The Fed has injected about 6 trillion dollars into the markets in recent weeks. I saw yesterday that there are about 130 million working families in the US. Which means every American family could have received a check for $45,000 if they were valued the same way. It's not just socialism for the rich and hyper-capitalism for the rest of us, but UNLIMITED socialism for the rich. No matter how badly they screw up, no matter how poorly they are prepared for outside forces having a negative effect on their business (*cough* stock buybacks), they will be given a blank check to make them whole. Everyone else?? Here is one payment to cover your rent for one month.
There is a better chance that those companies would invest the money given while families would just spend it. I am speaking in general terms, so please din’t go cherry picking companies that aren’t investing it or families that are.
Investment allows companies to keep the working class employed.
Just giving money to people to spend on anything even the likes of food and rent, increases inflation and makes those commodities more expensive.
Now is 6 trillion a bit extreme to give to these companies? Debatable, and I would probably say yes figuring who is doling it out, but as Balrog said, if these companies don’t exist, then jobs don’t exist. Should there have been more restrictions on what the companies could spend the money on, or encourage better rewards for workplaces that are unionized? Yep definitely.
But the argument of we could have given this money to X instead ignores how our economy actually works.
I think the issue is that these companies are not investing their profit in a way that is advantageous to the working families that are employed by them. They’re investing the money to make their shareholder’s happier. It would be one thing if they raised wages, improved benefits, and hired new workers to spread the work around. They didn’t.
The Trump tax cuts are a great example of this. The corporate tax rate was lowered substantially - and companies made a big show of investing that money in bonuses and improving their workforce’s quality of life, but when the dust settled - and insignificant amount of that money was actually invested back into the community. The majority of it was used for stock buybacks and to improve the financial outlook for shareholders.
To use your own language: The argument that corporations will invest their money more to the benefit of its workers than the workers will spend that money ignores how capitalism actually works.
This gets at it a little - although they frame investment here as being purely for r&d, and I think investing in your workforce is the more salient consideration.
Edit - to be clear: I don’t think we should just throw 6 trillion dollars to the population - but I am also equally uncomfortable handing 6 trillion to corporations. Especially since the rationale for doing so is to protect job, when it seems abundantly clear that their workforce is less important to them than shareholders.
How can you "improve wages" when everyone who is working for you is laid off?
I'll be the first to say that how the stock market operates is completely stupid and backwards thinking when it comes to the working person. Companies should be banned from taking out loans to acquire other companies. It benefits the banks and shareholders, but doesn't benefit either the consumer or worker as when companies merge under these situations, usually have to start laying off staff and closing places of businesses is where the money to pay off the loan comes from.
The tax cut is apples to oranges comparison though. Companies didn't need the tax cut. The economy was humming along just fine prior to it, but they also weren't going to turn down free money. Workers weren't revolting in the street demanding they get paid more either, so they took the money and used it the most efficient way they could to turn a profit. That's how capitalism works (now).
But with no production happening, companies no longer have the cash flow to purchase even the raw ingredients to make products they were making prior and with out that. I posted a couple pages back two articles on how the auto sector is handling COVID and how the entire field is working together to not only get their production up and running, but doing it as safely as possible for their workers, because they know, just like a lot of other industries, that if the workers get sick and they have to shut down again, there is no coming back from it.
Companies aren't the government. They aren't stupid. Any company that isn't using this relief money properly, won't survive the year. Stock buybacks aren't happening There is actual investment to make workplaces safer and if you are concerned about an industry that might not be doing this, then feel free and do some research and point them out.
And just to be clear here as well. I am the same way when it comes to the amount doled out and who is doing the doling. The lack of oversight is completely troubling to me, but speaking in general and vague terms: companies do need this stimulus as much the average person. They need the equity to rehire the staff when this is all over and before whatever the staff produces turns a profit. Now are the right companies getting the right amount of money for this to happen. I strongly doubt it and only time will tell.
There is a better chance that those companies would invest the money given while families would just spend it. I am speaking in general terms, so please din’t go cherry picking companies that aren’t investing it or families that are.
Investment allows companies to keep the working class employed.
This is called trickle down economics and it is utterly nonsensical. Distributing money to people would generate far more economic activity at all levels of society than giving it to corporations to reinvest in themselves. More to invest doesn't translate into more employees or higher wages, but into more dividends for stockholders. And when the corporation wants to pay the employees more? Stockholders have a hissy fit.
Just giving money to people to spend on anything even the likes of food and rent, increases inflation and makes those commodities more expensive.
By this logic, SNAP would be causing inflation. Instead, it generates more economic activity than its strict monetary worth. Unfortunately, the reality is food prices inflate far faster than SNAP benefits increase, meaning people who need that benefit gain less and less from it.
But the argument of we could have given this money to X instead ignores how our economy actually works.
Everything you've said about how our economy works is incorrect. Reaganomics is only about making the wealthy even wealthier while everyone else's income and net worth stagnates or even declines. It's of course the party line for Republicans and especially libertarians but these people have billionaires pumping tons of money into fake think tanks like the Mises Institute to sell utter garbage to convince people that being poor is actually beneficial, that going without enough food is better for the economy, and that everyone not having good health care is a necessary price for the US healthcare system to function. Not one of them tells the truth about anything in terms of economics.
I'm not an expert on the Federal Reserve, but I think people should educate themselves a bit more before going on about it in these ways. It simply doesn't have the power to give money to ordinary people during the crisis. That's on the elected branches of government, and Americans absolutely should be mad at a failure of leadership on that front.
Again, I'm pretty ignorant on the Fed, but we had this confusion previously on this thread when it came to the government borrowing money and going into debt versus the fed "injecting money" into the economy. The federal reserve isn't just giving money to banks or other lending companies. It is buying things like government securities that in turn puts more money into the lending economy -- i.e. it makes it easier for lenders to give out money. It's a very complicated issue, but it's important to note, again, that the organization simply does not have the power to just give out money.
Or this story from about a decade ago trying to explain the institution more generally: https://www.cnbc.com/id/43752521 or just you know wikipedia.
I think there's plenty to criticize the government for, but blaming the Fed for regular families not getting the aid they need right now is misplaced. Again, that is on the House, Senate and Presidency and no one else.
I think people are aware of this, DinoDin. Focusing on the sleight of hand used to generate the money misses the point that the corporations getting bailouts don't really need them, but that the population as a whole does need monetary support. The added benefit of the latter is that the money would end up going to the companies who receive the corporate welfare, and actually stimulate the economy.
The reality is that the decision to offer bailouts to corporations comes from exactly the same place as the decision to not provide aid to actual people who need it.
I think people are aware of this, DinoDin. Focusing on the sleight of hand used to generate the money misses the point that the corporations getting bailouts don't really need them, but that the population as a whole does need monetary support. The added benefit of the latter is that the money would end up going to the companies who receive the corporate welfare, and actually stimulate the economy.
The reality is that the decision to offer bailouts to corporations comes from exactly the same place as the decision to not provide aid to actual people who need it.
The federal reserve giving lenders the ability to lend more isn't a "bailout" though. It's not the same as, for example, direct payments via the federal government, which the US is also doing. I mean, the fact that you just said this, I think, demonstrates that people are *not* aware of how it works.
This isn't to say the federal reserve is exempt from criticism, but "cash injections" are not even the same as the TARP bailouts passed by congress in 2008 or the current congress-passed company bailouts.
There is a better chance that those companies would invest the money given while families would just spend it. I am speaking in general terms, so please din’t go cherry picking companies that aren’t investing it or families that are.
Investment allows companies to keep the working class employed.
This is called trickle down economics and it is utterly nonsensical. Distributing money to people would generate far more economic activity at all levels of society than giving it to corporations to reinvest in themselves. More to invest doesn't translate into more employees or higher wages, but into more dividends for stockholders. And when the corporation wants to pay the employees more? Stockholders have a hissy fit.
No it isn't. Not in this case of emergency. Yes, it is trickle down when it's a tax cut, but this wasn't a tax cut.
Just giving money to people to spend on anything even the likes of food and rent, increases inflation and makes those commodities more expensive.
By this logic, SNAP would be causing inflation. Instead, it generates more economic activity than its strict monetary worth. Unfortunately, the reality is food prices inflate far faster than SNAP benefits increase, meaning people who need that benefit gain less and less from it.
How would Supplemental Nutrition Assistance Program cause inflation. I am flabbergasted at that notion. Especially when A) Not everyone gets it It's used on a specific need.
Compare that to what JJ mentioned in the first post. Giving every family in America an equal amount of money that was given to the businesses. That would cause inflation, because guess what does exist: supply and demand. Supply would drop because companies are no longer producing goods. The demand will still be there, but, the demand will also be greater because everyone now has a large savings from the government. Prices would increase.
And if you think that inflation is only represented by the base cost of an item, I'd ask you to find me an ad from the last 2 months that has toilet paper on sale. Companies don't need to put it on sale because idiots bought out all the stock and there is a greater demand for it now than three month ago. That is still inflation (especially if you know how sales and sales laws work - there is stuff you never should buy full price unless you are desperate and TP is definitely one of those items).
But the argument of we could have given this money to X instead ignores how our economy actually works.
Everything you've said about how our economy works is incorrect. Reaganomics is only about making the wealthy even wealthier while everyone else's income and net worth stagnates or even declines. It's of course the party line for Republicans and especially libertarians but these people have billionaires pumping tons of money into fake think tanks like the Mises Institute to sell utter garbage to convince people that being poor is actually beneficial, that going without enough food is better for the economy, and that everyone not having good health care is a necessary price for the US healthcare system to function. Not one of them tells the truth about anything in terms of economics.
Actually, it is correct. Your opinion though, so stick with it if you want. What I am saying, in this situation, where the economy has grinded to a complete halt, it isn't trickle down, it isn't Reaganomics, it's closer to The New Deal without all the "government knows best" stuff that kept it from actually succeeding.
The economy has not grinded to a complete halt! That is the biggest fallacy! It is hurting but no where near a complete halt. Step back and look at what is actually going on. Many, many people have continued to work. The Dow Jones is still up from where it was in 2017 and only slightly down from 2018. The greatest trick the devil ever pulled was convincing the world he didn’t exist. I promise you it will rebound, will corporations even notice? Not bloody likely! The small businesses will suffer though. The working man will suffer.
Do we need help? Yes! To give it to the people who will do everything in their power to keep it for themselves. Idiocy!
Not even my point though, give a greedy person a chance to improve their lives at the cost of others and they will take it every time. It will happen. And for years prices will go up as wages stay the same and they will use an excuse. The economy, covid19, whatever you could think of. You would keep that cycle? For how long? What is the emergency that would tell you that you are are getting the shaft when after years after said emergency is over and your quality of life has not gone up? Are you the 5-10% if not why are you arguing for them?
People are kind, many of them. Businesses, corporations are not. This is not anything but a humanitarian emergency, the economy absolutely will recover, there are amazing people struggling to make it so. We probably do need to help, but to give it to the people least likely to use that money for the greater good? Whatever, gather your possessions and just hand them to the richest person in your county.
People stealing stuff off of porches, price gouging, name the way one person will take from another, this will be no different. Money like we are talking of here is not given out to the greedy without them taking advantage, believe what you will.
