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Panic Sets In: Fed Promotes More Free Money

Panic Sets In: Fed Promotes More Free Money

Lawmakers need to do more says Minneapolis Fed President Neel Kashkari.

Free Money for 18 Months

The Fed cannot directly give money away so that burden falls on Congress. Kashkari follows Fed Chair Jerome Powell in seeking Congressional Action.

“They are going to need more. If this is a slow recovery, the way I think it is — I think we’re in this for months, a year, 18 months — there are going to be a lot of families that are going to need direct financial assistance,” Kashkari said Thursday during a virtual event with CBS. “I think a V–shaped recovery is off the table.”

“Putting money directly in the hands of laid-off Americans is, I think, the most direct way to get assistance, and then they will spend the money where they need it,” Kashkari said. “I just think money in the pockets of people who have lost their jobs is what we need right now until we can get the health care system to catch up and get control of this virus.”

I case you were wondering what sent the S&P in a huge 70-point S&P 500 U-Turn today, that reason is as good as any.

Powell’s Message

Yesterday, Powell made similar statements, just not as forceful. 

Recall that the Fed has lending powers, not spending powers. A loan from a Fed facility can provide a bridge across temporary interruptions to liquidity, and those loans will help many borrowers get through the current crisis. But the recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems. Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. This tradeoff is one for our elected representatives, who wield powers of taxation and spending.

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

Fed Drastically Slashed Helicopter Money for Wall Street. QE Down 86% From Peak Week in March

Fed Drastically Slashed Helicopter Money for Wall Street. QE Down 86% From Peak Week in March

Fed shed MBS. Loans to “SPVs” flat for fifth week. Repos in disuse. Fed still hasn’t bought junk bonds, stocks, or ETFs. But it sure sent Wall Street dreaming.

Total assets on the Fed’s balance sheet rose by only $83 billion during the week ending April 29, to $6.656 trillion. That $83 billion was the smallest weekly increase since this show started on March 15, and down by 86% from peak-bailout in the week ended March 25. This chart shows the weekly increases of total assets on Fed’s balance sheet:

The Fed is thereby following its playbook laid out over the past two years in various Fed-head talks that it would front-load the bailout-QE during the next crisis, and that, after the initial blast, it would then cut back these asset purchases when no longer needed, rather than let them drag out for years.

On January 1, the balance sheet stopped expanding as the Fed’s repo market bailout had ended. However, in late February, all heck was breaking loose, and the Fed first increased its repo offerings and then on March 15, started massively throwing freshly created money at the markets, peaking with $586 billion in the single week ended March 25.

But since then, the Fed has slashed its weekly increases in assets, which shows up in the flattening curve of the Fed’s total assets in 2020:

The Fed cut its purchases of Treasury securities. The balance of its mortgage-backed securities (MBS) actually fell. Repurchase agreements (repos) have fallen into disuse. Lending to Special Purpose Vehicles (SPVs) has not gone anywhere in five weeks. And foreign central bank liquidity swaps, after spiking in the first two weeks, only rose modestly, with most of the increase coming from the Bank of Japan, which is by far the largest user of those swaps.

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

Powell: “Now Is Not The Time To Be Concerned About Debt”

Powell: “Now Is Not The Time To Be Concerned About Debt”

In what was perhaps the most illuminating soundbite from the Powell press conference, in response to a question about the sustainability of the US fiscal trajectory in general, and the soaring debt and deficit in particular – both of which the Fed is now directly monetizing thanks to MMT/Helicopter Money, the Fed Chairman was laconic: “this is not the time” to be concerned about debt.


Bitcoin@Bitcoin

Jerome Powell, Chair of the Federal Reserve: “The debt is growing faster than the economy. This is not the time to act upon those concerns”

Time for Plan ₿

Embedded video

Fair enough, in response we will be just as laconic and use the CBO’s latest long-term debt to GDP forecast to ask the Chairman just when will it be the time to be concerned about the Federal debt. For the benefit of the Fed Chair we have conveniently provided several possible answers.

Fed Cut Back on Helicopter Money for Wall Street & the Wealthy

Fed Cut Back on Helicopter Money for Wall Street & the Wealthy

Tapered QE-4 Further, Still Hasn’t Bought Junk Bonds or ETFs, Was Just Jawboning.

Total assets on the Fed’s balance sheet rose by $205 billion during the week ending April 22, to $6.57 trillion. Since the week ending March 11, when the bailout of the Everything Bubble and its holders began, the Fed has printed $2.26 trillion.

