CFR: central banks should make it rain

[pmbug]

SIAP - didn't see another thread on this:

...
Moments ago a stunning article appearing in the "Foreign Affairs" publication of the influential and policy-setting Council of Foreign Relations, titled "Print Less but Transfer More: Why Central Banks Should Give Money Directly to the People."

In it we read the now conventional admission of failure by Keynesians, who however, unwilling to actually admit they have been wrong, urge the even more conventional solution: do more of the same that has lead to the current financial cataclysm, only in this case the authors advocate no longer pretending that the traditional monetary channels work but to, literally, paradrop money. To wit:

To some extent, low inflation reflects intense competition in an increasingly globalized economy. But it also occurs when people and businesses are too hesitant to spend their money, which keeps unemployment high and wage growth low. In the eurozone, inflation has recently dropped perilously close to zero. And some countries, such as Portugal and Spain, may already be experiencing deflation. At best, the current policies are not working; at worst, they will lead to further instability and prolonged stagnation.

Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.

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More: http://www.zerohedge.com/news/2014-...poses-central-banks-should-hand-consumers-cas

Ellen Brown posted a (long) commentary on the proposal on Max Keiser's blog calling this proposal the Fed's last bullet and exploring some ways in which it could (potentially?) be implemented without causing hyperinflation:

http://www.maxkeiser.com/2014/09/ev...-saying-it-time-to-rain-money-on-main-street/

 

[jkr]

 

[CaptUSA]

There are two things keeping inflation numbers down.

1. The basket of goods to measure inflation has been changing. They are fudging the numbers. By including more tech items, whose prices drop dramatically over time, they are off-setting the rises in other areas.

2. The speed of money is slow. The idea that some magical wizard somewhere can introduce just enough speed to inflate prices the exact desirable amount (whatever that is?) is pure folly. If they increase the speed (which will happen if they start dumping money into the markets) you will see inflation that cannot be hidden. The poorest among us may feel an instant rush, but that will soon be replace with untold hardship when they can't afford the basic necessities of life. At that point, the political pressure to pump further will be tremendous and the death spiral will continue.

 

[Zippyjuan]

The "Basket of goods" changes every decade to adjust for changes in what people spend money on. Until just recently, the folks at Shadow Stats were using the 1980 basket which used goods like VCRs and left out computers and cell phones. When they changed their basket too (moving up to the 1990 one), the difference between their inflation figures and those of the BLS was cut in half.

Possible headline: "Shadowstats Cuts Inflation Estimate Nearly In Half" Note they had it running about ten percent and their updated version lowers it to closer to five percent.

Their calculations using the 1980 basket:

Their new chart using the 1990 basket (which is still 20 years out of date):

http://www.shadowstats.com/alternate_data/inflation-charts

You are right about money velocity being low is having an impact. People are tight with money so producers are much less willing to raise prices because they fear losing sales.

 

[GunnyFreedom]

It looks like the difference between those two charts is 1980 dollars vs 1990 dollars. I can see pretty easily how that variable would infect long term inflation results. Perhaps cutting them almost in half.

 

[Zippyjuan]

Since it is percent changes, 1980 or 1990 dollars does not matter (changes are made from one year to the next so it is using the dollars of that year- 1980 inflation uses 1980 dollars. 1981 inflation compares 1981 dollars to 1980 dollars. It is the bundle of goods which they changed (what items are included and what weight they are given- what people buy changes over time so the basket gets adjusted to account for that).

 

[GunnyFreedom]

The old filet mignon becomes bologna trick. I still see the same curve.

 

[RonPaulIsGreat]

That's exactly what I think will happen as things evolve or devolve.

Essentially, taxes will go up, but everyone will get a government check every month regardless of wages earned, and all the checks will be for the same amount.

Eventually that check, will be some number that they figure will pay for the basics. So, what happens is about a 1/3 of the workforce will decide just to not work and live off the check. In other words, mandatory, universal welfare, even the billionaire would get the check, it would probably be like 1500 bucks, so meaningless to the rich, but all taxes will be even higher, of course the really wealthy or mega corps will be able to hide or find loop holes, so, what it really will end up doing is set in place an even more rigid class structure.

So, you make 60K from work, under the system I think will happen, you'd pay like 35-40K in taxes. Wow, that's a lot of taxes, but then you get a "universal wage subsidy" of 1500 cash every month on top of your after tax income from work. If you get fired, or quit your job, you still get that 1500 government check.

If you make 100K you'll end up paying like 65-70K in taxes, but you'd still get 1500 in universal wage subsidy.

If you make a million same thing. Essentially, it makes it nearly impossible to accumulate after tax wealth of measurable quantity, thus solidifying the class structure further. The current rich will feign disdain for the measure, but really it benefits them, as very few new entrants will enter the rich club, whereas the old money would be have been already taxed under the old system, and simply maintaining that wealth will be exceptionally easy.

 

[Zippyjuan]

The old filet mignon becomes bologna trick. I still see the same curve.

Or replacement technology like blu ray players for VCRs. Digital downloads for CD which replaced LPs. Changing habits- people used to spend about a third of income on food- today that is about eleven percent plus a much greater selection of food items are available. 1980 you had store brand yogurt, Yoplait, and Dannon. Today you have perhaps a hundred different items on the yogurt shelf- Greek being the hot item today with Chobani and Fage challenging Yoplait and Dannon. New items become available. Old ones disappear. Smart phones did not even exist ten years ago. It isn't just fillet mignon for bologna.