Home » Posts tagged 'Free Money'

Tag Archives: Free Money

Not only does everyone love getting “free money” from the state, they also love hearing the fantasy repeated endlessly that debts are no problem.

Governments, like individuals, can spend liberally with great generosity, or they can be frugal. Everyone receiving government money loves the state’s free-spending generosity, as it is “free money” to the recipients.

But there is no such thing as truly “free money,” a reality discussed by Niccolo Machiavelli in his classic work on leadership and statecraft, The Prince, published in 1516. In Machiavelli’s terminology, leaders could either pursue the positive reputation of being liberal in their spending (not “liberal” in a political sense) or suffer the negative reputation of being mean, i.e. miserly, tight-fisted and frugal.

Machiavelli pointed out that the spending demanded to maintain the reputation for free-spending liberality soon exhausted the funds of the state and required the leader to levy increasingly heavy taxes on the citizenry to pay for the state’s largesse.

Once we examine this necessary consequence of liberal spending, it turns out the generous government is anything but generous, as it is eventually forced to impoverish its people to support its spending.

It is the miserly leader and state that is actually generous, for it is the miserly leader / state that places a light burden on the earnings and livelihoods of the citizenry.

As Machiavelli explained, taxes and the inflation that comes with free spending both rob everyone, while the state’s generosity is a political process that necessarily distributes the largesse asymmetrically:

If he is wise he ought not to fear the reputation of being mean, for in time he will come to be more considered than if liberal, seeing that with his economy his revenues are enough…

…click on the above link to read the rest…

What’s Behind the Fed’s Project to Send Free Money to People Directly?

October 3, 2020

What’s Behind the Fed’s Project to Send Free Money to People Directly?

A lump-sum payment in digital dollars for all Americans during a recession or to raise inflation, as an alternative to QE and negative interest rates, which have failed.

By Wolf Richter. This is the transcript of my podcast last Sunday, THE WOLF STREET REPORT. You can listen to it on YouTube or download it wherever you get your podcasts.

There is a lot of discussion suddenly about a Federal Reserve project to make direct payments to households during an economic crisis. In March, legislation was proposed in the House and in the Senate to authorize the Fed to do this.

At the beginning of August, two former Fed officials floated a trial balloon of this type of operation with some specifics as to how it would work and how it would be accounted for on the Fed’s balance sheet.

And now, the president of the Federal Reserve Bank of Cleveland, Loretta Mester, gave a speech on the modernization of the decades-old, slow, and cumbersome payment systems we have in the United States. The Fed has been working on this modernization since long before the Pandemic. And near the end of that speech, she said that the Fed was looking into ways in which it could make direct and instant payments to every American, even those that don’t have bank accounts.

So free money for all Americans. This is very different from the stimulus checks because the government had to borrow the money that it sent to consumers. The Fed would just create the money and send it to consumers. And this is getting pretty serious now.

…click on the above link to read the rest of the article…

The Wonders of Free Money in Two Pictures

August 15, 2020

The Wonders of Free Money in Two Pictures

Lesson of the Day

If you give away enough free money, spending recovers.

Census Report on Advance Retail Sales

The Census report on Advance Retail Sales provides half of our “Lesson of the Day“.

Adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, July sales were $536.0 billion, an increase of 1.2 percent from the previous month, and 2.7 percent above July 2019.Total sales for the May 2020 through July 2020 period were down 0.2 percent from the same period a year ago.

The May 2020 to June 2020 percent change was revised from up 7.5 percent to up 8.4 percent. Retail trade sales were up 0.8 percent from June 2020, and 5.8 percent above last year.

Nonstore retailers were up 24.7 percent from July 2019, while food and beverage stores were up 11.1 percent from last year.

Retail spending rose for the third straight month despite a rise in coronavirus infections with reopenings stalled.

Spike in Government Spending

The chart from Pew shows stimulus and deficits exceed that in the Great Recession.

Since March, government stimulus authorizations (not all spent yet) total at least $3 trillion. Another $2 trillion is on the deck when Democrats and Republicans agree to another package.

That is the second half of the Free Money Wonder.

The federal government has run deficits nearly every year since the Great Depression and consistently since fiscal 2002. Through the first 10 months of fiscal 2020, the government took in $2.82 trillion in revenue and spent $5.63 trillion, for a year-to-date deficit of just over $2.8 trillion, according to the Treasury Department’s Bureau of the Fiscal Service. Through the first 10 months of fiscal 2019, by comparison, the deficit stood at $866.8 billion.