But the $205 billion increase was the smallest increase since the mega-bailout began with its Sunday March 15 announcement. The Fed is tapering its purchases of Treasury securities and mortgage-backed securities (MBS). Repurchase agreements (repos) are falling into disuse. Lending to Special Purposes Vehicles (SPVs) has leveled off. And foreign central bank liquidity swaps, after having spiked initially, only ticked up by a small-ish amount.

The sharply reduced increases confirm that the Fed is following its various announcements over the past two years that during the next crisis – namely now – it would front-load the bailout QE and after the initial blast would then taper it out of existence, rather than let it drag out for years.

This concept was further confirmed by Fed Chair Jerome Powell on April 10 when he said that the Fed would pack away its emergency tools when “private markets and institutions are once again able to perform their vital functions of channeling credit and supporting economic growth.”

Overall, the Fed has cut the big QE purchases by 65% since the peak week (week ending April 1, $586 billion), to $205 billion:

Purchases of Treasury securities get slashed.

The Fed added $120 billion of Treasury securities to its balance sheet, the smallest amount since this began, down 67% from the $362 billion it had added during the peak week:

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

Covid-19 Helicopter Money: Go Big Now or Go Home

Covid-19 Helicopter Money: Go Big Now or Go Home

This is why it’s imperative to go big now, and make plans to sustain the most vulnerable households and small employers not for two weeks but for six months–or however long proves necessary.

That governments around the world will be forced to distribute “helicopter money” to keep their people fed and housed and their economies from imploding is already a given. Closing all non-essential businesses and gatherings will crimp the livelihood of millions of households and small businesses that lack the financial resources to survive weeks without any revenues.

The only question is whether governments which can borrow or print fresh currency will get ahead of the implosion or fall behind, creating a binary choice: go big now or go home.

Half-measures in helicopter money work about as well as half-measures in quarantine, i.e. they fail to achieve the intended objectives. Dribbling out modest low-interest loans is a half-measure, as is cutting payroll taxes. Neither measure will help employees or small businesses whose income has fallen below the minimum needed to pay essential bills: rent, food, utilities, etc.

Meanwhile, the ruling elites will be under increasing pressure to bail out greedy financial elites and gamblers–the same scoundrels and parasites they bailed out in 2008-09. But this is not just another speculative bubble-pop, this is a matter of life and death and solvency for the masses of at-risk households and small businesses. It is a different zeitgeist and a different crisis, and bailing out greedy parasites (banks, indebted corporations, speculators, financiers, etc.) will not go over big while households and small businesses are going bankrupt.

The Federal Reserve, was just handed a lesson in the ineffectiveness of the usual monetary “bazooka” in bailing out the predatory-parasitic class of overleveraged gamblers.

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

Helicopter Money Is Here: How The Fed Monetized Billions In Debt Sold Just Days Earlier

Helicopter Money Is Here: How The Fed Monetized Billions In Debt Sold Just Days Earlier

The Fed’s charter prohibits its from directly purchasing bonds or bills issued by the US Treasury: that process is also known as monetization and various Fed chairs have repeatedly testified under oath to Congress that the Fed does not do it. Of course, the alternative is what is known as “Helicopter Money”, when the central bank directly purchases bonds issued by the Treasury and forms the backbone of the MMT monetary cult.

But what if there is at a several day interval between Treasury issuance and subsequent purchase? Well, that’s perfectly legal, and it’s something the Fed has done not only during QE1, QE2 and QE3, but is continuing to do now as part of its “QE4/NOT QE.” 

Here’s how.

On December 16, the US Treasury sold $36 billion in T-Bills with a 182-day term, maturing on June 18, 2020, with CUSIP SV2. And, as shown in the Treasury Direct snapshot below, of the total $34.3 billion in competitive purchases, Dealers acquired $23.7 billion.

What happened next?

For the answer we go to the Fed’s POMO page, which shows which specific T-Bill CUSIPs were purchased by its markets desk on any given POMO day when Dealers sell up to $7.5 billion in Bills to the Fed.

Exhibit 1: on December 19, just three days after the above T-Bill was issued and on the very day the issue settled (Dec 19), Dealers flipped the same Bills they bought from the Treasury back to the Fed for an unknown markup. Specifically, of the $7.5BN in total POMO, the SV2 CUSIP which had been issued earlier that week, represented the biggest bond “put” to the Fed, amounting to $3.9 billion, more than half of the total POMO on that day, and by far the most of any CUSIP sold to the NY Fed’s markets desk on that day.

