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Wednesday, June 2, 2021

What does 'free' money cost?

 

Poor Man Survival

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What Does Free Money Cost?

Economists think paying back what we owe is a relic of history. Are they nuts?

If you don’t save for the future, you will starve. This is a truth that people learned from early in human history. It is obvious to all who farm, hunt and preserve food, and who watch the weather and climate. It is an ancient principle put into practice long before the creation of money, credit and just-in-time inventory management. Saving for the future is what people everywhere used to believe in.

Today, the United States is $28 trillion in debt. We have no savings. There is no emergency fund. We have already spent the taxes on future earnings of our grandchildren—and their children.

But if you believe America’s leaders, everything will be fine because none of that matters anymore.

Leaders in Washington, Wall Street and even Main Street believe in a new economic theory. Politicians love it, because it makes saving for the future obsolete. It theorizes that deficits and debts are actually good because their main effect is to stimulate the economy. It theorizes that we won’t ever really have to pay back borrowed money because our central bank can create unlimited numbers of dollars out of nothing—at the push of a button. The theory has a name: Modern Monetary Theory. Believers view it as a modern monetary miracle, a way to push economic problems into the future forever.

These theorists think they have transcended the basic laws of economics.

Can you borrow money and spend it without ever having to pay it back? Can you print massive amounts of money out of thin air without destroying its value and making everything more expensive?

We are going to find out.

Print and Spend

Since the onset of the covid-19 lockdown and resulting economic fallout, the Federal Reserve has increased the nation’s money supply to record levels. Over the past 12 months, the M2 money supply—which includes cash, checking accounts and other easily spent money—has ballooned by more than 27 percent!

In other words, one out of every five dollars of all the easily spendable money in existence since the founding of this nation was created over the past 12 months. And the Federal Reserve has used much of that money to buy trillions of dollars of government bonds, treasuries and even people’s mortgages.

This is how it works: The U.S. Treasury prints a bond, which is basically just a promise to pay back borrowed money with interest. It sells it to the Federal Reserve in exchange for dollars that the U.S. government then spends. Where does the Federal Reserve get dollars to buy bonds? This is where the modern monetary miracle comes in. The Fed doesn’t earn dollars by providing goods or services or anything else, or even by collecting taxes. It creates dollars out of thin air. It has the ability to add as many zeros to its bank account as Washington wants. With the push of a keyboard button, it can expand its dollar supply to approach infinity.

But according to the Federal Reserve, there is nothing of concern here. In March, it quietly announced that it will no longer publish weekly data showing the number of dollars coming into existence.

“They are trying to hide something,” said Steve Hanke, professor of applied economics of Johns Hopkins University. “They don’t want people paying attention to money supply growth.” As Hanke pointed out, “[Federal Reserve] Chairman [Jerome] Powell has very explicitly claimed that money doesn’t matter in recent testimony. He’s basically said that money and the measurement of money doesn’t really matter because it’s unrelated to inflation.”

Hopefully Mr. Powell is right, because the U.S. government is spending a lot of it. Consider the scope of the “stimulus” bills over just the past 12 months:

$2.2 trillion for the Coronavirus Aid, Relief and Economic Security Act of 2020.

$2.3 trillion for the Consolidated Appropriations Act of 2021.

$1.9 trillion for the American Rescue Plan Act of 2021

$6.4 trillion! Where did all that money come from?

Some of it was borrowed and will have to be paid back with interest. But an incredible $3.6 trillion worth was created with the stroke of a pen and a push of a button.

Pantera Capital gives some context. With the first trillion dollars the United States printed throughout its history, “We defeated British imperialists, bought Alaska and the Louisiana Purchase, defeated fascism, ended the Great Depression, built the Interstate Highway System, and went to the moon.”

What did we accomplish this past year with $6.4 trillion?

Initially, the government distributed money to businesses and individuals, many of whom had lost income because the government shut down much of the economy. This was one of the first times in American history that the government gave direct cash handouts to individuals. The government also increased unemployment benefits and issued grants to businesses. But much of the money went to other uses.

Now more than a year has passed since the first covid lockdowns. Official unemployment has dropped back down to just over 6 percent, gasoline demand is approaching pre-covid levels. Housing prices are setting records all over the nation. And the stock market is reaching record highs.

Yet the stimulus spending plans are not even close to over.

Looming Inflation



The Biden administration is currently working on a $2.3 billion infrastructure bill in addition to another $2 trillion American Families Plan infrastructure bill. “Together, the ideas inside these plans aim to redefine what infrastructure is, by bolstering ‘human infrastructure’ along with everything else,” writes Slate. “[It’s]a new kind of American populism.” More accurately, it’s American socialism.

This spending comes in addition to the regular $1 trillion budget deficits the government was running before it began shutting down the economy.