What I am saying, in this situation, where the economy has grinded to a complete halt, it isn't trickle down, it isn't Reaganomics, it's closer to The New Deal without all the "government knows best" stuff that kept it from actually succeeding.
There are many schools of thought about the New Deal. One of those suggests that the economy is cyclical and, left to itself, would bounce back strongly. By interfering in market operations, that school believes the New Deal actually prevented the economy from recovering to the extent it otherwise would have.
Deeming it a failure is on the grounds that it didn't succeed as well as it should have. Following the 1929 Wall Street Crash the economy shrank hugely up to 1933 (at the beginning of which Roosevelt took office). It then began a gradual recovery, with improvements in GDP, unemployment and investment. Those statistics still remained in 1939 well below the levels in 1929, but I think assuming that the market would have done better on its own is essentially based on faith in a particular economic model that ignores the impact of cyclical booms and busts on people.
An alternative school of thought argues that the New Deal was a success because it was not primarily aimed at economic recovery, but social justice. Looking at the impact of unfettered capitalism on ordinary people, Roosevelt wanted to offer them better protection. Programs he introduced to do this that had long term effects include:
- the Glass-Steagall Act, which aimed to prevent extreme financial cycles such as shown in the 1929 crash.
- the Home Owners Loan Act to offer government refinancing support for many people who would otherwise lose their homes to existing lenders.
- the Federal Emergency Relief Act, which introduced a system of direct federal support for the first time (previously there had been federal aid for emergencies, but only channeled via states).
- the National Labor Relations Act, which strengthened unions and required employers to allow collective bargaining.
- the Social Security Act, which provided a means of direct social support as well as instituting a system of unemployment insurance.
A better known aspect of the New Deal was the program of public works. This is often criticized on the grounds the work provided was only temporary, but I would suggest this is better understood as another means of offering support to workers during a downturn than as a direct attempt at fiscal stimulus.
A further school of thought more directly contradicts the "free market" school, i.e. those who advocate the Keynes model that the government should support the economy heavily during downturns and remove that support during upturns, i.e. in modern day parlance "flatten the curve" . Those who say the New Deal failed economically argue that it did attempt to do this and the results show it didn't work. However, it's not true that this idea was attempted in the first place. Roosevelt, like almost all US politicians at that time, was a fiscal conservative and was reluctant to borrow money (or indeed print it).
Keynesian theory would suggest there was a need to borrow very large sums (reflecting the depth of the Great Depression) and use the fiscal stimulus to kick-start a recovery. The amounts borrowed would be repaid once that recovery had occurred. Instead of doing that, Roosevelt continued to aim for a balanced budget (although he didn't actually manage that), with the idea that the funding required for his public works and social support would come from increased taxes. Again, I think his actions in raising taxes are probably best understood in the context of his desires to achieve a more equal balance in society, while balancing the budget, rather than being specifically intended as an economic stimulus. The potential effectiveness of a Keynesian approach can be seen by looking at what happened in WWII. In response to that the government did borrow much larger sums than during the Great Depression and the economy did respond much more strongly (that's not an approach I would recommend to kick-start an economy, though there are plenty of historical examples of it ...).
These days of course there is not the same reluctance to borrow money. There are still plenty of politicians who argue against this in principle, but in practice the US appears to have accepted the idea in recent years of running deficits irrespective of the health of the economy - the last year in which there was a budget surplus was 2001.
I wouldn't say I'm exactly a fiscal conservative, but I think I'm arguably rather more of one than most US politicians .
I have noted a couple of posts recently suggesting that there is no genuine link between the revenue the government raise and the spending it undertakes. I could go on to talk about why I don't think either borrowing or creating money to sustain a budget deficit is sustainable in the long term (unless the amounts involved remain small in comparison with the size of the economy), but this post is already too long, so that's a potential discussion for another day ...
You aren't gonna find many Americans who lived through the Depression who are still around say much of anything negative about Roosevelt OR the New Deal. And one thing I know for sure, the amount of sidewalks I have walked on in my life that have "PWA" or "WPA" etched into the concrete is incalculable. We are still benefiting from the Pubic Works Administration to this day. Social Security is the only thing that keeps a vast percentage of senior citizens from having to work til they drop dead or live out their retirement in poverty.
We're having two different conversations here, and just like the last time - I think we're all going to end up talking past each other.
I dont particularly care if the money in the bank account for a corporation got there because we cut its taxes, or because of a government bailout: That money will be used first and foremost to try to keep shareholders/investors happy, so that they keep investing in the company.
We are getting reports that the bailout money didnt reach small businesses the way it should have to keep them afloat, and was ending up with organizations and companies that were not likely to fail or in any real trouble of laying its workforce off. When that happens, it's just the rich giving the rich more money.
I'm, somewhat fine with bailouts - but when we give an unprecedented amount of money to corporations, I'd be putting an incredibly amount regulatory oversight in place on that offer - doing whatever is possible to ensure that the money is used to keep workers employed and not help pay for a yacht or two.
The economy has not grinded to a complete halt! That is the biggest fallacy! It is hurting but no where near a complete halt. Step back and look at what is actually going on. Many, many people have continued to work. The Dow Jones is still up from where it was in 2017 and only slightly down from 2018. The greatest trick the devil ever pulled was convincing the world he didn’t exist. I promise you it will rebound, will corporations even notice? Not bloody likely! The small businesses will suffer though. The working man will suffer.
Do we need help? Yes! To give it to the people who will do everything in their power to keep it for themselves. Idiocy!
Not even my point though, give a greedy person a chance to improve their lives at the cost of others and they will take it every time. It will happen. And for years prices will go up as wages stay the same and they will use an excuse. The economy, covid19, whatever you could think of. You would keep that cycle? For how long? What is the emergency that would tell you that you are are getting the shaft when after years after said emergency is over and your quality of life has not gone up? Are you the 5-10% if not why are you arguing for them?
People are kind, many of them. Businesses, corporations are not. This is not anything but a humanitarian emergency, the economy absolutely will recover, there are amazing people struggling to make it so. We probably do need to help, but to give it to the people least likely to use that money for the greater good? Whatever, gather your possessions and just hand them to the richest person in your county.
Sorry my boyfriend is dying of cancer and struggling this evening and I need to put him to bed otherwise I would go on and on.
People stealing stuff off of porches, price gouging, name the way one person will take from another, this will be no different. Money like we are talking of here is not given out to the greedy without them taking advantage, believe what you will.
Here, Here!
@_Nightfall_ ( I am very sorry for what you both are going through. I wish you both blessings and courage.)
America would not be America if not for the New Deal. Full stop.
There would not have been the WPA and CCC which undertook massive infrastructure projects. Dams, levees, roads, bridges, parks, airports, hospitals. The TVA was created which made the dams that powered the Manhattan Project's actual nuclear material processing.
Compare that to what JJ mentioned in the first post. Giving every family in America an equal amount of money that was given to the businesses. That would cause inflation, because guess what does exist: supply and demand. Supply would drop because companies are no longer producing goods. The demand will still be there, but, the demand will also be greater because everyone now has a large savings from the government. Prices would increase.
Why do you think supply would drop if people were paid directly to buy stuff? We live in a literal demand economy. Stuff isn't made that isn't wanted (or at least expected to be wanted). That is the entire principle of JIT manufacturing.
Give the people money. People buy stuff with money. Companies make stuff people buy and take the money.
Prices may increase, but frankly, I doubt it. In the long-term, sure. But in the long-term, we're all dead anyways.
I'm curious, what do you think about the stock market having had an average return of 6-7% over the last 50-100 years? No one screams about inflation there.
I don't care much about infrastructure, but the New Deal did a lot for the national parks service and by extension conservation, in some small part, of wild places. This is important to me and you will never hear me say anything bad about the New Deal, or Roosevelt in general.
It's important to note that inflation, even high levels of inflation wouldn't be the worst outcome. What's worse? A multi-year depression with double-digit unemployment or maybe two years of 10% inflation?
Inflation has been this weird boogeyman that hasn't actually reared its head in the US economy for decades. Not since the 1970s at least. It's also worth adding that we tolerate, even seek, a small level of inflation during economically good years. Something like 2-3% inflation per year is season not just as acceptable by mainstream economists, but as a goal. I.E. preferable to 0% inflation. So, worth noting that even some inflation on its own is not bad.
Runaway inflation in other economies, like Venezuela, isn't actually the product of primarily of government stimulus. It's more related to underlying factors in the economy not doing as well as they had previously. In this example, their oil production. The country's overwhelming export isn't worth as much as it used to be and isn't even produced at the levels it used to be. Of course that country's currency is going to plummet in value. The United States is not at risk of its underlying goods and services becoming worthless in this way because they're so diverse, nor of suddenly losing their abilities to produce them.
I am sorry but I don’t think it is comparable to the New Deal. What they have done so far, and what I have seen of their plans have little to do with parks or infrastructure or anything from that time. I am not sure why that came into the equation. To be honest comparing the Trump administration with Roosevelt feels very, very wrong.
70% of the economy and jobs come from small businesses, if you can find no one else to give the money why not give it to them? With oversight of course.
To big to fail? The economy coming to a halt? Jargon, nothing more. It was no different when the Dems and Pelosi went after Kavenaugh. Why aren’t people looking at both sides and holding them accountable? They have been giving our money to big businesses when things go bad with no accountability to those businesses for why it went wrong in the first place. Both sides! Are we arguing about the policies or the politics? I understand that covid19 is not about politics but it has been made so and for the life of me I don’t understand why. This is our people dying on our shores.
The president is a bad man. If someone can’t see that I have absolutely no respect for them. Not to do with my general overall politics, I am a conservative. Things are wrong and from what I see the system is broken. To me the problem will never again be which side I am on until the system is fixed. I don’t want to argue about it, everyone is so much more intelligent than me, I don’t really feel I have anything to add for the most part. I can see when things don’t add up though and any more money for any corporations or big businesses that are not addressing the real concern of this economy, the 70%, the small businesses, is another 2008 bailout. Reward those that failed and let the 90% pay the bill.
There is a chance here to do the right thing, to help heal our country after this devastating virus. Why am I so sure that doing the right thing will only be a small part of the decision making process? Probably because no one understands why, “Ask not what your country can do for you, but what you can do for your country.” isn’t hokey, isn’t just a joke. Because we have no compass, we have agendas, and our leaders are not looking out for our well-being but the furthering of those agendas.
@_Nightfall_ ( I am very sorry for what you both are going through. I wish you both blessings and courage.)
Thank you! I felt so bad for putting that in there that I removed it, then I read your post. Sorry. I don’t know, you just get so caught up in what has to be done that sometimes you forget that your world is not the world. Thank you.
It's important to note that inflation, even high levels of inflation wouldn't be the worst outcome. What's worse? A multi-year depression with double-digit unemployment or maybe two years of 10% inflation?
Inflation has been this weird boogeyman that hasn't actually reared its head in the US economy for decades. Not since the 1970s at least. It's also worth adding that we tolerate, even seek, a small level of inflation during economically good years. Something like 2-3% inflation per year is season not just as acceptable by mainstream economists, but as a goal. I.E. preferable to 0% inflation. So, worth noting that even some inflation on its own is not bad.
