the currency to replace the credit, phase 3 Zimbabwe. Right now, the Fed truly believes in MMT a la Friedman. They think they are just priming the pump (and helping the banks...). Debt deflation will cause them to increasing the "priming." A sudden, massive debt deflation (historically, it happens FAST) will eventually engender a corresponding response. But the rapid, massive inflation needed to cause the loss of confidence WON'T happen until the cattle prod of debt deflation is applied to the collective bankster backside.

Nate said...

I think the most likely explaination is... they just don't think its that bad right now.

They think 2008 was the crisis and we are almost out of the woods. There is just some growing pains. They look at it like the patient is ready to breath on his own... they just need to extubate him. Extubation can hurt a little but its a good sign.. not a bad sign.

They really are that blind.

Stilicho said...

Oh, I agree with that assessment. They have their own normalcy bias, and it's a powerful force. Plus, it is easy to believe what you want to believe. Facing facts and thinking is hard. It's doubly hard when you and everyone around you was taught and still works from a flawed model. It's why they NEVER see it coming.

napari said...

I relish your blog and your opinions on financial matters.

Well said! ;)

Cool Hand said...

In your debate with Vox didn't you take the position that inflation is as much psychology as economics? Meaning when everyone dumps their dollars the inflation really accelerates.

Would the FR position be primarily to then "keep the faith". Showing weakness could only speed up the inevitable, and that which they are trying to avoid.

Wouldn't the bailout tip their hand on exactly what they are going to try to create, inflation.

Nate said...

No. Because you're assuming they understand inflation.

They don't.

Cool Hand said...

None? They not only aren't trying for it, but they don't even understand it?

Nate said...

You have to remember... inflation is so baffling to these people they have no less than 4 definitions for it.

That's because in their models they have to come up with all kinds of ratioanlizations to explain why its bad... because their whole system says it shouldn't be bad. it should be good.

realmatt said...

I just imagine the first couple of guys who agreed to use some shiny mineral instead of parting with the things they actually need, laughing at us, wondering what the Hell we're doing.