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

David Rosenberg: Fed Will Embrace ‘Helicopter Money’ In The Next Few Years

David Rosenberg: Fed Will Embrace ‘Helicopter Money’ In The Next Few Years

Jerome Powell has denounced MMT has “just wrong”, but many Wall Street luminaries have surprisingly communicated an openness to the proposal. Most recently Ray Dalio proposed a marriage of monetary and fiscal policy that sounded suspiciously similar to MMT. Bill Gross, once a vocal critic of the Federal Reserve’s stimulus program, told Bloomberg shortly after he retired from managing outside money that higher taxes and the advent of MMT might be ‘necessary evils’  to combat the widening economic gap between the rich and the poor.

MMT has been perhaps the most widely discussed topic in the realm of economics since Alexandria Ocasio-Cortez proposed it as a possible mechanism for financing her ‘revolutionary’ Green New Deal. But this past week, President Trump’s exhortation that the Federal Reserve usher in QE4 by cutting interest rates stoked a frenzy of speculation that the world’s most powerful central bank might be closer to outright debt monetization – aka ‘helicopter money’ – than mainstream economists had realized. Of course, debt monetization is a central plank of the MMT program.

But just days before Trump made his now-infamous QE4 comment, Gluskin Sheff chief economist David Rosenberg offered a prediction during an interview with MacroVoice’s Erik Townsend that, in retrospect, seems surprisingly prescient. 

David Rosenberg

David Rosenberg

During a discussion about how the Fed ‘pause’ impacted Sheff’s monetary policy outlook, Rosenberg, a frequent guest on CNBC, declared that, instead of giving QE another try, the central bank would opt for something even more radical by embracing MMT. And not without good reason. Just because the Fed is ostensibly insulated from political considerations, doesn’t mean it’s not obligated to protect its credibility.

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

A Major Bank Capitulates: “This May Be The Time For Helicopter Money Drops”

A Major Bank Capitulates: “This May Be The Time For Helicopter Money Drops”

Long before the Fed was humiliated into reversing its hawkish rate hike policy in January and then again in March, we published – back in June 2015 – “The Blindingly Simple Reason Why The Fed Is About To Engage In Policy Error“, in which we predicted, correctly, that the neutral rate of interest is far too low to allow a lengthy tightening campaign by the Federal Reserve, as the real Fed Funds rate would promptly rise above the neutral rate, further depressing demand, resulting in a policy error.

More importantly, instead of some arcane calculation of the infamous, convoluted r-star (or neutral rate of interest) we said that one might argue for low “implied” equilibrium short rates via debt ratios. For example, if nominal growth is 3 percent and the debt GDP ratio is 300 percent, the implied equilibrium nominal rates is around 1 percent. This is because at 1% rates, 100% of GDP growth is necessary to service interest costs.

So to help the Fed and pundits calculate just where r star is in an economy where total debt/GDP is 350% and rising, and where GDP is 2% and falling, we presented – all the way back in 2015 – a sensitivity table which looks at just two simple variables: nominal growth, or GDP, and total debt/GDP. Assuming the current leverage of the US and assuming 2% in nominal growth, the short-run equilibrium real interest rate is just about 0.57%, something which the Fed now appears to have discovered on its own. 

%.

As an aside, we also said that such a policy error could reinforce itself by causing structural damage that puts additional downward pressure on the equilibrium real rate adding that “in this case the yield curve would flatten meaningfully, at least until the Fed actually reversed course by cutting rates.” This is precisely what happened.

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

Bill Dudley Slams MMT: “It Failed In Germany, Venezuela And Zimbabwe”

Bill Dudley Slams MMT: “It Failed In Germany, Venezuela And Zimbabwe”

While there has been much disagreement among the financial elite about the ultimate consequences of central bank activism and market manipulation, with some – usually those who do not manage money for a living and are not paid by investors – predicting fire and brimstone, while a separate, far more optimistic group expects the world’s greatest experiment in monetary policy to somehow have a happy ending, when it comes to socialism disguised as monetary policy, besides a certain, politically-influenced fringe, the condemnation against “helicopter money” wrapped in a convenient political wrapper has mostly been uniform.