Runaway inflation in other economies, like Venezuela, isn't actually the product of primarily of government stimulus. It's more related to underlying factors in the economy not doing as well as they had previously. In this example, their oil production. The country's overwhelming export isn't worth as much as it used to be and isn't even produced at the levels it used to be. Of course that country's currency is going to plummet in value. The United States is not at risk of its underlying goods and services becoming worthless in this way because they're so diverse, nor of suddenly losing their abilities to produce them.
That's one possible route, but I would argue that inflation is more to do with perceived worth than the economic fundamentals (though of course those inter-relate). You can see that in the first textbook case of hyper-inflation - in the German Weimar Republic. Germany as a country should have been in a good position at the end of WWI - unlike their French and Belgian competitors their infrastructure was almost untouched and demand for their industrial goods was strong.
However, Germany had effectively gambled on winning the war by aiming to fund it entirely by borrowing and printing money, without imposing any tax increases (the plan was to force other countries to repay the debt through reparations). The cost of that debt repayment when they lost the war was already a source of concern, exacerbated by their continued printing of new money to make some repayments. The value of the mark had already halved during the war and, due to international concern about the value of the German currency, the mark had dropped by a further 85% by the end of 1919. The same concerns about whether the paper money held real value were being expressed inside Germany as well, resulting in high inflation there whether or not goods were being imported.
Things got far worse though when, rather than forcing others to pay reparations, punitive reparations were forced on them instead in 1921. They unwisely responded by doubling-down on their previous economic strategy by printing money to buy foreign currency to pay the reparations. Unsurprisingly, other countries responded by giving less and less value to the mark and, by the end of 1922 the value of that was about 0.05% of its pre-war value. By that stage Germany was no longer able to buy foreign currency at any price and the allies occupied an area of the Ruhr in order to take payment in the form of goods.
Inside Germany the cost of living increase went from 41 to 685 between June and December 1922, an inflation rate that already made normal commerce almost impossible. However, that was accelerated to true hyper-inflation in 1923 when the German government instituted a program of strikes to support a policy of passive resistance to the new occupation. In order to persuade the workers to strike they agreed to pay them and, you guessed it, they did so by once more doubling down and printing money to do this. It was presumably less obvious to them at the time, but the inevitable result was to further affect people's perception of the value of money and quickly render it entirely worthless - a loaf of bread, that by pre-war standards was already insanely expensive at 160 marks at the end of 1922, was notionally costing 200,000,000,000 marks by late 1923. In practice, of course, money ceased having any real meaning or use well before then, with ordinary people reverting to a barter economy.
The situation at WWI was a bit different to today in relation to perceptions about money. In origin, money was something of inherent physical value, but over time countries generally replaced that with a system of paper promissory notes - the promise being to convert the note to the object of inherent value on request. If people believed that promise they had no incentive to actually do the conversion because the paper was easier to handle - and that led over time to the money supply exceeding the physical assets that notionally backed it. Up to WWI though all countries retained that notional link - in international trading that was done through the agreed gold standard mechanism. Germany abandoned the gold standard at the start of the war, as part of it's plan to print excess money.
I think the relatively slow rate of German inflation during and immediately after the war partly reflects that at least some people still believed that there was a firm link between paper money and gold just because that's the way it had 'always' been. In more recent times though I don't think very many people at all believe that paper money has any value beyond the expectation that other people will accept it. That means countries are more vulnerable to starting an inflationary spiral by printing money than they once were.
One of the main arguments used for the idea that printing money would not trigger inflation is that the money could be used to pay official debts, particularly taxes. If the state is accepting that the paper is holding its face value, the idea goes that this means everyone else would do so as well. However, it seems to me this flies in the face of both logic and experience. For most people government debts are a small part of their transactions and there's no reason why those should determine their wider view of the value of money. Printing money (and by that I mean creating electronic money as well as physical paper) on a large scale creates a very real risk of affecting perceptions of value, even if official rates are held. The result of that would be to create a 2-tier system of money in a country (as actually happened in all the eastern European communist states, as well as China). For limited purposes, the local currency was accepted at face value by the state, but for other transactions it was either only accepted at a far lower rate, or alternative currencies were demanded which were perceived as having real value (the dollar being a prime example of those).
Inflation primarily exists as a bogey man invoked to prevent any financial reform that would improve the lives of the bottom 50% of the population. "Living wages for everyone? INFLATION." Of course real world economics doesn't bear it out, but it'll never not be brought up.
Clarification: Inflation in the context of increasing wages or even giving people a living wage is a spectre invoked to falsely claim that a living wage is bad for the economy. Of course, starving people who can't afford homes is also bad for the economy, but for some reason the economy is always treated as more important than human beings. Obviously, inflation is a real thing that really happens. It just doesn't really happen to any significant degree if you raise the minimum wage. If it does, it's often because business owners raise prices out of spite, as happened recently in Washington state.
If people have more money to spend there will be more demand for more products, especially as people who have been able to simply cover their needs are now able to. It's widely understood by people who understand economics that people who already don't have much money will largely spend any money they do get because in large part, they either can't afford not to (needs as mentioned), or they can finally get some of the nice things they wanted but couldn't afford. Economic activity is the underpinnings of economic health, not economic stagnation as all wealth flows upward into the top 1% and never comes back down for any reason. This is why Reaganomics is a failure at what it was claimed to do, but profoundly successful at simply making wealthy people wealthier.
Wealthy people don't need to be wealthier. No human being in the history of the world needs as much money as Bill Gates, Elon Musk, or Jeff Bezos to name three. No human being in the history of the world has ever actually earned that money. They get it by taking the lion's share of the wealth produced by their workers, often while also denying them sufficient health care, a living wage, enough vacation time, and paid sick leave.
OK, I wanted to keep what I was saying about the New Deal brief: but yes, the New Deal was good for America. There was a lot of innovation and "we have to try something" thinking involved with it. It did not however bring the economy out of recession - WW2 did that, and that is what I meant by it being a failure or being a success as that is what its main purpose was.
Everything about inflation was directly related to JJ's scenario of giving all the money that the corporations got to every family instead. Any talk beyond that is just twisting my words to fit another narrative that I probably agree with.
The economy has not grinded to a complete halt! That is the biggest fallacy! It is hurting but no where near a complete halt. Step back and look at what is actually going on. Many, many people have continued to work. The Dow Jones is still up from where it was in 2017 and only slightly down from 2018. The greatest trick the devil ever pulled was convincing the world he didn’t exist. I promise you it will rebound, will corporations even notice? Not bloody likely! The small businesses will suffer though. The working man will suffer.
Do we need help? Yes! To give it to the people who will do everything in their power to keep it for themselves. Idiocy!
Not even my point though, give a greedy person a chance to improve their lives at the cost of others and they will take it every time. It will happen. And for years prices will go up as wages stay the same and they will use an excuse. The economy, covid19, whatever you could think of. You would keep that cycle? For how long? What is the emergency that would tell you that you are are getting the shaft when after years after said emergency is over and your quality of life has not gone up? Are you the 5-10% if not why are you arguing for them?
People are kind, many of them. Businesses, corporations are not. This is not anything but a humanitarian emergency, the economy absolutely will recover, there are amazing people struggling to make it so. We probably do need to help, but to give it to the people least likely to use that money for the greater good? Whatever, gather your possessions and just hand them to the richest person in your county.
People stealing stuff off of porches, price gouging, name the way one person will take from another, this will be no different. Money like we are talking of here is not given out to the greedy without them taking advantage, believe what you will.
So my perspective on all this:
Sorry, but my quality of life has improved over the last decade, working for same company that was first private, then public and now recently back to private. I started off at minimum wage, and am now (or was - min wage rose significantly here) dollars above it with benefits. My company's economic health is more important to me than my own health because it employs over 400, 000 people. If it falters, those 400, 000 people also falter. We're also not unionized.
All 400, 000 of those people besides small skeleton crews of managers are laid off. We, as a company, are suppose to be in our busiest time of year at the moment and it is going to hurt our bottom line come the end of it. For the first month of this (March) my company paid full time employees their full salary and paid part timers for 14 hours a week. This probably couldn't have been done without government assistance, but it does show that the company used the money it received in a humane way, stretching it as far as it could stretch.
That is an example of a company that took "bail out money" and applied it properly. I already gave links regarding the automotive sector in the past about how they are handling COVID and they are not putting investors first, they are putting their employees and the employees of their competitors first as they attempt to make work places safer to get supply chains back up and running again. If you missed it, it's here.
The automotive industry will face a lot of challenges Anderson said.
The first is ensuring the safety of the plants. Lear Corporation has produced a safe work playbook and is sharing it with the entire industry.
"Everybody in the industry - they're not looking at this in a competitive sense. They're taking all the technical work they're doing and making it available to anybody, even their competitors," Anderson said.
One of the biggest challenges will be restarting the supply chains.
"In terms of Canada-U.S. supply chains, they've been running since the 1960s without ever stopping. This is the first time they've ever stopped dead," said Anderson. "The question is how do you get it back started?"
Restarting a supply chain in which some parts cross the border seven or eight times before a vehicle is assembled is a "monumental coordination problem," he said.
In addition to political differences that mean some governments want to reopen their economies earlier than others, there are also practical considerations. Many smaller suppliers are experiencing financial difficulties, he said.
Cash flow has been a problem, he said. Normally, supply chains are always running, so there's a continuous flow of goods and invoices. But because the supply chains have stopped, "you have nothing to work with in terms of cash flow," he said.
Big companies like OEMs (Original Equipment Manufacturers) often have supply chain finance capabilities to help small suppliers, he said.
"It's in the interest of OEMs and Tier 1s (suppliers) to make sure smaller firms farther back along the supply chain don't run into severe cash flow problems," he said.
If a supplier goes bankrupt, the OEM doesn't have the parts it needs and has to find and recertify another supplier, he said.
Or how about Bauer? The company usually makes hockey visors, but with all sports put on hold, they shifted their production to make face shields for first responders. They started taking orders but couldn't keep up with demand so they did what every greedy company would do in their situation: they released the CSA-approved engineering specs for free on their website so anyone can make them... wait... that doesn't sound greedy at all.
I still have yet to hear of a company that took COVID bailout money and didn't spend it wisely but it's an argument everyone is making with ZERO proof. But I also said, with zero oversight with the bailout money, corruption is bound to happen. But just as you can't label all people as greedy, you can't label all companies that as well.
It's important to note that inflation, even high levels of inflation wouldn't be the worst outcome. What's worse? A multi-year depression with double-digit unemployment or maybe two years of 10% inflation?
Inflation has been this weird boogeyman that hasn't actually reared its head in the US economy for decades. Not since the 1970s at least. It's also worth adding that we tolerate, even seek, a small level of inflation during economically good years. Something like 2-3% inflation per year is season not just as acceptable by mainstream economists, but as a goal. I.E. preferable to 0% inflation. So, worth noting that even some inflation on its own is not bad.
