Some thoughts on monetary policy

by Glen Wallace

No need to reinvent the wheel, so I’m just reposting my recent entries on a topic about cheap money policies:

The problem with the cheap money policy lies in for whom the money is cheap — the big banks and financial institutions that get all those QE dollars. The stated assumption is that the banks who receive the QE money will turn around and spread around all those dollars in a manner that will lead to the ‘wealth effect.’ But of course the term ‘wealth effect’ is merely a rebranding of the discredited and largely refuted trickle down economics theory. The irony there is that the easy money policies of the Fed have been championed by the same political side that most fervently touts the failings of trickle down economics. Perhaps the heart of the problem lies there insofar as there is a mismatch between what the supporters of the Fed’s cheap money policy envision and the reality of that policy. The perpetuation of the widespread false beliefs about the Fed’s policy is only encouraged when certain ‘authorities’ on the subject, perhaps out of a conspiracy to support the plutocracy, fail to point out, but rather completely ignore or even present those false beliefs as being true.

It is the worst kept secret of the Fed that all those QE dollars have gone largely straight into the financial markets, thus boosting them including the commodities traded on those markets. But with business loans remaining tight and incomes flat, it seems clear that few of those dollars have found there way on to main street. However those same small businesses that are having difficulty getting any loans to grow there business now also have the further strain of having to fork over more capital to pay for all those QE inflated commodities that the business needs to operate.

I think a true, easy money for everybody could indeed help not merely stimulate the economy but also foster a sustained long term state of prosperity for the masses. But if we take as a given that there is a certain degree of necessary scarcity of material wealth, then the increased prosperity of the masses will correspondingly result in a decreased level of prosperity for the wealthy few. As a result, those very rich folks will use there influence in the media to plant experts that will never propose or support such a policy of relative mass affluence. But that doesn’t mean we can’t at least try to come up with some new system that could work and emerge as an actual policy brought on by the seeds of a benevolent meme first planted on forums such as this.

To bring about this alteration, here in the US we need to first clarify in our minds the correct nature of the relationship between the citizens and its government. Too often the citizens seem to think of themselves as customers to the government as the vendor. Their thinking that they are paying their taxes in exchange for some good or services offered by the government. But that general thinking is an incorrect characterization the legal relationship between US citizens and their government. A much more correct analogy would be for the citizens to think of themselves as members of a very large ownership group that owns an entity The United States of America and the US Government as the board of directors tasked with managing the affairs of the group. In this case the Fed would be considered a private contractor hired to do something that the board itself could do, and do so with all the transparency they are required that helps to insure that they are acting in the groups best interest. But instead of doing that job themselves, the board turns it over to a contractor that has virtually no transparency and could be acting in their own self interest at the expense of the group and neither the group nor the board would know any better. While many have called for an end to the Fed, I disagree. If the Fed wants to exist as a group that oversees member banks that have consented to that oversight then that is fine. But the Fed should definitely be stripped of their authority to govern over matters of the public realm.

Ok, once we establish our US Government, the management board, as a fiduciary looking after our best interests, we can finally sit down and go over with the board members like we would with a financial adviser, and determine what the optimal coarse we should take is that will maximize both our financial returns and also help us reach our charitable goals.

Here ares some of my suggestions:

– While I tend to favor nature conservation over exploitation and development, insofar as some federal lands will be opened to natural resource extraction, those federal lands should be treated the same from a business standpoint as privately held lands or mineral rights are. That is, just as no private land or mineral rights owner would ever hold a no reserve auction for all the bounty of their land, the federal government shouldn’t be doing that either. We should all think of ourselves as part owners of federal lands and be looking to private land owners for guidance on how best to maximize economic returns on on any natural resource extractions.

– Take Bil Still’s suggestion from his documentary ‘The Secret of Oz’ and bring back the equivalent of the Lincoln Greenback, a fiat currency issued by the US Treasury that seemed to bring about widespread prosperity among the masses during its issuance.

– Higher and more tariffs. Keep raising them until there is no more trade deficit.

– Implement a high frequency trading tax. High finance should be seen as a potential bounty for potential tax revenue — especially where it is a ‘Wolf of Wall Street’ world of golden trash cans where public esteem of it is low and the public benefit from its practices is highly dubious.

According to that Fed chart, there seems to have been some substantial growth in the assets of financial businesses varying directly with the Fed pumping out QE dollars. I would be interested to see another chart with lines superimposed with our original graph tracking wages and small business loans during the same period. I doubt that either a line tracking the wages or the loans would come close to keeping up with the financial assets chart line. Also that Fed graph seems to reflect a grand total that includes all financial businesses which would then include the smaller companies that are very far removed from the big bank recipients of QE dollars.

I would agree though that money is not cheap at all right now in the US and that fact can be attributed to QE first boosting and then indefinitely levitating the price of commodities traded on the markets that all of us living on ‘main street’ require or desire for or day to day living. The average citizen is then having to endure these inflated commodity prices while simultaneously not enjoying the ‘QE fruits’ that the Fed dumped by the truck load onto the financial markets. So the common man now doesn’t have any extra the money to pay for the higher cost of living that comes from higher commodity prices. The common man has now taken a step downward that the plutocratic elite wants him to become accustomed to as the new normal. Even though this ‘new normal’ is neither inevitable nor acceptable, the masses are numbed into thinking that it is so they don’t put up much of a fuss as the rich rake in the wealth hand over fist.

I believe high tariffs would encourage mass reshoring of manufacturing and other businesses to the US which along with the US government now being flush with all these tariff dollars, the increased income from all the newly reshored jobs would further boost the economy by causing a real monetary easing on main street. These benefits would only be multiplied if the Lincoln Greenbacks were brought back and the money supply could grow organically along with the overall economy.

We in the US have a multifaceted brass ring of natural resource wealth (with the exception and possible achilles heel of a dearth of rare earth elements), the best higher education on the planet, a great high-tech base, a pre-existing infrastructure of business. All of which makes the US a country that has a lot to offer in trade and also if we are shunned due to any high tariffs we can be self sufficient.

Your second and third points sort of answer each other as it is the owners of the stocks and commodities that are traded on the financial markets such as oil and mining companies that are getting rich because they are the ones that have exclusive access to that cheap money that the guy on main street doesn’t. The common man wont have all those stocks and commodities that he can give up so little of to get a lot of money like an oil company can. But really anyone with skin in the financial markets game, typically those individuals and organizations that are already wealthy, are the ones benefiting from all the cheap money at the expense of those poorer individuals with little or no skin in that game.

I looked at your and am scratching my head wondering if we are looking at the same graph. I don’t know if financial businesses could have been said to be doing great, but the charts seem to indicate that they have been doing just fine and perhaps without QE perhaps they would have gone the opposite direction and done poorly.

Interesting comparative chart. I was surprised how much incomes grew during QE but I have to wonder if those incomes from wealthiest individuals, such as executives, working for corporations that do have a large stake in the financial markets, disproportionately skewed the chart in an upward trajectory that wouldn’t be seen if, for instance, only hourly workers incomes were included when plotting the graph.

The lack of small business loans just lends support to the theory that QE dollars aren’t trickling down to ‘main street’ as the Fed would allege is supposed to occur. The Fed, according to their mandate, are supposed to be improving employment. But if the engines of employment, small businesses, aren’t getting the loans they need to expand and hire more employees, how can the Fed claim they are helping in that area through QE when the evidence indicates otherwise?