We are talking, of course, about MMT, which stands for Modern Money Theory, but would make far more sense if it stood stand for Magic Money Tree, as the theory effectively espouses unlimited money printing and skipping central banks as intermediaries in money creation which, however, the theory claims does not result in hyperinflation because, somehow, taxation manages to limit the amount of money in circulation and the result is monetary utopia.

It is therefore hardly a surprise that MMT has emerged as the pet financial theory for such socialist politicians as Bernie Sanders and Alexandra Ocasio-Jones (the biggest proponent of MMT is finance professor Stephanie Kelton who previously worked on Sanders’ presidential campaign and was a “chief economist for the Dems on the Senate Budget Committee”), who get to promise their potential voters pretty much everything while also vowing not to worry about the insane costs that delivering “everything” would entail (AOC’s Green New Deal is said to cost over $6 trillion and according to some, the bill would be north of $20 trillion).

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

Algeria Officially Launches Helicopter Money Amid Sliding Oil Revenue, Budget Crisis

Algeria Officially Launches Helicopter Money Amid Sliding Oil Revenue, Budget Crisis

One year ago, the imminent arrival of helicopter money among endless discussions of pervasive lowflation was all the rage within high-finance policy circles. Then, everything changed as if on a dime, and in recent months the dominant topic has been global coordinated tightening – and in some cases even revisions to central bank mandates and the lowering of inflation targets – perhaps as a result of central banks’ realization that monetizing debt by central banks leads to bad outcomes, not to mention global asset bubbles.

But not everywhere.

On Sunday, Algeria’s prime minister unveiled a plan to plug the country’s budget deficit as the the OPEC member state looks to offset lower oil revenue by directly borrowing from the central bank, while avoiding international debt markets. In other words, direct monetization of debt, which bypasses commercial banks as a monetary intermediate, and is better known as “helicopter money.”

According to Bloomberg, the five-year plan presented by Prime Minister Ahmed Ouyahia aims to balance the budget by 2022, and reverse a deficit that ballooned with the plunge in global crude prices, which also cut foreign reserves by nearly half.

If we turn to external debt, as the IMF suggests, we will need to borrow $20 billion a year to repay the deficit and within four years we will be unable to repay the debt,” Ouyahia said. “This is what made the government look at non-traditional financing.”

With domestic debt currently around 20 percent of gross domestic product, Algeria has room to take on additional borrowing, the IMF has said. Earlier this month, the cabinet authorized the central bank to lend money to the Treasury to narrow the deficit. Businesses and importers would stand to benefit from a cash injection from the regulator, but analysts say the plan has risks.

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

The Path to Inflation: “Helicopter Money”

The Path to Inflation: “Helicopter Money”

The general view in inflation is dead, essentially forever. Maybe. Maybe not.
We all know real-world inflation for big-ticket expenses is far above the official rate of around 2% annually.
Yet conventional economists are virtually unanimous that deflation is the danger and inflation is a “good thing” we need to spur so servicing existing debt becomes easier for debtors.
Due to the deflationary pressures of technology and stagnant wages for the bottom 90%, the consensus sees low inflation as far as the eye can see.
When the consensus is near-100% on one side of the boat, we can safely bet Reality will not conform to expectations. This leads to a question: what could cause official near-zero inflation to surprise the consensus and leap higher?
One possible answer is “helicopter money”: money created by central banks that is distributed directly to households via tax rebates, debt forgiveness, or Universal Basic Income (UBI).
For the past 17 years, central banks have funneled credit and liquidity into the banks at the top of the wealth-power pyramid. Very little of this new “wealth” has trickled down to the bottom 90% of households in the real economy who have seen their earnings stagnate and their costs rise.
Now that debt and essentials are absorbing much of the bottom 90%’s earnings, there’s little fuel left for additional debt-based consumption. This is why we see auto sales plummeting.
The only way the central banks/states can fuel more debt and spending is to drop “helicopter money” directly into the consumers’ checking accounts.
Once they do this, the “new money” goes directly into the real economy. This is quite different than the past 17 years of monetary stimulus that went mostly into assets owned by the wealthy.
There’s another driver of inflation: shortages of essential commodities. I define inflation very simply: a loss of purchasing power, which means we are paying more money for the exact same good or service.

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

Central Banks May Choose Helicopter Money Over Negative Rates

The US Federal Reserve (Fed) is considering raising rates. Is the “normalization” of interest rates about to happen which savers and investors have been yearning for? Most likely not. Policymakers are merely realizing that the policy of zero rates — or even negative rates as in the euro area or Switzerland — doesn’t work as intended.