Runaway inflation in other economies, like Venezuela, isn't actually the product of primarily of government stimulus. It's more related to underlying factors in the economy not doing as well as they had previously. In this example, their oil production. The country's overwhelming export isn't worth as much as it used to be and isn't even produced at the levels it used to be. Of course that country's currency is going to plummet in value. The United States is not at risk of its underlying goods and services becoming worthless in this way because they're so diverse, nor of suddenly losing their abilities to produce them.
That's one possible route, but I would argue that inflation is more to do with perceived worth than the economic fundamentals (though of course those inter-relate). You can see that in the first textbook case of hyper-inflation - in the German Weimar Republic. Germany as a country should have been in a good position at the end of WWI - unlike their French and Belgian competitors their infrastructure was almost untouched and demand for their industrial goods was strong.
However, Germany had effectively gambled on winning the war by aiming to fund it entirely by borrowing and printing money, without imposing any tax increases (the plan was to force other countries to repay the debt through reparations). The cost of that debt repayment when they lost the war was already a source of concern, exacerbated by their continued printing of new money to make some repayments. The value of the mark had already halved during the war and, due to international concern about the value of the German currency, the mark had dropped by a further 85% by the end of 1919. The same concerns about whether the paper money held real value were being expressed inside Germany as well, resulting in high inflation there whether or not goods were being imported.
Some minor quibbles: I agree that Germany's infrastructure was in a much stronger place than France or Belgium's. However, Germany did have an intense manpower issue due to war, and was under a blockade that wasnt lifted until after 1919. Furthermore, some of the things that they needed to import (Fertilizer, to help grow crops to stave off the horrible famine in Germany during the war) were also used in munition manufacture, and the Entente powers did not want Germany re-arming after the truce was signed.
Having lost a war as catastrophic as the one they fought, there was no chance that the world would let them economically stabilize for fear of a continuation. Ironically, the hardships that the German populace faced during this period were a significant factor in the beginning of WWII.
The difference to WWII was massive, not the least because of the Marshall plan - which repaired the utterly destroyed infrastructure of Germany in its post war state, but ensure that the country was elevated back up to a reasonable place economically. This was probably only possible because the surrender was unconditional - and the Allied powers stationed troops to ensure Germany wouldnt be capable of fighting another war.
Interestingly - this option wasnt the only one on the table. I seem to recall reading that Henry Morgenthau proposed a plan that would essentially rip all heavy industry out of Germany and force it into an agrarian society to ensure that it would never again threaten the world with war..
OK, I wanted to keep what I was saying about the New Deal brief
My fault I think. I did realize it was tangential, but it provided me with some interesting reading in the wee small hours and I couldn't resist responding .
Edit: just a quick point more relevant to the bailout discussion. I think the people particularly concerned about the way bailout money may be used are speaking specifically about the US. I've no reason to think that the same level of concerns would apply to the Canadian economy (or the UK for that matter), though as you note there will undoubtedly be some level of misuse and corruption everywhere.
It's important to note that inflation, even high levels of inflation wouldn't be the worst outcome. What's worse? A multi-year depression with double-digit unemployment or maybe two years of 10% inflation?
Inflation has been this weird boogeyman that hasn't actually reared its head in the US economy for decades. Not since the 1970s at least. It's also worth adding that we tolerate, even seek, a small level of inflation during economically good years. Something like 2-3% inflation per year is season not just as acceptable by mainstream economists, but as a goal. I.E. preferable to 0% inflation. So, worth noting that even some inflation on its own is not bad.
Runaway inflation in other economies, like Venezuela, isn't actually the product of primarily of government stimulus. It's more related to underlying factors in the economy not doing as well as they had previously. In this example, their oil production. The country's overwhelming export isn't worth as much as it used to be and isn't even produced at the levels it used to be. Of course that country's currency is going to plummet in value. The United States is not at risk of its underlying goods and services becoming worthless in this way because they're so diverse, nor of suddenly losing their abilities to produce them.
That's one possible route, but I would argue that inflation is more to do with perceived worth than the economic fundamentals (though of course those inter-relate). You can see that in the first textbook case of hyper-inflation - in the German Weimar Republic. Germany as a country should have been in a good position at the end of WWI - unlike their French and Belgian competitors their infrastructure was almost untouched and demand for their industrial goods was strong.
However, Germany had effectively gambled on winning the war by aiming to fund it entirely by borrowing and printing money, without imposing any tax increases (the plan was to force other countries to repay the debt through reparations). The cost of that debt repayment when they lost the war was already a source of concern, exacerbated by their continued printing of new money to make some repayments. The value of the mark had already halved during the war and, due to international concern about the value of the German currency, the mark had dropped by a further 85% by the end of 1919. The same concerns about whether the paper money held real value were being expressed inside Germany as well, resulting in high inflation there whether or not goods were being imported.
Some minor quibbles: I agree that Germany's infrastructure was in a much stronger place than France or Belgium's. However, Germany did have an intense manpower issue due to war, and was under a blockade that wasnt lifted until after 1919. Furthermore, some of the things that they needed to import (Fertilizer, to help grow crops to stave off the horrible famine in Germany during the war) were also used in munition manufacture, and the Entente powers did not want Germany re-arming after the truce was signed.
Having lost a war as catastrophic as the one they fought, there was no chance that the world would let them economically stabilize for fear of a continuation. Ironically, the hardships that the German populace faced during this period were a significant factor in the beginning of WWII.
The difference to WWII was massive, not the least because of the Marshall plan - which repaired the utterly destroyed infrastructure of Germany in its post war state, but ensure that the country was elevated back up to a reasonable place economically. This was probably only possible because the surrender was unconditional - and the Allied powers stationed troops to ensure Germany wouldnt be capable of fighting another war.
Interestingly - this option wasnt the only one on the table. I seem to recall reading that Henry Morgenthau proposed a plan that would essentially rip all heavy industry out of Germany and force it into an agrarian society to ensure that it would never again threaten the world with war..
I agree it's a good contrast. You're right I over-simplified by saying Germany was in a good position after WWI, but it certainly was in a far better relative position than after WWII. The difference was that after WWI a policy choice was deliberately taken to penalize Germany. The consequences of that were very influential in the decision after WWII to try a different approach - and, yes, that was still certainly not guaranteed, but pushed through by a relatively small group of people with a particular viewpoint.
Inflation primarily exists as a bogey man invoked to prevent any financial reform that would improve the lives of the bottom 50% of the population. "Living wages for everyone? INFLATION." Of course real world economics doesn't bear it out, but it'll never not be brought up.
If people have more money to spend there will be more demand for more products, especially as people who have been able to simply cover their needs are now able to. It's widely understood by people who understand economics that people who already don't have much money will largely spend any money they do get because in large part, they either can't afford not to (needs as mentioned), or they can finally get some of the nice things they wanted but couldn't afford. Economic activity is the underpinnings of economic health, not economic stagnation as all wealth flows upward into the top 1% and never comes back down for any reason. This is why Reaganomics is a failure at what it was claimed to do, but profoundly successful at simply making wealthy people wealthier.
Wealthy people don't need to be wealthier. No human being in the history of the world needs as much money as Bill Gates, Elon Musk, or Jeff Bezos to name three. No human being in the history of the world has ever actually earned that money. They get it by taking the lion's share of the wealth produced by their workers, often while also denying them sufficient health care, a living wage, enough vacation time, and paid sick leave.
I quite agree that the sort of level of inequality of wealth seen currently in the US is far too great and is actively harmful to most people (without being of any benefit to the economy). However, inflation is not some almost mythical beast last seen a century ago. Venezuela is a current example where inflation has made a modern economy impossible to operate, but there's no shortage of others in my lifetime - see this article.
In a robust and flexible economy, with spare capacity of resources (not just workers, but land, raw materials, skills etc), I agree that providing additional money from whatever source (even printing it) is likely to stimulate production to meet the extra demand you've created.
Even there though, while a single instance of that would be fine, continuing to do so will be dangerous. Once traders, both internally and externally, start to expect an injection of resources, the rational thing for them to do is to increase prices as well as production. That would not happen in a classical perfect market, where everyone has unlimited free information and no constraints on production or movement of goods or resources. However, that's not a real world scenario - where constraints exist, there are always the opportunities to increase prices a bit to take advantage of whatever competitive edge you have.
I'm sure everyone on the Forum has experienced examples where prices have reacted to an imbalance of supply and demand - even when that imbalance has been known to be temporary. There are significant parts of the economy that are now geared directly to reacting in that way in order to increase profitability (think of air fares for example). Once you allow people to build in to their projections a future increase in the availability of money, you're bound to see some increase in prices - if that is significant it runs the risk of turning into an inflationary spiral.
I'm not saying that small amounts relative to the size of an economy will create much pressure on prices (for instance the $1,200 handouts in the US would be too small to have a significant effect, even if they were additional funds, rather than replacing a small element of what's been lost). However, there is a genuine danger of creating inflation if you do something sufficiently significant to affect the perceived value of money. Once a spiral is well under way it's essentially impossible to pull it back with the existing financial symbol. Countries in that situation have tried replacing one symbol with another (issuing a different currency), but that's usually ineffective on its own. With confidence in your own government low, you're likely to need some sort of outside symbol to help stabilize things (for instance actually using another country's currency - or tying the value of your new currency to another one).
Hyperinflation is typically thought of as where money becomes valueless with rates of thousands of percent. However, as an accountant I'll quote the guidance issued by the International Accounting Standards Board on what factors indicate there is hyperinflation:
[*] The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power
[*] The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency;
[*] Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short;
[*] Interest rates, wages, and prices are linked to a price index; and
[*] The cumulative inflation rate over three years approaches, or exceeds, 100%.
I think that's quite helpful because it gives a feel for just how great the impact on an economy may be even with annual rates as low as 25%. I remember in the 1970s and early 1980s when the UK had double digit inflation (approaching 25% in one year) and it made decision making and planning for the future a real pain. I'm well aware that there are lots of other things in life that are much worse, but inflation should be considered as a genuine risk and not dismissed as simply an excuse to execute some desired economic policy.
One of the main arguments used for the idea that printing money would not trigger inflation is that the money could be used to pay official debts, particularly taxes.
Again, I really think folks need to disabuse themselves of the notion that central banks "printing money" or "injecting money" is the same thing as government spending. It's not. The government doesn't "print money" when it goes into debt. And it doesn't use "printed money" from its central bank to pay off its debt. I'll repeat that I'm not the person to best educate everyone here on this, but people keep repeating the same fundamental confusion.
Governments sell bonds when they borrow money due to deficit spending. Things like the Federal Reserve and other countries' central banks are instead attempts to create a greater supply of lending in the private economy. They do this by buying securities (i.e. other people's debts) from private lenders. Banks and other lending institutions are more hesitant to give out loans during tough economic times. An oversimplified explanation is that if some of the debts they hold are off-loaded and turned into capital, they are more free to lend out money.
I know it's weird and easy to confuse because central banks use quantitative easing (another term essentially for modern-day "printing money) in order to help during recessions while governments also deficit spend at the same time. But they're entirely different things.
Also important to note that all banks within a country have a relationship to the central bank, in the US's case the Federal Reserve, and so it seems like the Fed has an awesome power, because there's no limit to the amount they can "print". But they are legally incapable of doing things like giving people stimulus checks or pumping money into some federal spending.
