Are there real solutions that are better than QE?
I received an email from a reader who asks:
All the monetary programs that were designed to help the economy after the 2008 crash just made things worse for most people. Are there ways to actually turn things round? I mean are there any types of strategies that could really help the situation?
D.L. – Wenatchee, WA
These are great questions. I think we focus too much on the solutions that have already been offered up by the monetary authorities and forget to take a step back to reevaluate the issue. Indeed, as long as we concentrate on analyzing and criticizing the unconventional monetary programs (QE) already in use, we risk failing to analyze the matter in an objective way. We fail to come up with novel solutions that can actually address the shortcomings of QE.
The ultimate objective of the Federal Reserve (and by extension the other private central banks) is to preserve the existing banking structure with its privatized monetary system and to do whatever it takes to perpetuate its existence.
Everything else that the Fed and its apologists attest, including its public mandate of maximum employment and stable prices, are there for placation.
For the most part, I have only researched the theory and the results of QE, so that we can find ways to stay ahead of the destruction it leaves in its wake. Indeed, we can draft up personal financial blueprints that can take advantage of the repercussions of QE, but I rarely come across any credible ideas to help the average person and which also provide viable alternatives to QE.
Identifying QE alternatives by what they don’t do
The ultimate objective of the Federal Reserve (and by extension the other central banks) is to preserve the existing banking structure with its privatized monetary system and to do whatever it take to perpetuate its existence. So, despite any rhetoric to the contrary, all monetary policy programs will promote the current system over everything else, including lasting economic well-being.
We can immediately throw out any theory that involves issuing more debt. Here are a few of them on the web that were written by economists. Let’s take a look at this one:
Helicopter money & universal income
Considering the important long-run political and economic costs that aggressive quantitative easing policies will all too likely have entailed, it would not seem too early for the Federal Reserve to consider alternative approaches to stimulating the U.S. economy when it next falters. Among the ideas that warrant serious attention must be Milton Friedman’s famous idea of “helicopter money,” whereby the Federal Reserve would finance a government check to all the country’s citizens. Such an approach would more than likely succeed in stimulating the U.S. economy in a manner where all citizens rather than only a portion benefit. In addition, it would spare us from the creation once again of major distortions in both domestic and global financial markets that would only set the stage for the next global financial crisis.
Mr. Lachman’s theory only addresses one half of the problem. Yes, the current QE strategy fails to properly stimulate price inflation, since the money does not go to the end user in the economy (you and me). Just because my assets go up in value does not mean I will spend more. It only means I have a larger net worth. In fact, items such as taxes, insurance, and cost of carry rise as the asset prices climb, so sending money to you and me directly would assist in stimulating demand more effectively.
The downside with this plan is that it ultimately benefits the current banking system. Why? Because Mr. Lachman says that the Fed can finance this scheme. That means the U.S. Treasury will issue more debt. Thus, the money comes at a price – more debt.
Universal income (UI) programs can be thought of as helicopter money. Both come with higher budget deficits as they are financed with offsetting sovereign debt generation. The owners of the central banks will attempt to promote them to the unwashed public over the coming years.
UI programs may prove popular in the coming decades, since the citizens won’t understand the dynamics. But if a high enough percentage of the population is getting a UI stipend, the benefits get arbitraged into the system and become more muted over time. Essentially, it would cause inflation to living expenses by the amount of the UI, with offsetting debt to show for it.
Think of UI this way; If everyday living expenses (LE) cost the average recipient (X), then in the long-run, under a UI scheme, LE = X + UI.
The UI is injected into the system, which only raises the price levels of living expenses. Thus, the real benefits are canceled out, leaving only the sovereign debt that was generated to finance the program.
Let’s look at this one;
Negative interest rates
Depends on the situation and the target/goal. If you are referring to the post 2008 situation, I’d say that the most obvious contender are negative interest rates. See Miles Kimball’s work for more info on how it works.
Peter Nola – PhD student Monetary Economics
This is where I think the world is heading. It is clear that the central banks will never cancel debt, because that would empower the average person at the expense of the owners of the banking cartel. So in order for the central bankers to keep their hold over the population they will experiment with negative interest rates on a global scale.
On the surface, this may sound like a great way to eliminate existing debt, but if the 10-year UST is yielding -0.5%, but the CPI is coming across at a -1.0% clip, the real yield is positive. Besides, the level of public debt outstanding continues to climb. Thus, even if the interest rates sink into negative territory, this does not mean that the debt burden will be alleviated. The real rates will still be higher than inflation (or deflation) and the issuance of new debt will dwarf any benefits that accrue from negative yields.
There are a couple noxious negative externalites that result from distorting the yield curve and suppressing interest rates
First, there are the distortions to asset prices. As bond yields fall, the prices of assets rise, all other things being equal. So, dropping interest rates may make the cost of carry to the existing debt load more manageable, but creates the lasting bubbles we see today.
Second, suppressing interest rates also encourages reckless risk taking. In fact, artificially low interest rates are so toxic to the system, because recklessness overtakes prudence, so that the economy continues to get sicker and sicker.
Thus, low interest rates makes the cost of buying things much more expensive. For instance, consumers need to take on larger mortgages for home ownership. Debt becomes more necessary for a greater percentage of humanity. Even if the interest rates are lower, debt is still debt, and if asset prices continue to rise then the debt markets expand to keep pace.
How about this idea?
Deficit spending and tax cuts
The Fed… can lower OR increase the borrowing/interest rate on consumers if necessary. One example would be the 2008 U.S. housing bubble that burst. As for the second alternative, it would be deficit spending… Although deficit spending has worked throughout history, the major problem with it is that it requires a drastic increase in taxes and creates a huge burden on the public sector.
Viviana Penuela, B.A. Economics & Finance, Texas Tech University
Has deficit spending really worked? It has helped those with the assets, but the average wage-earner has been dying from a slow bleed.
These ideas are frequently discussed within monetary authority circles, to the exclusion of everything else. The Fed can indeed lower interest rates and the federal government can increase deficit spending or increase deficits via tax cuts.
The problem with these “solutions” is that these are the very monetary and fiscal policies that got us into this mess in the first place. These activities all involve issuing more debt. Even if the interest costs drop on outstanding debt, the debt burden continues to climb.
All publicly available solutions preserve the current banking and monetary structure
We see that all the existing alternatives assist in perpetuating the current system. All the solutions I come across involve issuing more debt, lowering interest rates, or with unconventional policy, buying up all the debt that the public cannot absorb.
Any real solution needs to involve some sort of debt repudiation or forgiveness. The debt level is the real problem, so until that is properly solved nothing will be able to take care of the current economic problems. The Fed’s solution of gobbling up sovereign debt only makes the problems worse.
As the economy continues to suffer, the predatory monetary system devises more policy to address the problems they are causing.
Furthermore, the owners of this monetary and banking system have usurped their control over the educational curriculum. Thus, independent thought and novel solutions never see the light of day. Whenever I come across any ideas from trained economists, they always refer to solutions that perpetuate the current system. Any independent thought is immediately eliminated from discussion.
Until the private banking cartel is eliminated there will never be proper solutions to what is making the patient sick. The only thing we can do is work to stay ahead of the scam to enslave us all.