…click on the above link to read the rest of the article…

It’s Only Paper

May 10, 2020

IT’S ONLY PAPER

The response to the virus has added a new mechanism of capital consumption to the many we have documented over the years. Businesses are shut down, yet they continue to incur expenses. There is a popular misconception out there that this is merely a paper loss. One can almost picture a neutron bomb that somehow wipes out only paper, leaving all the physical assets and plant unscathed. It’s a pleasant fantasy. And it’s quite a popular one—not only amongst all the usual suspects, but even an Austrian school economist of our acquaintance asserted it.

As an aside, this illustrates that, too often, economists are unfamiliar with business. The economist looks at a closed restaurant and thinks there’s no reason why this restaurant can’t be mothballed for a day, a week, a month, or a year. The owner of the restaurant would object that he’s still paying certain expenses, even if he’s laid off all of his staff. And the economist retorts, “That’s just paper!”

The economist—and politicians—are tempted to think that the government and its central bank can restore the lost paper capital by extending a loan, or even doling out free money. This is simply not true.

One thing should be bloody clear: whatever expenses this restaurant pays, is a transfer of real resources from the restaurant to the recipients. Those recipients are buying food, fuel, clothing, shelter, etc. It’s not just paper.

Looking deeper into the restaurant, we see that, even when it’s closed, it’s still burning some electricity (even if not as much as when it’s operating). There’s insurance premiums. And building maintenance. Over time, exposure to sun, wind, rain, and snow damages the roof, windows, and even the walls.

…click on the above link to read the rest of the article…

Free Money Calculation: Fed Will Give $36.93 Billion of Taxpayer Money to Banks

June 14, 2018

Free Money Calculation: Fed Will Give $36.93 Billion of Taxpayer Money to Banks

The Fed upped the interest it pays on excess reserves to 1.95% today. This is free money (taxpayer funded) to banks.

The Fed bumped up the interest it pays on excess reserves today to 1.95%. Currently, excess reserves sit at $1.894 trillion.

The math is simple enough. At the current rate, the Fed will hand over approximately $36.93 billion of taxpayer money to banks. That assumes the status quo, but things will change.

Factors

The Fed is shrinking its balance sheet slowly. That reduces excess reserves the Fed pays interest rates on.
When the Fed hikes interest rates, it also increases the interest it pays on excess reserves.

The first point acts to reduce free money, the second acts to increase free money.

Note to ECB

If you want to recapitalize Italian banks, just give them free money instead of your profit-reducing policy of holding rates negative.

Taxpayer money?

Yes! Otherwise the Fed would return this money to the US Treasury.

Some claim free money is paying banks to not lend. The claim is fallacious. Banks do not lend from excess reserves.

For discussion, please see Free Money! Banks Paid $22 Billion to Not Lend?

That was the amount I calculated on April 17, 2017. Interest then was 1.0%.

Even though the Fed’s balance sheet is lower, the increased rate bumped up the free money calculation to $36.93 billion.

No Outrage!

Why isn’t $36.93 billion in free money to banks an outrage?

It’s Raining Money

February 26, 2018

It’s Raining Money

With apologies to the Dire Straights:

Now look at them yo-yo’s that’s the way you do it
You play the bull on the fin TV
That ain’t workin’ that’s the way you do it
Money for nothin’ and stocks for free

After 9 years of artificial liquidity drenching markets the same game continues in 2018: It’s raining money. Again. Still.

Last week we saw the standard script of the last 9 years unfold: Dovish talk by central bankers and artificial liquidity taking over markets. The latest avalanche of free money entering markets are of course buybacks courtesy of tax cuts which now are expected to reach $650B in 2018 announcements coming to $50B a month.

In many cases companies don’t know what to do with all that free cash, but to buy back their own shares. Warren Buffet pretty much spelled it out this weekend and today:

“A large portion of our gain did not come from anything we accomplished at Berkshire,” Buffett wrote.

The firm’s most recent annual letter revealed the investment conglomerate’s net worth surged $65 billion in 2017, with $29 billion of that stemming from tax proceeds. That gain was realized in December, after the passage of the tax plan.

So he has a problem, knowing that stocks are expensive he’s having a hard time investing the cash so he’s opening the door to buy back his own shares over issuing more dividends. None of this creates jobs, jobs, jobs of course, but is a refection of the absurdity of the ill devised tax cuts that will continue to expand wealth inequality but will continue to produce a bid underneath markets until the bitter end.