I quite agree that the sort of level of inequality of wealth seen currently in the US is far too great and is actively harmful to most people (without being of any benefit to the economy). However, inflation is not some almost mythical beast last seen a century ago. Venezuela is a current example where inflation has made a modern economy impossible to operate, but there's no shortage of others in my lifetime - see this article.
I'm going to stop you right there because you misunderstood what I meant, which is that invoking inflation as a reason to keep wages low for most of the population is the bogey man. I see that my phrasing was unclear, but in a previous post I acknowledged that inflation is real and that it has causes. Those causes are not a thriving economy in which everyone has purchasing power.
One of the main arguments used for the idea that printing money would not trigger inflation is that the money could be used to pay official debts, particularly taxes.
Again, I really think folks need to disabuse themselves of the notion that central banks "printing money" or "injecting money" is the same thing as government spending. It's not. The government doesn't "print money" when it goes into debt. And it doesn't use "printed money" from its central bank to pay off its debt. I'll repeat that I'm not the person to best educate everyone here on this, but people keep repeating the same fundamental confusion.
Governments sell bonds when they borrow money due to deficit spending. Things like the Federal Reserve and other countries' central banks are instead attempts to create a greater supply of lending in the private economy. They do this by buying securities (i.e. other people's debts) from private lenders. Banks and other lending institutions are more hesitant to give out loans during tough economic times. An oversimplified explanation is that if some of the debts they hold are off-loaded and turned into capital, they are more free to lend out money.
I know it's weird and easy to confuse because central banks use quantitative easing (another term essentially for modern-day "printing money) in order to help during recessions while governments also deficit spend at the same time. But they're entirely different things.
Also important to note that all banks within a country have a relationship to the central bank, in the US's case the Federal Reserve, and so it seems like the Fed has an awesome power, because there's no limit to the amount they can "print". But they are legally incapable of doing things like giving people stimulus checks or pumping money into some federal spending.
I not sure that recent posters are confused in the way you suggest. In my case I deliberately referred in my earlier post to both borrowing and printing money as financing methods to try and make clear that they are different things. Borrowing money is essentially the way in which the US has financed deficits in recent years (the UK has done similar things, though not as consistently) and there's no problem in principle with doing that. If done to excess it can certainly lead to economic problems, but those are going to be well signalled - for instance by the fact that investors start demanding a higher rate of return if they perceive that economic risks are increasing.
Printing money can potentially be a helpful solution to an economic shock if done as a one-off or short term aid to government spending. However, once people understand this is being done on a continuing basis they are bound to decide that this indicates their existing money will reduce in value over time - and the rational thing to do therefore is to get rid of that money (for goods or other currencies) even if they have to pay an increased price to do so. That takes you straight into an inflationary spiral and, once that starts, it's very difficult to stop. You may find this article about Venezuela helpful, as that goes into a bit more detail about how printing money just made existing economic problems vastly worse, rather than offering a solution.
I agree that actions taken by central banks such as quantitative easing are a digital equivalent of printing money. However, the fact this is not being done to fund government services makes it much less likely to set off an inflationary spiral (because the process is not directly undermining confidence in the government and the money only finds its way into the economy indirectly, such as through increased capacities to make loans). There is still likely to be some inflationary effect though - in fact there is designed to be. The Bank of England notes the impact on prices as one of the reasons for the policy. They have a target to keep the inflation rate low and stable and, if the rate falls too low they will take action, including quantitative easing, to stimulate the economy to keep inflation at the relevant target (which has been 2% for a while now).
Although the Fed may not be legally able to decide itself to give new money direct to citizens, it would be perfectly possible for the US government to send checks out without increasing borrowing to balance the budget. It's that possibility that I've seen raised a couple of times recently in the guise of comments saying there is no necessary link between taxation and spending. That statement is true in a narrow sense, but as I've tried to explain in previous posts any government that tried to use printing money as a regular and significant means of financing spending would be doomed to repeat the errors of the Weimar Republic, Venezuela, Yugoslavia, Zimbabwe, Poland, Brazil and many others. The idea of printing money is so tempting that it keeps popping up every now and then, but no country has ever got away with doing it to a significant extent for more than a very temporary period (though if anyone thinks I'm wrong about that I'd enjoy the chance to research any potential successes you think are out there ).
I not sure that recent posters are confused in the way you suggest. ...
Printing money can potentially be a helpful solution to an economic shock if done as a one-off or short term aid to government spending. ...
Although the Fed may not be legally able to decide itself to give new money direct to citizens, it would be perfectly possible for the US government to send checks out without increasing borrowing to balance the budget. That statement is true in a narrow sense, but as I've tried to explain in previous posts any government that tried to use printing money as a regular and significant means of financing spending would be doomed to repeat the errors of the Weimar Republic, Venezuela, Yugoslavia, Zimbabwe, Poland, Brazil and many others.
Yes, you are. You've just made the same error here, imo. It's *not* possible for the US to write checks to its citizens via the Federal Reserve quantitative easing tools.
Again, "printing money" doesn't aid government spending. It is used in the same times as deficit spending, or high social welfare spending, but it's orthogonal to it. So I understand the confusion. Again, "printing money" has nothing to do with increasing government spending. It's about putting more money *in the private lending sector*. There's probably some minor exceptions to this, with some publicly managed lenders existing, but putting those aside, it's not the same thing. And yes, too much quantitative easing can cause inflation, I've never doubted that. But, as you say, there's really no evidence we're close to that, and it's not something that happens all of a sudden. It would be gradual, well-advertised.
Your linked article on Venezuela was indeed good, but it's important to note that it say nothing about the details of "printing money" it merely mentions it. I can't confirm this for sure, I'm almost certain their central bank runs the same way, and was not printing money for the government to then spend, but rather was buying up securities owned by lenders in the private market, thus creating capital for them to be able to lend more. It obviously backfired, but as I said above, the underlying issue is really the limiting reagent here, the collapse of their overwhelming export product.
One final note to add is that despite the name of the action, "printing money" no new money is actually being created. As I said above, and as the links I've shared show, the Federal Reserve is buying securities, a class of investment product that banks hold. The capital in the economy here is still technically balanced. The Federal Reserve is merely allowing a bank to offload a security, for example perhaps people's mortgages, in exchange for cash. That helps the bank's books be more open to handing out new debts like other mortgages. But the Fed now owns that security.
I not sure that recent posters are confused in the way you suggest. ...
Printing money can potentially be a helpful solution to an economic shock if done as a one-off or short term aid to government spending. ...
Although the Fed may not be legally able to decide itself to give new money direct to citizens, it would be perfectly possible for the US government to send checks out without increasing borrowing to balance the budget. That statement is true in a narrow sense, but as I've tried to explain in previous posts any government that tried to use printing money as a regular and significant means of financing spending would be doomed to repeat the errors of the Weimar Republic, Venezuela, Yugoslavia, Zimbabwe, Poland, Brazil and many others.
Yes, you are. You've just made the same error here, imo. It's *not* possible for the US to write checks to its citizens via the Federal Reserve quantitative easing tools.
Again, "printing money" doesn't aid government spending. It is used in the same times as deficit spending, or high social welfare spending, but it's orthogonal to it. So I understand the confusion. Again, "printing money" has nothing to do with increasing government spending. It's about putting more money *in the private lending sector*. There's probably some minor exceptions to this, with some publicly managed lenders existing, but putting those aside, it's not the same thing. And yes, too much quantitative easing can cause inflation, I've never doubted that. But, as you say, there's really no evidence we're close to that, and it's not something that happens all of a sudden. It would be gradual, well-advertised.
Your linked article on Venezuela was indeed good, but it's important to note that it say nothing about the details of "printing money" it merely mentions it. I can't confirm this for sure, I'm almost certain their central bank runs the same way, and was not printing money for the government to then spend, but rather was buying up securities owned by lenders in the private market, thus creating capital for them to be able to lend more. It obviously backfired, but as I said above, the underlying issue is really the limiting reagent here, the collapse of their overwhelming export product.
I may be in the minority here, but I'm enjoying learning a bit more about how the monetary system works. However, I have one question that perhaps one, or both of you can clarify. When one is talking about 'printing' more money, it no longer means creating more physical coins or paper does it? It more likely means adding more 1's and 0's into some algorithm or ledger unless I'm mistaken?
First on the docket, after a mass shooting in N.B. the Federal Liberal bans 1500 types of assault rifles. It is now illegal to sell, use or transport these weapons. The cute part about this is that the "ban will be enacted through regulations approved by an order-in-council from cabinet — not through legislation."
That means, the only party that would have fought this type of popular legislation, the Conservatives can claim that the Liberals acted inappropriately using the cover of a pandemic to pass a knee jerk order that leaves both sides on the gun debate unhappy as even though there is a two year grace period to allow a buy back program for these gun owners, there may also be a grandfather clause allowing them to keep them. The National Posts, Matt Gurney has a good opinion piece of it here
The crackdown on legal firearms ownership, which was announced by Prime Minister Justin Trudeau on May 1, is another shining moment in the long history of dysfunctional Canadian gun control proposals. It will accomplish nothing in particular, but will come at considerable public expense. It will not improve public safety, nor will it will please either side of this contentious debate.
What it will do is give both Liberals and Conservatives an opportunity to fundraise off the issue — one could be forgiven for wondering if that’s literally the only point to any of this. So, again: a textbook example of Canadian gun control politics.
The government announced that it is “banning“ 1,500 different kinds of “assault weapons.” That sounds impressive. It’s not — not a ban, and not impressive. It’s really 11 types of rifles, each with many, many different versions produced by different manufacturers — that’s where the 1,500 figure comes from. None of the weapons are a true military-type rifle, capable of fully automatic fire or equipped with high-capacity magazines, which have been banned in Canada for decades. The list is really a grab bag of fairly mundane semi-automatic rifles. It’s hardly an exhaustive list — many other comparable rifles were unaffected by the announcement. The only real thing that binds these rifles together is a link to prominent mass shootings (and even that isn’t the case for all of them).
In short, the Liberals have “banned” some guns, ignored a bunch of other comparable ones and called it a day. This is going to outrage the gun owners and the shooting industry, infuriate the anti-gun activists and do little else.
My opinion is that it's 'something,' and that it is a step in the right direction. That doesn't mean a government in the future can't take another step and ban the other comparable guns that were not on this list. I also don't mind the way they pushed this through as, even though they have a minority government, they would have gotten enough votes from the NDP to make it a reality. Or maybe not, maybe the NDP would have pushed for more guns to be part of the legislation and refused to sign it if it didn't making it a futile exercise of pandering to the same voters.
The second one is that Ontario is allowing reopening a tiny fraction of businesses starting May 4. These businesses are "seasonal businesses and some essential construction projects." Read seasonal businesses as landscapers and garden centres and they all must follow strict, allegedly monitored, "public health measures and operate safely." So kinda good. It is a nice, very small step to getting things back to normal and for someone who was passed off as a Trump Clone when he was elected, Ford has been handling this crisis remarkably IMO.
Comments
How can you "improve wages" when everyone who is working for you is laid off?
