There is an idea floating about to stimulate the economy via providing cash directly to consumers. It may just be a trial balloon at this point, but I expect the idea to gain traction. Here’s why.
The above introductory comments are edited excerpts from an article* by Jason Hamlin (GoldStockBull.com) entitled CFR Recommends Policy Shift That Is Very Bullish For Gold.
The following article is presented by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and the FREE Market Intelligence Report newsletter (register here; sample here). This paragraph must be included in any article re-posting to avoid copyright infringement.
Hamlin goes on to say in further edited excerpts:
The “Foreign Affairs” publication of the influential and policy-setting Council of Foreign Relations (CFR) made an announcement recently that could have huge ramifications for monetary policy going forward.
In an article** by Mark Blyth and Eric Lonergan (foreignaffairs.com) entitled “Print Less but Transfer More: Why Central Banks Should Give Money Directly to the People,” the authors argue that the current quantitative easing and debt monetization is not generating broad-based stimulus to the economy, and suggests that, “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. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits:
- lower-income households are more prone to consume, so they would provide a greater boost to spending and
- the policy would offset rising income inequality.”
This is a huge announcement because it would lead to a major increase in the velocity of money. While a tremendous amount of money was created following the financing crisis, it has yet to result in significant inflation as a good amount of it remains parked in excess reserves and in corporate accounts. [As the chart below shows] this has brought the velocity of money to the lowest levels in decades.
[The downside of this suggestion, however, is that] if these funds were to start flowing through the economy, we could see inflation pick up at a much faster pace than anyone anticipates – and this would be the fire that ignites the gold market and pushes prices to new highs. Men are fallible, even the economic Gods that believe they can control the economy better than free markets. If they failed to keep inflation in check and made one small miscalculation or used a faulty model or relied on incorrect assumptions, things could well spiral out of control…[For my part, however,] I would prefer to see less intervention from the FED and Washington. I believe that although the pain may have been more severe initially, the economy would be healthier today if they had allowed the banks to fail following the 2008/2009 financial crisis. The bad debt and mal-investment would have been properly liquidated, smaller businesses would have stepped in to fill the void with sounder business practices and we would not have the moral hazard prevalent today.
The big banks have not made significant changes to de-risk or de-leverage their balance sheets. They were not broken up and remain too big to fail, too big to jail and too important to political fundraising to discipline. They represent a major threat to the global economy. The United States merely patched its financial sector back together and resumed the same policies that created 30 years of financial bubbles. The derivatives time bomb is still ticking and bank balance sheets remain inflated, obscured and not properly marked to market.
If the FED was going to step in and stimulate the economy with taxpayer funds (current, or future via inflation), however,
- the money would be better directed towards the poor and middle class, rather than the banks and ultra-rich. The result of bailing out the banks and inflating the stock market and housing market has been to further increase the wealth gap in America. The rich have grown richer, the poor have become poorer and the middle class has been increasingly destroyed. Giving more money to the wealthiest in society does not stimulate growth or consumer spending. While I don’t favor higher taxation, trickle-down economics was a cruel joke and false justification for allowing the rich to grow richer and more powerful. It didn’t work and still doesn’t.
…If the government and FED were to follow the suggestion of the CFR and start dropping cash in the hands of consumers rather than banks,
- we risk the potential of hyperinflation. This is especially true given the increasingly de-dollarization of the global economy and recent moves by China and Russia to eliminate the dollar in their trade deals.
One should not blow off this suggestion by the CFR simply because it seems too far from current policy. Almost all of America’s leadership has come from this small group. That includes our presidents and their advisers, cabinet members, ambassadors, board members of the Federal Reserve System, directors of the largest banks and investment houses, presidents of universities, and heads of metropolitan newspapers, news services, and TV networks. It is not an exaggeration to describe this group as the hidden government of the United States.
Given this outlook, I believe it is wise to continue accumulating precious metals and quality mining stocks on the dips. These discount prices will not be around for much longer…
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
**http://www.foreignaffairs.com/articles/141847/mark-blyth-and-eric-lonergan/print-less-but-transfer-more (Copyright © 2002-2013 by the Council on Foreign Relations, Inc.
All rights reserved.)
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