Ko Byung Jun

 

 

“Through the years, a man peoples space with images of provinces, kingdoms, mountains, bays, ships, islands, fishes, rooms, tools, stars, horses, and people. Shortly before his death, he discovers that the patient labyrinth of lines traces the image of his own face.” -Jorge Luis Borges

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Why Big Daddy Fed Can’t Get it Up (Inflation, of course)

So why exactly hasn’t the Fed been able to hit their inflation target regardless of the trillions of dollars they’ve created?

Well, other than the dollar being a safe-haven, there are two other main reasons, and an oppositional force:

 The US already has an extremely top-heavy economy. Not only do the majority of gains go to the top, but much of this newly created money never leaves the hands the wealthy and the giant corporations. When they make investments, it stays at the top; when a corporation performs a stock buyback, it stays at the top: when a wealthy individual saves (hoards) it, it stays at the top. As millionaire Nick Hanauer told us in his famous “The Pitchforks Are Coming…”, article, that he “earns 1,000x more than the median American”, but his family bought three cars in recent years — not 3,000.

Consumer spending by a handful of extremely wealthy individuals is not enough to grow the real economy. If that money doesn’t make it to the real economy where most of us operate, it does absolutely nothing to stimulate growth or inflation.

. In the wake of this COVID-19 pandemic, we are seeing record numbers of business closures, personal bankruptcies, and defaults on debts. Because of the way our currency is literally born as debt, when a mortgage or a loan cannot be repaid and has to be written off, that amount actually disappears from the US money supply.

In fact, even if you are a good steward and you pay off your debt, the same exact thing happens — the money gets canceled out on the balance sheet.

Beyond that, for those of us lucky enough to be financially stable during this tumultuous time, if you took that $1,200 stimulus check and squirreled it away as savings, it obviously does not circulate into the economy — and therefore provides no growth, let alone count toward inflation.

The only thing that causes economic growth is . When people are scared, they save. When people are broke, they cannot spend. When people are worried about their debts and they pay them off, nothing measurable comes from it in the eyes of economists.

So because of the tremendous inequality that persists and is getting worse in the United States, coupled with the tsunami of bankruptcies, foreclosures and business closures canceling out a big chunk of the money supply, Big Daddy Fed simply can’t keep up — it can print and print to no avail. All that money might as well be going into a hole in the ground.

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