I'll be the first to say that how the stock market operates is completely stupid and backwards thinking when it comes to the working person. Companies should be banned from taking out loans to acquire other companies. It benefits the banks and shareholders, but doesn't benefit either the consumer or worker as when companies merge under these situations, usually have to start laying off staff and closing places of businesses is where the money to pay off the loan comes from.
The tax cut is apples to oranges comparison though. Companies didn't need the tax cut. The economy was humming along just fine prior to it, but they also weren't going to turn down free money. Workers weren't revolting in the street demanding they get paid more either, so they took the money and used it the most efficient way they could to turn a profit. That's how capitalism works (now).
But with no production happening, companies no longer have the cash flow to purchase even the raw ingredients to make products they were making prior and with out that. I posted a couple pages back two articles on how the auto sector is handling COVID and how the entire field is working together to not only get their production up and running, but doing it as safely as possible for their workers, because they know, just like a lot of other industries, that if the workers get sick and they have to shut down again, there is no coming back from it.
Companies aren't the government. They aren't stupid. Any company that isn't using this relief money properly, won't survive the year. Stock buybacks aren't happening There is actual investment to make workplaces safer and if you are concerned about an industry that might not be doing this, then feel free and do some research and point them out.
And just to be clear here as well. I am the same way when it comes to the amount doled out and who is doing the doling. The lack of oversight is completely troubling to me, but speaking in general and vague terms: companies do need this stimulus as much the average person. They need the equity to rehire the staff when this is all over and before whatever the staff produces turns a profit. Now are the right companies getting the right amount of money for this to happen. I strongly doubt it and only time will tell.
This is called trickle down economics and it is utterly nonsensical. Distributing money to people would generate far more economic activity at all levels of society than giving it to corporations to reinvest in themselves. More to invest doesn't translate into more employees or higher wages, but into more dividends for stockholders. And when the corporation wants to pay the employees more? Stockholders have a hissy fit.
By this logic, SNAP would be causing inflation. Instead, it generates more economic activity than its strict monetary worth. Unfortunately, the reality is food prices inflate far faster than SNAP benefits increase, meaning people who need that benefit gain less and less from it.
Here's an article about what causes inflation, and it isn't the population having more money.
Everything you've said about how our economy works is incorrect. Reaganomics is only about making the wealthy even wealthier while everyone else's income and net worth stagnates or even declines. It's of course the party line for Republicans and especially libertarians but these people have billionaires pumping tons of money into fake think tanks like the Mises Institute to sell utter garbage to convince people that being poor is actually beneficial, that going without enough food is better for the economy, and that everyone not having good health care is a necessary price for the US healthcare system to function. Not one of them tells the truth about anything in terms of economics.
Again, I'm pretty ignorant on the Fed, but we had this confusion previously on this thread when it came to the government borrowing money and going into debt versus the fed "injecting money" into the economy. The federal reserve isn't just giving money to banks or other lending companies. It is buying things like government securities that in turn puts more money into the lending economy -- i.e. it makes it easier for lenders to give out money. It's a very complicated issue, but it's important to note, again, that the organization simply does not have the power to just give out money.
I encourage folks to read stuff like this very short news story on their recent action, especially the first few paragraphs really closely: https://www.reuters.com/article/us-health-coronavirus-fed-balancesheet/fed-balance-sheet-increases-to-record-6-42-trillion-idUSKBN21Y3JD
Or this story from about a decade ago trying to explain the institution more generally: https://www.cnbc.com/id/43752521 or just you know wikipedia.
I think there's plenty to criticize the government for, but blaming the Fed for regular families not getting the aid they need right now is misplaced. Again, that is on the House, Senate and Presidency and no one else.
The reality is that the decision to offer bailouts to corporations comes from exactly the same place as the decision to not provide aid to actual people who need it.
The federal reserve giving lenders the ability to lend more isn't a "bailout" though. It's not the same as, for example, direct payments via the federal government, which the US is also doing. I mean, the fact that you just said this, I think, demonstrates that people are *not* aware of how it works.
This isn't to say the federal reserve is exempt from criticism, but "cash injections" are not even the same as the TARP bailouts passed by congress in 2008 or the current congress-passed company bailouts.
No it isn't. Not in this case of emergency. Yes, it is trickle down when it's a tax cut, but this wasn't a tax cut.
Once again, apples and oranges.
How would Supplemental Nutrition Assistance Program cause inflation. I am flabbergasted at that notion. Especially when A) Not everyone gets it
Compare that to what JJ mentioned in the first post. Giving every family in America an equal amount of money that was given to the businesses. That would cause inflation, because guess what does exist: supply and demand. Supply would drop because companies are no longer producing goods. The demand will still be there, but, the demand will also be greater because everyone now has a large savings from the government. Prices would increase.
And if you think that inflation is only represented by the base cost of an item, I'd ask you to find me an ad from the last 2 months that has toilet paper on sale. Companies don't need to put it on sale because idiots bought out all the stock and there is a greater demand for it now than three month ago. That is still inflation (especially if you know how sales and sales laws work - there is stuff you never should buy full price unless you are desperate and TP is definitely one of those items).
Actually, it is correct. Your opinion though, so stick with it if you want. What I am saying, in this situation, where the economy has grinded to a complete halt, it isn't trickle down, it isn't Reaganomics, it's closer to The New Deal without all the "government knows best" stuff that kept it from actually succeeding.
Do we need help? Yes! To give it to the people who will do everything in their power to keep it for themselves. Idiocy!
Not even my point though, give a greedy person a chance to improve their lives at the cost of others and they will take it every time. It will happen. And for years prices will go up as wages stay the same and they will use an excuse. The economy, covid19, whatever you could think of. You would keep that cycle? For how long? What is the emergency that would tell you that you are are getting the shaft when after years after said emergency is over and your quality of life has not gone up? Are you the 5-10% if not why are you arguing for them?
People are kind, many of them. Businesses, corporations are not. This is not anything but a humanitarian emergency, the economy absolutely will recover, there are amazing people struggling to make it so. We probably do need to help, but to give it to the people least likely to use that money for the greater good? Whatever, gather your possessions and just hand them to the richest person in your county.
People stealing stuff off of porches, price gouging, name the way one person will take from another, this will be no different. Money like we are talking of here is not given out to the greedy without them taking advantage, believe what you will.
There are many schools of thought about the New Deal. One of those suggests that the economy is cyclical and, left to itself, would bounce back strongly. By interfering in market operations, that school believes the New Deal actually prevented the economy from recovering to the extent it otherwise would have.
Deeming it a failure is on the grounds that it didn't succeed as well as it should have. Following the 1929 Wall Street Crash the economy shrank hugely up to 1933 (at the beginning of which Roosevelt took office). It then began a gradual recovery, with improvements in GDP, unemployment and investment. Those statistics still remained in 1939 well below the levels in 1929, but I think assuming that the market would have done better on its own is essentially based on faith in a particular economic model that ignores the impact of cyclical booms and busts on people.
An alternative school of thought argues that the New Deal was a success because it was not primarily aimed at economic recovery, but social justice. Looking at the impact of unfettered capitalism on ordinary people, Roosevelt wanted to offer them better protection. Programs he introduced to do this that had long term effects include:
- the Glass-Steagall Act, which aimed to prevent extreme financial cycles such as shown in the 1929 crash.
- the Home Owners Loan Act to offer government refinancing support for many people who would otherwise lose their homes to existing lenders.
- the Federal Emergency Relief Act, which introduced a system of direct federal support for the first time (previously there had been federal aid for emergencies, but only channeled via states).
- the National Labor Relations Act, which strengthened unions and required employers to allow collective bargaining.
- the Social Security Act, which provided a means of direct social support as well as instituting a system of unemployment insurance.
A better known aspect of the New Deal was the program of public works. This is often criticized on the grounds the work provided was only temporary, but I would suggest this is better understood as another means of offering support to workers during a downturn than as a direct attempt at fiscal stimulus.
A further school of thought more directly contradicts the "free market" school, i.e. those who advocate the Keynes model that the government should support the economy heavily during downturns and remove that support during upturns, i.e. in modern day parlance "flatten the curve"
Keynesian theory would suggest there was a need to borrow very large sums (reflecting the depth of the Great Depression) and use the fiscal stimulus to kick-start a recovery. The amounts borrowed would be repaid once that recovery had occurred. Instead of doing that, Roosevelt continued to aim for a balanced budget (although he didn't actually manage that), with the idea that the funding required for his public works and social support would come from increased taxes. Again, I think his actions in raising taxes are probably best understood in the context of his desires to achieve a more equal balance in society, while balancing the budget, rather than being specifically intended as an economic stimulus. The potential effectiveness of a Keynesian approach can be seen by looking at what happened in WWII. In response to that the government did borrow much larger sums than during the Great Depression and the economy did respond much more strongly (that's not an approach I would recommend to kick-start an economy, though there are plenty of historical examples of it ...).
These days of course there is not the same reluctance to borrow money. There are still plenty of politicians who argue against this in principle, but in practice the US appears to have accepted the idea in recent years of running deficits irrespective of the health of the economy - the last year in which there was a budget surplus was 2001.
I have noted a couple of posts recently suggesting that there is no genuine link between the revenue the government raise and the spending it undertakes. I could go on to talk about why I don't think either borrowing or creating money to sustain a budget deficit is sustainable in the long term (unless the amounts involved remain small in comparison with the size of the economy), but this post is already too long, so that's a potential discussion for another day ...
I dont particularly care if the money in the bank account for a corporation got there because we cut its taxes, or because of a government bailout: That money will be used first and foremost to try to keep shareholders/investors happy, so that they keep investing in the company.
We are getting reports that the bailout money didnt reach small businesses the way it should have to keep them afloat, and was ending up with organizations and companies that were not likely to fail or in any real trouble of laying its workforce off. When that happens, it's just the rich giving the rich more money.
I'm, somewhat fine with bailouts - but when we give an unprecedented amount of money to corporations, I'd be putting an incredibly amount regulatory oversight in place on that offer - doing whatever is possible to ensure that the money is used to keep workers employed and not help pay for a yacht or two.
Here, Here!
@_Nightfall_ ( I am very sorry for what you both are going through. I wish you both blessings and courage.)
There would not have been the WPA and CCC which undertook massive infrastructure projects. Dams, levees, roads, bridges, parks, airports, hospitals. The TVA was created which made the dams that powered the Manhattan Project's actual nuclear material processing.
Why do you think supply would drop if people were paid directly to buy stuff? We live in a literal demand economy. Stuff isn't made that isn't wanted (or at least expected to be wanted). That is the entire principle of JIT manufacturing.
Give the people money. People buy stuff with money. Companies make stuff people buy and take the money.
Prices may increase, but frankly, I doubt it. In the long-term, sure. But in the long-term, we're all dead anyways.
I'm curious, what do you think about the stock market having had an average return of 6-7% over the last 50-100 years? No one screams about inflation there.
Inflation has been this weird boogeyman that hasn't actually reared its head in the US economy for decades. Not since the 1970s at least. It's also worth adding that we tolerate, even seek, a small level of inflation during economically good years. Something like 2-3% inflation per year is season not just as acceptable by mainstream economists, but as a goal. I.E. preferable to 0% inflation. So, worth noting that even some inflation on its own is not bad.