And contrary to Fed Chairman Powell’s claims, the economic laws of supply and demand are asserting themselves. More money (due to money printing, government spending and government handouts) chasing a constant or shrinking supply of goods (due to the global lockdown) means the same goods and services cost more dollars.

“A little inflation feels good at first, because wages are rising, and people feel richer,” investment adviser Jared Dillian said. “But the laws of economics are not to be conned. What Powell is doing is what I call central bank populism. [T]here is inflation in the beginning. At the end, there is revolution.”

Notice the price of lumber lately? A sheet of plywood at your local hardware store now costs more than $65. A standard 2×4 costs $7. Average lumber prices have surged close to 200 percent over the past year. Why? Because of supply shortages due to government-mandated factory lockdowns and soaring demand due to people with government handouts remodeling their homes.

Gasoline is also becoming more expensive, with prices nationwide averaging $2.86 per gallon before the summer driving season has even hit. Corn is up 67 percent year over year. Corn syrup is in just about everything. Wheat is up 24 percent. Milk is up 9 percent.

This is not just happening in America. Governments worldwide are printing money to spend. Prices for basic necessities like food are rising. The United Nations Food and Agriculture Organization reports that food prices are up 24 percent over the past year to the highest levels since 2013. Remember the Arab Spring? Some say that, like so many revolutions before it, it began as a hunger revolt.

Other commodities are costing more dollars this year too. Copper: 82 percent more. Silver: 62 percent more. Texas oil: 28 percent more. Concrete: 60 percent more.

Powell and the Fed assure us that the inflationary effects will be moderate and temporary. His comments sound eerily similar to former Fed Chair Ben Bernanke’s comments that the subprime mortgage bubble was contained. That infamously led to the Great Recession of 2008.

One big difference between that crisis and this one is where the Federal Reserve has directed its response. In 2008, the money it created through quantitative easing was injected into the banking system. It caused asset inflation in financial sectors like the stock market and the housing market, but it kept the banks from collapsing and caused less inflation in consumer goods than many people feared. This time, the cash is being sent directly to individuals and businesses. When spending increases, the velocity of money could send inflation soaring and the value of the dollar plummeting.

In other words, massive money printing did not fix the fundamental economic problem in 2008, nor has it fixed the problem this year. We temporarily papered over a volcanic economic upheaval, and it cost us mountains of money to do it.

“Two years, we will be at $40 trillion in debt, and in two years after that, if we continue this stimulus we are going to be at $50 trillion” said Jim Puplava at Financial Sense Wealth Management. “At some [point], these debt levels are unsustainable.”

The U.S. government was running trillion-dollar deficits under presidents Barack Obama and Donald Trump. And that was in relatively good times.

“If you are spending $6 to $7 trillion per year to stimulate the economy now, when the economy is recovering, what do you do when you get into a recession?” Puplava said. “How big will the stimulus have to be to get out of the next recession or depression?”

How sad that we are even asking this question. America is the wealthiest nation in world history. Yet its economy is doomed.

Why doesn’t America manage its resources better?

https://www.thetrumpet.com/23964-what-does-free-money-cost

NOTE:

America was founded by rugged individuals who created a government to secure their rights and leave them alone. Some Americans today want the government to violate other people's rights, steal their stuff, and give it to people who complain the most. Has the home of the brave become the land of the freeloader?

 

Nothing illustrates this point more than the latest bailout plan by Congress. The Nancy Pelosi led progressive wing passed the “American Rescue Plan Act of 2021”. Unfortunately, the only real “rescue” offered will be red carpet benefits for illegal immigrants, pork-barrel Green New Deal projects and deficit-busting plans to enact student loan forgiveness and a permanent unemployment check for those who “don’t feel like” working.

 

SIDEBAR:

Vaseline is an American brand of products made from petroleum jelly. Petroleum jelly has its roots as a by-product of the oil refining industry in the 1800s. This unique, jelly-like substance has many uses and a long shelf-life, making it well-suited for homesteading and survival situations.

 Vaseline makers suggest a 'best if used by' date of around three years for a new container of Vaseline. However, anecdotal evidence shows people may be using their jars for as long as 5 to 10 years. Given its long shelf-life, you may want to stock up on Vaseline so you have it on hand for its many homesteading and survival uses.

 Keep reading to learn about the many survival uses for Vaseline...

 32 Survival Uses for Vaseline

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 25 Survival Uses for WD-40

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2 comments:

Melanie said...

UKs Thatcher once said socialism works until you run out of other people's money; this will happen here as idiot Biden et al spend america into oblivion.

Mona said...

Like you've suggested, I'd stock up on household goods NOW! Even leftist Bank of America told its stock holders that hyper-inflation is on its way [big corps don't care as they pass costs onto consumers]