Hold onto your hats…
Today, the president-elect will give us a measure of the catastrophe ahead. From The New York Times:
‘Biden Set to Call for Big Spending on Stimulus and Vaccines
‘President-elect Joseph R. Biden Jr. on Thursday is expected to outline proposals for trillions of dollars in government spending to combat the coronavirus pandemic and its effects on the economy, with an initial focus on large-scale expansions of the nation’s vaccination program and virus testing capacity.’
In a modern democracy, the role of the citizen, after an appropriate period in the public schools, is to believe six impossible things before breakfast…and another six after tea.
Tesla is worth $800 billion. Sure it is.
Joe Biden is going to make the US freer and more prosperous than ever — sure he is!
And how will he do it? With more stimulus, of course.
Fortunately, your editor slept through his civics 101 class…and missed the important lavage du cerveau that is critical for our government.
And here’s Chuck Schumer with a familiar message. From Bloomberg:
‘Incoming Senate Majority Leader Chuck Schumer has pressed President-elect Joe Biden to propose more than $1.3 trillion in spending for his initial round of Covid-19 relief, according to a person familiar with the matter.’
Hold on. Let’s set the record straight.
The feds have no ‘relief’ available to them. They are bust…broke…penniless. They bake no bread to offer the hungry. They weave no wool to clothe the naked. And they drive no nails to house the homeless.
All they can do is hand out more fake money. How much ‘relief’ that will bring is the subject of today’s ramble.
Imagine two guys shipwrecked on an island. One collects berries. The other gathers nuts. They trade with each other, keeping track with the money supply that was in their pockets when they washed up.
Along comes a passing cruise ship. Well-meaning tourists, seeing the two men in rags, toss them money — enough to double their money supply. (For reference, the US money supply — M1 — rose 70% last year.)
Surely that stimulated their island’s economy, no? Each had more money to spend.
But what difference did it make? None. The additional money didn’t help them find more nuts or collect more berries.
But just as medieval ecclesiastic scholars could explain the miracle of turning water into wine, so, too, can modern PhD economists, Joe Biden, newspaper columnists, and indeed, the average New York Times subscriber, explain the magic of turning ‘printing press’ money into real wealth.
‘Stimulus,’ they say. The word rolls off the tongue and slides off the page. It conjures up an image of a man having a cup of coffee…looking at dirty pictures…or…facing a firing squad.
It suggests that with the proper encouragement, he might alter his behaviour. He might put more spring in his step. He might work harder. He might take more chances with his time and his money; he might become more productive.
That’s the theory…pathetic as it is.
And how does it work out? We’re not even going to mention Zimbabwe, Venezuela, or Argentina…you know the story already.
Besides, we know what you’re thinking:
Those are ‘sh*thole’ countries, as Donald Trump famously phrased it.
The US is different, isn’t it?
But impossible is impossible, no matter where you try to do it. And printing press money causes disaster everywhere.
The US began resorting to the printing press in a major way following the crisis of 2008/09. Since then, the Federal Reserve’s balance sheet — a good measure of how much new money has been added — has grown from less than $900 billion to nearly $7.5 trillion.
Never before had the US ‘printed’ so much or ‘stimulated’ its economy so aggressively.
And what happened?
While the Fed added to the money supply at nearly 18% per year…real GDP — roughly measuring the exchange of goods and services in the US economy — barely grew at a 1.3% annual rate.
How did that compare to the previous 10 years?
Here’s the shocking thing. During those years, 1999 to 2008, the Fed ‘stimulated’ at less than half the 2009–20 rate…while the economy (as measured by GDP) grew twice as fast.
In other words, ‘stimulus’ made the US economy more lethargic.
Since the US stepped up its stimulus efforts in 2008, the rate of wealth creation has been cut in half.
So, Mr Biden…more stimulus? Sure, why not.
For The Rum Rebellion