Runaway inflation in other economies, like Venezuela, isn't actually the product of primarily of government stimulus. It's more related to underlying factors in the economy not doing as well as they had previously. In this example, their oil production. The country's overwhelming export isn't worth as much as it used to be and isn't even produced at the levels it used to be. Of course that country's currency is going to plummet in value. The United States is not at risk of its underlying goods and services becoming worthless in this way because they're so diverse, nor of suddenly losing their abilities to produce them.
70% of the economy and jobs come from small businesses, if you can find no one else to give the money why not give it to them? With oversight of course.
To big to fail? The economy coming to a halt? Jargon, nothing more. It was no different when the Dems and Pelosi went after Kavenaugh. Why aren’t people looking at both sides and holding them accountable? They have been giving our money to big businesses when things go bad with no accountability to those businesses for why it went wrong in the first place. Both sides! Are we arguing about the policies or the politics? I understand that covid19 is not about politics but it has been made so and for the life of me I don’t understand why. This is our people dying on our shores.
The president is a bad man. If someone can’t see that I have absolutely no respect for them. Not to do with my general overall politics, I am a conservative. Things are wrong and from what I see the system is broken. To me the problem will never again be which side I am on until the system is fixed. I don’t want to argue about it, everyone is so much more intelligent than me, I don’t really feel I have anything to add for the most part. I can see when things don’t add up though and any more money for any corporations or big businesses that are not addressing the real concern of this economy, the 70%, the small businesses, is another 2008 bailout. Reward those that failed and let the 90% pay the bill.
There is a chance here to do the right thing, to help heal our country after this devastating virus. Why am I so sure that doing the right thing will only be a small part of the decision making process? Probably because no one understands why, “Ask not what your country can do for you, but what you can do for your country.” isn’t hokey, isn’t just a joke. Because we have no compass, we have agendas, and our leaders are not looking out for our well-being but the furthering of those agendas.
That's one possible route, but I would argue that inflation is more to do with perceived worth than the economic fundamentals (though of course those inter-relate). You can see that in the first textbook case of hyper-inflation - in the German Weimar Republic. Germany as a country should have been in a good position at the end of WWI - unlike their French and Belgian competitors their infrastructure was almost untouched and demand for their industrial goods was strong.
However, Germany had effectively gambled on winning the war by aiming to fund it entirely by borrowing and printing money, without imposing any tax increases (the plan was to force other countries to repay the debt through reparations). The cost of that debt repayment when they lost the war was already a source of concern, exacerbated by their continued printing of new money to make some repayments. The value of the mark had already halved during the war and, due to international concern about the value of the German currency, the mark had dropped by a further 85% by the end of 1919. The same concerns about whether the paper money held real value were being expressed inside Germany as well, resulting in high inflation there whether or not goods were being imported.
Things got far worse though when, rather than forcing others to pay reparations, punitive reparations were forced on them instead in 1921. They unwisely responded by doubling-down on their previous economic strategy by printing money to buy foreign currency to pay the reparations. Unsurprisingly, other countries responded by giving less and less value to the mark and, by the end of 1922 the value of that was about 0.05% of its pre-war value. By that stage Germany was no longer able to buy foreign currency at any price and the allies occupied an area of the Ruhr in order to take payment in the form of goods.
Inside Germany the cost of living increase went from 41 to 685 between June and December 1922, an inflation rate that already made normal commerce almost impossible. However, that was accelerated to true hyper-inflation in 1923 when the German government instituted a program of strikes to support a policy of passive resistance to the new occupation. In order to persuade the workers to strike they agreed to pay them and, you guessed it, they did so by once more doubling down and printing money to do this. It was presumably less obvious to them at the time, but the inevitable result was to further affect people's perception of the value of money and quickly render it entirely worthless - a loaf of bread, that by pre-war standards was already insanely expensive at 160 marks at the end of 1922, was notionally costing 200,000,000,000 marks by late 1923. In practice, of course, money ceased having any real meaning or use well before then, with ordinary people reverting to a barter economy.
The situation at WWI was a bit different to today in relation to perceptions about money. In origin, money was something of inherent physical value, but over time countries generally replaced that with a system of paper promissory notes - the promise being to convert the note to the object of inherent value on request. If people believed that promise they had no incentive to actually do the conversion because the paper was easier to handle - and that led over time to the money supply exceeding the physical assets that notionally backed it. Up to WWI though all countries retained that notional link - in international trading that was done through the agreed gold standard mechanism. Germany abandoned the gold standard at the start of the war, as part of it's plan to print excess money.
I think the relatively slow rate of German inflation during and immediately after the war partly reflects that at least some people still believed that there was a firm link between paper money and gold just because that's the way it had 'always' been. In more recent times though I don't think very many people at all believe that paper money has any value beyond the expectation that other people will accept it. That means countries are more vulnerable to starting an inflationary spiral by printing money than they once were.
One of the main arguments used for the idea that printing money would not trigger inflation is that the money could be used to pay official debts, particularly taxes. If the state is accepting that the paper is holding its face value, the idea goes that this means everyone else would do so as well. However, it seems to me this flies in the face of both logic and experience. For most people government debts are a small part of their transactions and there's no reason why those should determine their wider view of the value of money. Printing money (and by that I mean creating electronic money as well as physical paper) on a large scale creates a very real risk of affecting perceptions of value, even if official rates are held. The result of that would be to create a 2-tier system of money in a country (as actually happened in all the eastern European communist states, as well as China). For limited purposes, the local currency was accepted at face value by the state, but for other transactions it was either only accepted at a far lower rate, or alternative currencies were demanded which were perceived as having real value (the dollar being a prime example of those).
Clarification: Inflation in the context of increasing wages or even giving people a living wage is a spectre invoked to falsely claim that a living wage is bad for the economy. Of course, starving people who can't afford homes is also bad for the economy, but for some reason the economy is always treated as more important than human beings. Obviously, inflation is a real thing that really happens. It just doesn't really happen to any significant degree if you raise the minimum wage. If it does, it's often because business owners raise prices out of spite, as happened recently in Washington state.
If people have more money to spend there will be more demand for more products, especially as people who have been able to simply cover their needs are now able to. It's widely understood by people who understand economics that people who already don't have much money will largely spend any money they do get because in large part, they either can't afford not to (needs as mentioned), or they can finally get some of the nice things they wanted but couldn't afford. Economic activity is the underpinnings of economic health, not economic stagnation as all wealth flows upward into the top 1% and never comes back down for any reason. This is why Reaganomics is a failure at what it was claimed to do, but profoundly successful at simply making wealthy people wealthier.
Wealthy people don't need to be wealthier. No human being in the history of the world needs as much money as Bill Gates, Elon Musk, or Jeff Bezos to name three. No human being in the history of the world has ever actually earned that money. They get it by taking the lion's share of the wealth produced by their workers, often while also denying them sufficient health care, a living wage, enough vacation time, and paid sick leave.
Everything about inflation was directly related to JJ's scenario of giving all the money that the corporations got to every family instead. Any talk beyond that is just twisting my words to fit another narrative that I probably agree with.
So my perspective on all this:
Sorry, but my quality of life has improved over the last decade, working for same company that was first private, then public and now recently back to private. I started off at minimum wage, and am now (or was - min wage rose significantly here) dollars above it with benefits. My company's economic health is more important to me than my own health because it employs over 400, 000 people. If it falters, those 400, 000 people also falter. We're also not unionized.
All 400, 000 of those people besides small skeleton crews of managers are laid off. We, as a company, are suppose to be in our busiest time of year at the moment and it is going to hurt our bottom line come the end of it. For the first month of this (March) my company paid full time employees their full salary and paid part timers for 14 hours a week. This probably couldn't have been done without government assistance, but it does show that the company used the money it received in a humane way, stretching it as far as it could stretch.
That is an example of a company that took "bail out money" and applied it properly. I already gave links regarding the automotive sector in the past about how they are handling COVID and they are not putting investors first, they are putting their employees and the employees of their competitors first as they attempt to make work places safer to get supply chains back up and running again. If you missed it, it's here.
The first is ensuring the safety of the plants. Lear Corporation has produced a safe work playbook and is sharing it with the entire industry.
"Everybody in the industry - they're not looking at this in a competitive sense. They're taking all the technical work they're doing and making it available to anybody, even their competitors," Anderson said.
One of the biggest challenges will be restarting the supply chains.
"In terms of Canada-U.S. supply chains, they've been running since the 1960s without ever stopping. This is the first time they've ever stopped dead," said Anderson. "The question is how do you get it back started?"
Restarting a supply chain in which some parts cross the border seven or eight times before a vehicle is assembled is a "monumental coordination problem," he said.
In addition to political differences that mean some governments want to reopen their economies earlier than others, there are also practical considerations. Many smaller suppliers are experiencing financial difficulties, he said.
Cash flow has been a problem, he said. Normally, supply chains are always running, so there's a continuous flow of goods and invoices. But because the supply chains have stopped, "you have nothing to work with in terms of cash flow," he said.
Big companies like OEMs (Original Equipment Manufacturers) often have supply chain finance capabilities to help small suppliers, he said.
"It's in the interest of OEMs and Tier 1s (suppliers) to make sure smaller firms farther back along the supply chain don't run into severe cash flow problems," he said.
If a supplier goes bankrupt, the OEM doesn't have the parts it needs and has to find and recertify another supplier, he said.
Or how about Bauer? The company usually makes hockey visors, but with all sports put on hold, they shifted their production to make face shields for first responders. They started taking orders but couldn't keep up with demand so they did what every greedy company would do in their situation: they released the CSA-approved engineering specs for free on their website so anyone can make them... wait... that doesn't sound greedy at all.
I still have yet to hear of a company that took COVID bailout money and didn't spend it wisely but it's an argument everyone is making with ZERO proof. But I also said, with zero oversight with the bailout money, corruption is bound to happen. But just as you can't label all people as greedy, you can't label all companies that as well.
Some minor quibbles: I agree that Germany's infrastructure was in a much stronger place than France or Belgium's. However, Germany did have an intense manpower issue due to war, and was under a blockade that wasnt lifted until after 1919. Furthermore, some of the things that they needed to import (Fertilizer, to help grow crops to stave off the horrible famine in Germany during the war) were also used in munition manufacture, and the Entente powers did not want Germany re-arming after the truce was signed.
Having lost a war as catastrophic as the one they fought, there was no chance that the world would let them economically stabilize for fear of a continuation. Ironically, the hardships that the German populace faced during this period were a significant factor in the beginning of WWII.
The difference to WWII was massive, not the least because of the Marshall plan - which repaired the utterly destroyed infrastructure of Germany in its post war state, but ensure that the country was elevated back up to a reasonable place economically. This was probably only possible because the surrender was unconditional - and the Allied powers stationed troops to ensure Germany wouldnt be capable of fighting another war.
Interestingly - this option wasnt the only one on the table. I seem to recall reading that Henry Morgenthau proposed a plan that would essentially rip all heavy industry out of Germany and force it into an agrarian society to ensure that it would never again threaten the world with war..