Lest also not forget that the ECB keeps running QE at 30B Euro a month and overnight the BOJ’s Kuroda announced persistent monetary easing is needed while China injected 150b yuan in overnight liquidity as well and voila a sea of global green:

…click on the above link to read the rest of the article…

“Helicopter Money” Won’t Fix What’s Broken

July 17, 2016

“Helicopter Money” Won’t Fix What’s Broken

Creating “free money” to support bloated bureaucracies and corrupt cartels only makes the underlying problems worse.

The mere mention of helicopter money has intoxicated global stock markets, which have soared on the rumor of Japanese helicopter money. But as I explained in Why Helicopter Money Won’t Push Stocks Higher, central banks funding fiscal spending (i.e. helicopter money) will only have a weak and entirely indirect effect on profits or stock market valuations.

The problem with helicopter money is that it cannot fix what’s broken in the economy–and even worse, it perpetuates every inefficient, corrupt, bloated and unsustainable system in the status quo. As I explain in my book Why Our Status Quo Failed and Is Beyond Reform, the problem isn’t lack of fiscal spending or stimulus; the problem is the primary systems of the status quo have failed and cannot be fixed with central bank easy money.

In effect, helicopter money feeds the perverse incentives that have crippled our economy and society. Rather than be forced to choose priorities and rid centralized systems of wasteful corruption, bloat and graft that siphon off wealth and destroy productivity, helicopter money enables the continuation of all the inefficient, corrupt, bloated and unsustainable systems that make up the status quo.

No sacrifices are required by helicopter money: unlimited sums of freshly created money will be used to fund the same broken systems that have generated extremes of debt and wealth/income inequality.

The list of what won’t be fixed by helicopter money is long:

— The demographic time-bomb in pension plans, Medicare etc.: not fixed, just papered over.

— The higher education cartel’s out-of-control spending spree: not fixed, just papered over.

— The healthcare/sickcare cartel’s out-of-control spending spree: not fixed, just papered over.

— America’s declining health and runaway epidemics of “legal” drug addiction and metabolic syndrome diseases (diabesity): ignored, untouched.

…click on the above link to read the rest of the article…

Free Money Leaves Everyone Poorer

June 7, 2016

Free Money Leaves Everyone Poorer

Destroying Lives

BALTIMORE – A dear reader reminded us of the comment, supposedly made by Groucho Marx: “A free lunch? You can’t afford a free lunch.”

Groucho-Marx_ Groucho dispensing valuable advice Photo via imdb.com

He was responding to last week’s Diary about the national referendum in Switzerland on Saturday. Voters will decide whether to give all Swiss residents a free lunch – a guaranteed annual income of about $30,000 a year [ed note: the initiative was overwhelmingly rejected with 78% voting against].

The problem with a guaranteed income (you get it no matter whether you have a job or not) is something we’ve been writing about for the last 15 years. It is the problem with all frauds… all cockamamie, jackass redistribution programs… and all something-for-nothing schemes.

And it is the same whether you are “stimulating” an economy with artificial, phony-baloney “money”, giving aid to foreign dictators, or handing out free lunches to voters at home.

The Deep State, in addition to being malignant and entertaining, is incompetent. It fights wars just to lose them. It solves problems and makes them worse. Led by the Yellen Fed, it “improves” the economy and leaves 9 out of 10 people poorer than they were before.

Today, we turn to a special war – the War on Poverty. Jesus dismissed it. “The poor you will always have with you,”he said. But that didn’t stop the feds from launching an attack.

The “war on poverty” has been just as rousing a success as the “war on drugs”. According to the NCPA is has actually cost $22 trillion so far (estimates of the total cost differ) – click to enlarge.

Fortunately, they are so clumsy, lame, and incompetent, they spare us a worse disaster. Had they been smarter and better organized, they would have done even more damage.

…click on the above link to read the rest of the article…

Japan Goes Full Krugman: Plans Un-Depositable, Non-Cash “Gift-Certificate” Money Drop To Young People

March 23, 2016

Japan Goes Full Krugman: Plans Un-Depositable, Non-Cash “Gift-Certificate” Money Drop To Young People

The Swiss, the Finns, and the Ontarians may get their ‘Universal Basic Income’ but the Japanese are about to turn the Spinal Tap amplifier of extreme monetary experimentation to 11. Sankei reports, with no sourcing, that the Japanese government plans to unleash “vouchers” or “gift certificates” to low-income young people to stimulate the “conspicuous decline” in consumption among young people. The handouts may not be deposited, thus combining helicopter money (inflationary) and fully electronic currency (implicit capital controls and tracking of spending).

