"I
am deeply aware of the complexity and importance of that
basic
task of making sure we are preserving that great asset --
which is
the deepest and most liquid markets in the world. And
we will
work very hard at that."
"You
are right to say that the Fed is embarked on a very
unconventional, exceptional program for buying
Treasuries...but
we have a
very strong Fed, independent Fed, whose basic
obligation
to the Congress and the American people is to keep
inflation
low and stable over time and they have been
exceptionally
good at doing that and they will be good in the
future.
And, as the (Fed) chairman has said in public, they are
very
committed to making sure they have the ability to unwind
and
reverse the exceptional measures they have taken once we
have
achieved the necessary stability in our financial markets
and an
economic recovery is back on track.""—Geithner
This
makes me want to watch Mary Poppins 75 times or seek some other less
constructive and instructive diversion. The world unconventional strikes me as
rather unconventional in this location. There is nothing ‘unconventional’ about
some banana republic going berserk and printing money.
There are
only three types of monies here that come into play in the money supply, debt
structure and bond markets: [1] money in circulation as in M2 [8.3 trillion currently] and
such other foreign or hidden capital and [2] phony money such as TARP Dollars
that sit up in capital accounts in banks so the bankers who drive these Zombie
Banks can daydream that they are not insolvent. Then there are [3] the deficit
spending sums which are presumable money ‘barrowed’ from somewhere and will
enter the economy immediately and act
as an anchor to drag us down with massive interest rate payments for eternity.
Deficit spending increases the money supply. Only with a balanced budget do you
get a multiplier of 1.
In the
first case we are probably deflating so the current level of M2
does not affect inflation or the ability to barrow money. If MO
[cash and coins in safes] is high then M2 has contracted by 10x the amount hidden in
mattresses and jars buried in the garden. That keeps inflation down but also
lowers consumption.
In the
second case, the Fed can dance the Dunciad , recite the hidden ‘rules’ and ask the banks to post back this
nonexistent money and it will not creep into the money supply and cause
inflation. This is inflation neutral
because the money has no movement from bank to bank [velocity is zero ]. In
first category, however, we can look at Bush2’s 150 bln bailout which,
according to monetary theory will expand by the reciprocal of the reserve ratio
which is 10% so that is a cool 1.5 trillion dollars there. That hikes M2
levels of 2008 by about 18%. That is inflationary in normal times. That did get
out and has had little effect yet as consumption is down hence no inflationary
pressure. Obama plans another such stimulus in May and that will be about the
same level so we can expect another 15% or so increase in M2 and bingo we are at +%35. It
will be amusing to see how he ‘unwinds’ this tidy sum.
The Fed
no longer tells us about M3 so
that may be the magic hiding place for all this wonder. Perhaps we should not
ask. Maybe there is some M4 somewhere in the stars.
Will
Little Timmy just put up a %35 surcharge on all our taxes? He probably has that
power as Congress has no idea what power they gave his predecessor. No, that is not enough because only the top
half pays federal taxes. How about a nifty %70 Surcharge or whatever it takes
to bring back that THREE TRILLION DOLLARS!!!!!!!!!
But,
isn’t that about as big as the 2009 total budget? Yes, it is! To claw that back
we would need taxes exceeding 100% because the total taxes for 2010 [if that is
the year we stabilize the economy] would be 6 trillion or a mere 46% of the GDP.
Well, as
a good citizen, and a Democrat to boot, I am impressed with Little Timmy and
his assurance that he can unwind and reverse the exceptional measures they have
taken without stripping all of us of everything we own.
Maybe
somebody can explain all this to me as I seem to have lost my way in the
complex economics of 2009.
Comments
to: ryckki@gmail.com