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Blain’s Morning Porridge – 21st August 2020 – John Law’s MMT revisited

 

Blain’s Morning Porridge – 21st August 2020 – John Law’s MMT revisited

“Earlier today apparently a woman rang the BBC and said she had heard that there was a hurricane on the way. Well if you are watching, don’t worry, there isn’t.”

It’s blowing a full hooley out there this morning, which is very bad news for my olive trees as the storm is shaking the ripening fruit off. Shame. It’s the first time our little olive grove has produced what looked likely to become full-sized olives. I was going to add them to Dirty Martinis. Meanwhile, mink farms are being wiped out by coronavirus which is proving 100% fatal to the well-dressed ferrets. Interesting, but what does it mean…?

It’s Friday, which means I am allowed to go off on something of a tangent – so let’s not worry about how long this tech rally continues, the rising tensions in Europe, Apple spending $17bln on stock buybacks, China vs US, or the US election.

What’s got me worried this morning is the headline in the FT: UK Public Debt tops £2 trillion for first time on Covid Spending Boom.

Should we worry or should we not? (Clue: the first one…)

Let me ask the question: how long can governments continue to spend their way out of the Coronavirus crisis? The bills for long-term furlough programmes and sectoral bailouts and support, increased social services as unemployment rises, and the urgent need for health spending are going to come due at some point. Is it going to be a problem, and if yes, how big?

Government debt is rocketing higher – but does it matter? Conventional thinking, based on Reinhart and Rogoff, is when debt/GDP exceeds 77% there will a significant slowdown in growth.

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

Dollar’s Purchasing Power Drops to Lowest Ever. Inflation Heats Up, as Fed Wants, After Simultaneous Supply & Demand Shocks

Dollar’s Purchasing Power Drops to Lowest Ever. Inflation Heats Up, as Fed Wants, After Simultaneous Supply & Demand Shocks

“We’re not even thinking about thinking about” slowing the decline of the dollar’s purchasing power — and thereby labor’s purchasing power.

A supply shock and a demand shock came together during the Pandemic, and it produced chaos in the pricing environment. There was a sudden collapse in demand in some segments of the economy – restaurants, gasoline, jet fuel, for example – and a surge in demand in other segments, such as eating at home, and anything to do with ecommerce, including transportation services focused on it.

These shifts came together with supply-chain interruptions and supply chains that were unprepared for the big shifts, leading to shortages in some parts of the economy – the supply shock. There were empty shelves in stores, while product was piling up with no buyers in other parts of the economy.

The sectors surrounding gasoline, jet fuel, and diesel fuel – oil and gas drilling, equipment manufacturers, transportation services, refineries, etc. – were thrown into turmoil as demand vanished, leading to a total collapse in energy prices. In April, in a bizarre moment in the history of the oil business, the price of the US benchmark crude WTI collapsed to negative -$37 a barrel.

Since then, the price of crude oil has risen sharply (now at positive +$41 a barrel), as demand for gasoline has returned to near-normal while demand for jet fuel remains in collapse-mode, as people are driving to go on vacations, instead of flying, and as business travel is essentially shut down.

As a result, for a few months, all of the inflation data was going haywire, with some prices plunging and others spiking. This is now being worked out of the system.

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

Bankrupting America

Bankrupting America

Bankrupting America

Source: AP Photo/Alex Brandon

Two weeks ago, President Donald Trump signed the largest stimulus bill in U.S. history: more than $2 trillion.

For once, both Republicans and Democrats agreed. The Senate voted 96-0. The House didn’t even bother with a formal vote.

At the White House, a reporter asked the president, pointing out that the bill includes $25 million for the Kennedy Center, “Shouldn’t that money be going to masks?”

“The Kennedy Center has suffered greatly because nobody can go there,” Trump responded. “They do need some funding. And look — that was a Democrat request. That was not my request. But you got to give them something.”

“Something” they got. The bill includes $25 million for Congressional salaries, $50 million for an Institute of Museum and Library Services and lots of other wasteful things.

Only a few politicians were wary. Rep. Thomas Massie complained that he wasn’t even allowed to speak against the bill.

Rep. Alex Mooney asked: “How do you pay for it? Borrow it from China, borrow it from Russia? Are we going to print the money?”

Those are good questions.

Our national debt is already $24 trillion. Now it will jump, percentage-wise, to where Greece’s debt was shortly before unemployment there hit 27%.

Greece was bailed out by the European Union. But the United States can’t be bailed out by others.

How will we pay off our debt? That’s the topic of my new video.

There are really three options:

1. Raise taxes.

2. Print money.

3. Default.

Let’s consider each:

1. Raising taxes on rich people is popular. Even Michael Bloomberg wants “higher taxes on billionaires” like him.

But raising taxes on the rich often kills the wealth and jobs some rich people create. And it won’t solve our debt problem. Even if we took all the billionaires’ wealth — reducing their net worth to zero — it would cover only an eighth of our debt.

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

Atlas Is Shrugging

Atlas Is Shrugging

“Government help to business is just as disastrous as government persecution… The only way a government can be of service to national prosperity is by keeping its hands off.”

– Ayn Rand

Congress has just approved an economically bloated $2.2 trillion spending relief bill, an amount more substantial than the GDP of all but a handful of countries. It is only the third massive relief bill, and we’ve been told several trillion dollars more would have to get spent. Then there are the trillions of dollars more of Federal Reserve Board liquidity injections.

We are starting to talk about real money here.

The politicians believe that sending $1,200 checks to people will “stimulate” the economy.

Among the many mistaken provisions of this new law is a welfare benefit to workers that pays them more money if they quit and become unemployed than if they stay on the job.

Here we go again.

A decade ago, during the height of the folly of the bank bailouts and trillions of dollars of spending for “shovel-ready projects” (that didn’t create jobs but plunged our nation into greater indebtedness), I noted in a Wall Street Journal article that with each successive bailout and multibillion-dollar economic stimulus scheme from Washington, the politicians were reenacting the very acts of economic stupidity that Ayn Rand parodied in her 1,000-page-plus 1957 novel “Atlas Shrugged.” In many surveys, “Atlas” rates as the second most influential book of all time behind the Bible.

For those of you who have not read it (first, shame on you!), the moral of the story is that politicians invariably respond to crises—that, in most cases, they created—by spewing out new, mindless government programs, laws and regulations.

These, in turn, generate more havoc and poverty, which inspires the politicians to spawn even more programs. At which point, the downward spiral repeats itself until there is a thorough societal collapse.

Isn’t this precisely what is happening now?

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

Government Spending, Edging Up, Is a Stimulus – NYTimes.com

Government Spending, Edging Up, Is a Stimulus – NYTimes.com.

NAPLES, Fla. — For a long stretch, government spending cutbacks at all levels were a substantial drag on economic growth. Now, finally, relief is in sight.

For the first time since 2011, local, state and federal governments are providing a small but significant increase to prosperity.

“There’s not a lot of positive contribution coming from the government sector, but when you’re talking about economic growth, less of a negative is a positive,” said Chris Varvares, senior managing director and co-founder of Macroeconomic Advisers.

And so on a recent windswept afternoon, John Lynch, armed with a police radio and a giant net, stood along a fishing pier in Naples, on guard for pelicans that might become entangled in fishing lines.

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

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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