The wider public is very much against it. Banks, for instance, run into trouble because their profits come under severe pressure in an environment of zero, let alone negative, interest rates. Bank clients start protesting as their bank deposits no longer earn a positive return. They even start redeeming their deposits in cash, thereby causing bank refinancing gaps.

Negative Rates Under Another Name

However, central banks are quite unlikely to abandon the idea of pushing real — that is inflation-adjusted — interest rates into the negative. What they might have in mind is allowing for “somewhat higher” nominal interest rates, accompanied by “somewhat higher” inflation, making sure that real interest rates remain in, or fall into, negative territory.

In this vein, the Federal Reserve of San Francisco suggested in a paper published on 15 August 2016 that monetary policy should rethink and possibly allow for an inflation of more than 2 percent.[1] The debate about higher inflation — say, 4 rather than 2 percent — is actually an old one; in academic circles it comes and goes in waves.

The central argument is that a somewhat higher inflation would “grease the wheel” of the economy, thereby supporting production and employment. Another argument has it that higher inflation would make it easier for the Fed to pull the economy out of recession, especially so if and when the “neutral interest rate” has come down considerably.

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

“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…

Helicopter Money——The Biggest Fed Power Grab Yet

Helicopter Money——The Biggest Fed Power Grab Yet

The Cleveland Fed’s Loretta Mester is a clueless apparatchik and Fed lifer, who joined the system in 1985 fresh out of Barnard and Princeton and has imbibed in its Keynesian groupthink and institutional arrogance ever since. So it’s not surprising that she was out flogging—-albeit downunder in Australia—- the next step in the Fed’s rolling coup d’ etat.

We’re always assessing tools that we could use,” Mester told the ABC’s AM program. “In the US we’ve done quantitative easing and I think that’s proven to be useful.

“So it’s my view that [helicopter money] would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative.

This is beyond the pale because “helicopter money” isn’t some kind of new wrinkle in monetary policy, at all. It’s an old as the hills rationalization for monetization of the public debt—–that is, purchase of government bonds with central bank credit conjured from thin air.

It’s the ultimate in “something for nothing” economics. That’s because most assuredly those government bonds originally funded the purchase of real labor hours, contract services or dams and aircraft carriers.

As a technical matter, helicopter money is exactly the same thing as QE. Nor does the journalistic confusion that it involves “direct” central bank funding of public debt make a wit of difference.

Suppose Washington issues treasury bonds to the 23 primary dealers on Wall Street in the regular manner. Further, assume that some or all of these dealers stick the bonds in inventory for 3 days, 3 months or even 3 years, and then sell them back to the Fed under QE (and most likely at a higher price).

So what!

 

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

Why the Quantity of Money Theory is DEAD Wrong

Money Theory

COMMENT: Bill Gross says you are wrong and helicopter money is coming and the Fed should print trillions to buy government bonds. Any comments?

REPLY:Gross is not making a forecast without self-interest. Gross’ “helicopter money” calls for the Federal Reserve and U.S. Treasury to engage in another round of quantitative easing (QE) by printing trillions of dollars to buy government bonds. This is his Hail Mary play intended to boost the economy. How will that stimulate the economy? He runs Janus’ bond fund. It will only bail him out of losses on bonds.

Printing money to create “stimulation” is a fallacy. It has never worked. The theory of the quantity of money increasing or decreasing is pure nonsense. This typical one-dimensional thought process is incapable of understanding complexity.

Fed Velocity of Money May 1 2016

LongBranchNJ-DepressionScrip

The missing element is the velocity of money. If people hoard money without spending, then increasing the quantity of money will fail to produce inflation. Creating inflation, such as what Japan saw one month before raising the sales tax, demands that people see the price of goods rising so they spend the money faster because they fear it will cost them more tomorrow. Why did Roosevelt confiscate gold and devalue the dollar? People were hoarding money. There was such a shortage of money, more than 200 cities began to issue their own money known today as Depression Scrip.

This idea of “helicopter money” is rather pathetic and fails to dive deep into how the economy functions. Irrespective of the quantity of money, the velocity of money is what always distinguishes deflation from inflation. You could increase the money supply and nothing would happen. Alternatively, you could leave the money supply unchanged and people would suddenly lose confidence in government, causing the velocity to increase thereby producing inflation.

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

Olduvai IV: Courage
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Olduvai II: Exodus
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