Since Ben Bernanke reminded the world of the existence of government printing-presses, echoed Milton Friedman’s “helicopter drop” solution to fighting deflation, and decried Japan for not being as insane as it could be… it has only been a matter of time before some global central bank decided that the dropping of cash onto the populace was the key to economic recovery. Having blown their wad on QQE (and been left with a quintuple-dip recession) and unleashed NIRP, it appears Japan has reached that limit.

As Bloomberg reports,

The Japanese government plans to include gift certificates for low-income young people in its fiscal 2016 supplementary budget, Sankei reports, without saying who provided the information.

Recipients would be able to use them for daily necessities.

The government sees gift certificates as more effective in stimulating consumption than cash handouts, which may be deposited.

As Sankei reports (via Google Translate),

The government 23 days, as the centerpiece of the 2016 fiscal year supplementary budget to organize because of the economic stimulus, cemented the policy to include the low-income measures for young people. To examine the distribution of vouchers to be devoted to the purchase of such daily necessities.

…click on the above link to read the rest of the article…

“Fed Policy Is Toxic,” Michael Burry Warns “The Little Guy Will Pay” For The Next Crisis

December 29, 2015

“Fed Policy Is Toxic,” Michael Burry Warns “The Little Guy Will Pay” For The Next Crisis

We are sure, just as many of the so-called “smartest men in the room” ignored him last time, so every status-quo-maintaining, asset-gathering, commission-taker will be quick to dissonantly shrug off Michael Burry’s (the economic soothsayer from Michael Lewis’ book “The Big Short”) warnings this time.

As NYMag.com reports, in an email, which readers of the book will recognize as his preferred method of communication, the real-life head of Scion Asset Management answered some of questions about the state of the financial system, his ominous-sounding water trade, and what, if anything, we can feel hopeful about…

The movie portrays all of you as kind of swashbuckling heroes in some ways, but McKay suggested to me that you were very troubled by what happened. Is that the case?

I felt I was watching a plane crash. I actually had that dream again and again. I knew what was happening, but there was nothing I, or anyone else, could do to stop it. The last day of 2007, I couldn’t come home. I was in the office till late at night, I couldn’t calm down. I wrote my wife an email and just said, “I can’t come home; it’s just too upsetting what’s happening, and I didn’t want to come home to my kids like this.” As for punishment of those responsible, borrowers were punished for their overindulgences — they lost homes and lives. Let’s not forget that. But the executives at the lenders simply got rich.

Were you surprised no one went to jail?

I am shocked that executives at some of the worst lenders were not punished for what they did. But this is the nature of these things. The ones running the machine did not get punished after the dot-com bubble either — all those VCs and dot-com executives still live in their mansions lining the 280 corridor on the San Francisco peninsula.

…click on the above link to read the rest of the article…

“Bernanke & Greenspan Have Destroyed America” Schiff & Maloney Warn “People Don’t Realize What Is Coming”

June 3, 2015

“Bernanke & Greenspan Have Destroyed America” Schiff & Maloney Warn “People Don’t Realize What Is Coming”

Ali and Frazier, Laurel and Hardy, Mayweather and Pacquiao, Liesman and Santelli, and now Schiff and Maloney. Peter and Mike join clash of the titan-like to discuss their investment strategies and expose the charts the government doesn’t want you to seeas “people like Bernanke are taken seriously still and the people that did predict [the crisis] are dismissed as lunatics half the time.” The wide-reaching conversation covers everything from gold and stocks to The Fed and The Dollar – Bernanke “took the coward’s way out because all he did was exacerbate the problems to postpone the day of reckoning.” The air is coming out of the bubble, they warn, “Bernanke and Greenspan have absolutely destroyed America. People don’t realize what is coming…”

Full transcript below:

Mike: I was in Puerto Rico a little while back and Peter Schiff invited me over to his house and we were just amazed at how we are exactly on the same page when it comes to everything economically. And so he just made a trip out to California near my offices and we decided we’d get together and discuss some of this stuff. So on your travels Peter lately you were just at a show you were speaking. Where were you at?

Peter: I was in Las Vegas. It’s great to see you again Mike. I was speaking to a very main stream audience of hedge fund managers at an annual conference there. And what was very interesting is even though the audience was, as I said, very main stream, and I was on a panel with a lot of very high profile, main stream individuals, the only person that really got applause was me.

…click on the above link to read the rest of the article or view the interview…

Tag Archives: Free Money

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

By Wolf Richter. This is the transcript of my podcast last Sunday, THE WOLF STREET REPORT. You can listen to it on YouTube or download it wherever you get your podcasts.

Latest Posts