A Cold Summer in Europe …

The summer is slipping away. In the morning, mists hang over the fields. The chestnut trees have already turned a rust color. We start a fire in the kitchen fireplace to keep our mother warm.

 

Helikopter-geld

It wasn’t much of a summer in Europe this year. Still, we’re sorry to see it go. This weekend we will pack up the house… turn off the water… close the shutters … and head for the airport.

We’re headed to China first. Stay tuned …

 

A Puzzling Paradox

Meanwhile, the first revision of the GDP numbers for the second quarter. We expected them to show substantial weakness. Instead, they show what looks like strength. The US economy expanded at a 4.2% rate in the second quarter, adjusted for inflation.

The economy may be growing. Stocks may be near a record high. But the typical American owns no stocks and his prospects are depressing. Here is a report from the New York Times:

 

“For five years, the United States economy has been expanding at a steady clip, the stock market soaring, the headlines filled with talk of recovery. Yet public opinion polling shows most Americans still think the economy is pretty miserable.

What might account for the paradox? New data from a research firm offers a simple, frustrating answer: Middle-class American families’ income is lower now, when adjusted for inflation, than when the recovery began half a decade ago.”

 

This is hardly news to us. We’ve been following the real economy – as best we could – for the last 15 years. Dear readers already know household income, hourly wages and household wealth were all down – for most people.

The averages are distorted by the few at the very top, but the typical American suffered a big plunge in wealth in 2008-09… and has never recovered. In fact, he is worse off today than he was at the bottom of the hole in 2009.

In June of that year, according to Sentier Research, the median family earned $55,589. Today, that figure is $53,891, adjusted for inflation. That “median” family is right at the middle of all US households. So, half of the people you see on the streets or in the shopping malls have suffered even bigger income losses.

 

Real Median Household Income

Real median US household income – not better than 27 years ago – click to enlarge.

 

A Deeper Problem

But it wasn’t just the damage done by the crisis of 2008-09 that has lowered incomes. The problem is bigger, deeper. It’s the core defect in the debt-fueled growth model.

As we explore in our new book, Hormegeddon, a little bit of debt may be a good thing. But add more, and it depresses growth. Keep adding debt, and the whole shebang blows up.

Sentier’s numbers show the deterioration in household income began at least 14 years ago. Today, the typical middle-income family earns less than it did when the 21st century began – despite the biggest wash of cheap credit the world has ever seen.

In other words, policymakers’ efforts to increase real demand have failed miserably. Go figure. But our guess is the feds will not spend much time figuring out why their “stimulus” model doesn’t work. It’s the only tune they know. As it fails, they will merely keep singing, louder.

How? Bypassing the banks, they will put their newly digitized money directly into the hands of the people whose votes they need to buy. This kind of flagrant money creation is becoming intellectually respectable, as a kind of final solution to the problem of insufficient demand.

Martin Wolf, the influential chief economics commentator at the Financial Times, has already suggested it publicly. Now, here comes an article in Foreign Affairs magazine titled: “Print Less and Transfer More: Why Central Banks Should Give Money directly to the People.”

Recognizing that QE and ZIRP are not making it to the top of the charts, the establishment is getting behind more direct inflationary measures. The article explains:

 

It’s well past time, then, for US policymakers – as well as their counterparts in other developed countries – to consider a version of Friedman’s helicopter drops. […]

Many in the private sector don’t want to take out any more loans; they believe their debt levels are already too high. That’s especially bad news for central bankers: when households and businesses refuse to rapidly increase their borrowing, monetary policy can’t do much to increase their spending. […]

Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly.

 

Are you still holding government bonds, dear reader? Make sure you get rid of them before the music stops.

 

800px-Paperairplane
The latest in a string of really bad ideas…

 

 

elbonian inflationHow to solve typical hyper-inflation problems the Elbonian way …

 

The above article is from Diary of a Rogue Economist originally written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 

 

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Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

One Response to “Here Come the Money Helicopters”

  • prattner:

    If they want to create demand, all they need to do is send a few thousand dollars to everyone with a social security number over the age of 18, no questions asked. No means testing or b.s. with tax refunds–many of the people they want to “help” don’t file taxes anyway. Don’t put anything in the way to slow it down. Just use the SS administration to organize the money drop.

    While this may have some uh, unwanted consequences, it really will get the job done once and for all. Politically, it’s a big winner. Everyone will stop accusing the Fed of favoring the rich, and the poor will just love it to death. Free money in the mail? Who wouldn’t like that?

    And, like all the best drugs, the first hit is free, and very, very seductive. Probably no serious consequences will appear for quite some time. As a matter of fact, I’ll bet they could get away with it for four or five years of repeated injections straight into the mainline before general price levels start rising faster than they’re printing the money. This was Germany’s experience after WWI, anyway.

    Although this eventually leads to catastrophe, there is a silver lining. Should this policy actually get announced, the bogus trading and manipulation in the gold market will be blown away in a day. A speculative bet here may not be such a bad idea…

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