My fault I think. I did realize it was tangential, but it provided me with some interesting reading in the wee small hours and I couldn't resist responding
Edit: just a quick point more relevant to the bailout discussion. I think the people particularly concerned about the way bailout money may be used are speaking specifically about the US. I've no reason to think that the same level of concerns would apply to the Canadian economy (or the UK for that matter), though as you note there will undoubtedly be some level of misuse and corruption everywhere.
I agree it's a good contrast. You're right I over-simplified by saying Germany was in a good position after WWI, but it certainly was in a far better relative position than after WWII. The difference was that after WWI a policy choice was deliberately taken to penalize Germany. The consequences of that were very influential in the decision after WWII to try a different approach - and, yes, that was still certainly not guaranteed, but pushed through by a relatively small group of people with a particular viewpoint.
I quite agree that the sort of level of inequality of wealth seen currently in the US is far too great and is actively harmful to most people (without being of any benefit to the economy). However, inflation is not some almost mythical beast last seen a century ago. Venezuela is a current example where inflation has made a modern economy impossible to operate, but there's no shortage of others in my lifetime - see this article.
In a robust and flexible economy, with spare capacity of resources (not just workers, but land, raw materials, skills etc), I agree that providing additional money from whatever source (even printing it) is likely to stimulate production to meet the extra demand you've created.
Even there though, while a single instance of that would be fine, continuing to do so will be dangerous. Once traders, both internally and externally, start to expect an injection of resources, the rational thing for them to do is to increase prices as well as production. That would not happen in a classical perfect market, where everyone has unlimited free information and no constraints on production or movement of goods or resources. However, that's not a real world scenario - where constraints exist, there are always the opportunities to increase prices a bit to take advantage of whatever competitive edge you have.
I'm sure everyone on the Forum has experienced examples where prices have reacted to an imbalance of supply and demand - even when that imbalance has been known to be temporary. There are significant parts of the economy that are now geared directly to reacting in that way in order to increase profitability (think of air fares for example). Once you allow people to build in to their projections a future increase in the availability of money, you're bound to see some increase in prices - if that is significant it runs the risk of turning into an inflationary spiral.
I'm not saying that small amounts relative to the size of an economy will create much pressure on prices (for instance the $1,200 handouts in the US would be too small to have a significant effect, even if they were additional funds, rather than replacing a small element of what's been lost). However, there is a genuine danger of creating inflation if you do something sufficiently significant to affect the perceived value of money. Once a spiral is well under way it's essentially impossible to pull it back with the existing financial symbol. Countries in that situation have tried replacing one symbol with another (issuing a different currency), but that's usually ineffective on its own. With confidence in your own government low, you're likely to need some sort of outside symbol to help stabilize things (for instance actually using another country's currency - or tying the value of your new currency to another one).
Hyperinflation is typically thought of as where money becomes valueless with rates of thousands of percent. However, as an accountant I'll quote the guidance issued by the International Accounting Standards Board on what factors indicate there is hyperinflation:
[*] The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power
[*] The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency;
[*] Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short;
[*] Interest rates, wages, and prices are linked to a price index; and
[*] The cumulative inflation rate over three years approaches, or exceeds, 100%.
I think that's quite helpful because it gives a feel for just how great the impact on an economy may be even with annual rates as low as 25%. I remember in the 1970s and early 1980s when the UK had double digit inflation (approaching 25% in one year) and it made decision making and planning for the future a real pain. I'm well aware that there are lots of other things in life that are much worse, but inflation should be considered as a genuine risk and not dismissed as simply an excuse to execute some desired economic policy.
Again, I really think folks need to disabuse themselves of the notion that central banks "printing money" or "injecting money" is the same thing as government spending. It's not. The government doesn't "print money" when it goes into debt. And it doesn't use "printed money" from its central bank to pay off its debt. I'll repeat that I'm not the person to best educate everyone here on this, but people keep repeating the same fundamental confusion.
Governments sell bonds when they borrow money due to deficit spending. Things like the Federal Reserve and other countries' central banks are instead attempts to create a greater supply of lending in the private economy. They do this by buying securities (i.e. other people's debts) from private lenders. Banks and other lending institutions are more hesitant to give out loans during tough economic times. An oversimplified explanation is that if some of the debts they hold are off-loaded and turned into capital, they are more free to lend out money.
I know it's weird and easy to confuse because central banks use quantitative easing (another term essentially for modern-day "printing money) in order to help during recessions while governments also deficit spend at the same time. But they're entirely different things.
Also important to note that all banks within a country have a relationship to the central bank, in the US's case the Federal Reserve, and so it seems like the Fed has an awesome power, because there's no limit to the amount they can "print". But they are legally incapable of doing things like giving people stimulus checks or pumping money into some federal spending.
Some links: https://slate.com/news-and-politics/2008/11/what-it-means-for-the-fed-to-start-printing-money.html
https://en.wikipedia.org/wiki/Quantitative_easing
I'm going to stop you right there because you misunderstood what I meant, which is that invoking inflation as a reason to keep wages low for most of the population is the bogey man. I see that my phrasing was unclear, but in a previous post I acknowledged that inflation is real and that it has causes. Those causes are not a thriving economy in which everyone has purchasing power.
I edited the post to clarify my intention.
I not sure that recent posters are confused in the way you suggest. In my case I deliberately referred in my earlier post to both borrowing and printing money as financing methods to try and make clear that they are different things. Borrowing money is essentially the way in which the US has financed deficits in recent years (the UK has done similar things, though not as consistently) and there's no problem in principle with doing that. If done to excess it can certainly lead to economic problems, but those are going to be well signalled - for instance by the fact that investors start demanding a higher rate of return if they perceive that economic risks are increasing.
Printing money can potentially be a helpful solution to an economic shock if done as a one-off or short term aid to government spending. However, once people understand this is being done on a continuing basis they are bound to decide that this indicates their existing money will reduce in value over time - and the rational thing to do therefore is to get rid of that money (for goods or other currencies) even if they have to pay an increased price to do so. That takes you straight into an inflationary spiral and, once that starts, it's very difficult to stop. You may find this article about Venezuela helpful, as that goes into a bit more detail about how printing money just made existing economic problems vastly worse, rather than offering a solution.
I agree that actions taken by central banks such as quantitative easing are a digital equivalent of printing money. However, the fact this is not being done to fund government services makes it much less likely to set off an inflationary spiral (because the process is not directly undermining confidence in the government and the money only finds its way into the economy indirectly, such as through increased capacities to make loans). There is still likely to be some inflationary effect though - in fact there is designed to be. The Bank of England notes the impact on prices as one of the reasons for the policy. They have a target to keep the inflation rate low and stable and, if the rate falls too low they will take action, including quantitative easing, to stimulate the economy to keep inflation at the relevant target (which has been 2% for a while now).
Although the Fed may not be legally able to decide itself to give new money direct to citizens, it would be perfectly possible for the US government to send checks out without increasing borrowing to balance the budget. It's that possibility that I've seen raised a couple of times recently in the guise of comments saying there is no necessary link between taxation and spending. That statement is true in a narrow sense, but as I've tried to explain in previous posts any government that tried to use printing money as a regular and significant means of financing spending would be doomed to repeat the errors of the Weimar Republic, Venezuela, Yugoslavia, Zimbabwe, Poland, Brazil and many others. The idea of printing money is so tempting that it keeps popping up every now and then, but no country has ever got away with doing it to a significant extent for more than a very temporary period (though if anyone thinks I'm wrong about that I'd enjoy the chance to research any potential successes you think are out there
Yes, you are. You've just made the same error here, imo. It's *not* possible for the US to write checks to its citizens via the Federal Reserve quantitative easing tools.
Again, "printing money" doesn't aid government spending. It is used in the same times as deficit spending, or high social welfare spending, but it's orthogonal to it. So I understand the confusion. Again, "printing money" has nothing to do with increasing government spending. It's about putting more money *in the private lending sector*. There's probably some minor exceptions to this, with some publicly managed lenders existing, but putting those aside, it's not the same thing. And yes, too much quantitative easing can cause inflation, I've never doubted that. But, as you say, there's really no evidence we're close to that, and it's not something that happens all of a sudden. It would be gradual, well-advertised.
Your linked article on Venezuela was indeed good, but it's important to note that it say nothing about the details of "printing money" it merely mentions it. I can't confirm this for sure, I'm almost certain their central bank runs the same way, and was not printing money for the government to then spend, but rather was buying up securities owned by lenders in the private market, thus creating capital for them to be able to lend more. It obviously backfired, but as I said above, the underlying issue is really the limiting reagent here, the collapse of their overwhelming export product.
I may be in the minority here, but I'm enjoying learning a bit more about how the monetary system works. However, I have one question that perhaps one, or both of you can clarify. When one is talking about 'printing' more money, it no longer means creating more physical coins or paper does it? It more likely means adding more 1's and 0's into some algorithm or ledger unless I'm mistaken?
First on the docket, after a mass shooting in N.B. the Federal Liberal bans 1500 types of assault rifles. It is now illegal to sell, use or transport these weapons. The cute part about this is that the "ban will be enacted through regulations approved by an order-in-council from cabinet — not through legislation."
That means, the only party that would have fought this type of popular legislation, the Conservatives can claim that the Liberals acted inappropriately using the cover of a pandemic to pass a knee jerk order that leaves both sides on the gun debate unhappy as even though there is a two year grace period to allow a buy back program for these gun owners, there may also be a grandfather clause allowing them to keep them. The National Posts, Matt Gurney has a good opinion piece of it here
What it will do is give both Liberals and Conservatives an opportunity to fundraise off the issue — one could be forgiven for wondering if that’s literally the only point to any of this. So, again: a textbook example of Canadian gun control politics.
The government announced that it is “banning“ 1,500 different kinds of “assault weapons.” That sounds impressive. It’s not — not a ban, and not impressive. It’s really 11 types of rifles, each with many, many different versions produced by different manufacturers — that’s where the 1,500 figure comes from. None of the weapons are a true military-type rifle, capable of fully automatic fire or equipped with high-capacity magazines, which have been banned in Canada for decades. The list is really a grab bag of fairly mundane semi-automatic rifles. It’s hardly an exhaustive list — many other comparable rifles were unaffected by the announcement. The only real thing that binds these rifles together is a link to prominent mass shootings (and even that isn’t the case for all of them).
In short, the Liberals have “banned” some guns, ignored a bunch of other comparable ones and called it a day. This is going to outrage the gun owners and the shooting industry, infuriate the anti-gun activists and do little else.
My opinion is that it's 'something,' and that it is a step in the right direction. That doesn't mean a government in the future can't take another step and ban the other comparable guns that were not on this list. I also don't mind the way they pushed this through as, even though they have a minority government, they would have gotten enough votes from the NDP to make it a reality. Or maybe not, maybe the NDP would have pushed for more guns to be part of the legislation and refused to sign it if it didn't making it a futile exercise of pandering to the same voters.
The second one is that Ontario is allowing reopening a tiny fraction of businesses starting May 4. These businesses are "seasonal businesses and some essential construction projects." Read seasonal businesses as landscapers and garden centres and they all must follow strict, allegedly monitored, "public health measures and operate safely." So kinda good. It is a nice, very small step to getting things back to normal and for someone who was passed off as a Trump Clone when he was elected, Ford has been handling this crisis remarkably IMO.