Covid-19 Relief Bill and Modern Monetary Theory

1. 81

   GA Andersonposted 3 years ago

   I am worried about the latest Covid-19 relief bill. I understand that it is being called the American Rescue bill or something like that, but the worry is the same.
   
   $1.9 Trillion! Where are we going to get that money? Does anyone stop to ask that question?
   
   I have heard that there is still $60 billion for school reopening that is unspent, but the bill contains $100 billion more for that goal, does that sound right to you? Or, am I a victim of fake news and that fact isn't true?
   
   Of course, since our dollar is based on a fiat declaration of our government we can 'borrow', (via treasury bonds), all the money we need, but . . . . is this good government policy?
   
   And of course, there is the argument that with all the 'pork barrel' amendments this isn't really a covid relief bill at all.
   
   How does a Pelosi/Schumer bridge to Canada fit the covid relief profile?
   
   GA

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   1. 86

      Sharlee01posted 3 years agoin reply to this

      I also posted a thread on this subject that lists the good, the bad, and the really ugly pork attached to the new Stimulus Bill.  Have a look. I know my threads are a bit long, but no links to weed through on this one.
      
      https://hubpages.com/politics/forum/351 … e-me-cut--

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      1. 81

         GA Andersonposted 3 years agoin reply to this

         Okay
         
         GA

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      2. 71

         Ken Burgessposted 3 years agoin reply to this

         I read your linkd post.
         
         I would say the aspect of the "pet projects" they have chosen to fund is what Congress has been about for decades now, that is not what should be causing alarm.
         
         What should be of concern is that they are "giving away" money to people who are making money and giving additional money (above and beyond) to those collecting unemployment (making it so many people make a better income by not working).
         
         In addition, in the past pandemic stimulus packages they gave trillions to financial institutions (and more than a few doomed businesses) and they in turn used that money to buy stocks, bonds, and other assets... making them all the richer at the expense of the Nation.
         
         There are very real signs that our economy is on life support in addition to the skyrocketing National Debt:
         
         The number of people qualifying for "food stamps" is at a record level, and has been multiplying for years (minus a couple years during Trump).
         
         Health Insurance costs have skyrocketed (often doubling in just a year since the Affordable Care Act was put in effect).
         
         "Money Printing" is at an insane rate, in the past 24 months they have increased by 50% the amount of "dollars" in existence.
         
         And all the things that signal a strong economy are down, not up... Labor Force Participation, Home Ownership, Median Family Income.
         
         When the dam breaks, and it will break soon enough, it is going to be brutal for all those not sitting on the top.

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   2. 86

      tsmogposted 3 years agoin reply to this

      No expert here, yet curious. I looked and looked to understand how funding is done with no luck. But, if I understand right bonds are still debt. The one thing I can say is the deficit for fiscal 2021 is projected to be 2.3 trillion without Biden's bill. So, that means 4.2 trillion when all is done. The budget for 2021 is 4.8 trillion. Doesn't make sense to me, yet I am not as literate about it all. From what I read economist say it will do what it aims to. That included a Trump economist.

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   3. 61

      CHRIS57posted 3 years agoin reply to this

      Of course numbers are staggering. But let me try to do a little explaining:
      
      Just look at an economy in general and the US in particular to be a big box. All someone will see from the outside is what is going out of this box and what is going into the box. That is called: trade and service balance.
      
      If that box has more stuff going out than going in, then eventually the box is empty economically, regardless if there are still people living in the box.
      
      It does not really matter if public spending, public debt is skyrocketting, as  long as this has a positive impact on the trade balance. Actually what is happening is only that public lack of money is traded for private surplus of money.
      
      Now, the US has been running trade deficits for decades. The US have been living beyond their means for a very long time. Almost like a powerful emporer in the middle ages who eventually ran out of money even if he had the privilege to stamp coins as much as he wanted. The US of today spends more than they can afford to maintain their power status.
      
      Just compare to a country like Italy. Italy has a much higher public debt than the US. Low on natural resources Italy also doesn´t have as many assets as the US has. But this supposedly sick Italy runs persistent trade surpluses. Their high public debt is countered by low private debt.
      
      The USA can do whatever they want with their currency. The result will be judged on how it impacts the trade performance.
      
      This crude box example does not reflect on equality and justice in distributing debt and assets inside the box. That however seems to be the major course of discrepancy in the bipartisan system in the US.
      
      It does not matter, be it 0,6 trillion or 1,9 trillion to be spent. If the 0.6 trillion do nothing for said trade performance (competitiveness) and  the 1,9 trillion do a little, then it is cheaper to spend the 1,9 trillion. I hope you get the point.

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      1. 71

         Ken Burgessposted 3 years agoin reply to this

         What gives the dollar its value?
         
         What gives the dollar its corresponding value to other currencies?
         
         What causes a currency to devalue, to near worthlessness, as has occurred in other nations for similar reasons as to what is going on today in America in the last 80 years?
         
         What impact is there to the value of the dollar when 33% of all dollars are brought into existence in one year?
         
         What happens when more and more businesses (and individuals) accept an alternate currency to do their transactions with (IE - Bitcoin which is used and/or invested in by Chase, Tesla, etc.) rather than a 'national' currency?
         
         I believe we are in the earlier stages of a shift in currency from the American Dollar being the primary global standard to a shift to digital currencies not beholden to any nation or central bank.
         
         I also believe to combat the certain to come collapse of the dollar, the government is going to shift to American citizens having a "Digital Wallet" where the government pays them directly a certain income based on whatever they decide to base it on.
         
         The link below touches on how nations like Russia are actually working hard to develop and integrate crypto currencies so that they can bypass the dollar/sanctions.  I believe the majority of nations in the world will follow this example, so that they can be as free as possible from America and/or China dominating with their currency.
         
         https://www.youtube.com/watch?v=u-vrdPtZVXc

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         1. 61

            CHRIS57posted 3 years agoin reply to this

            ....What gives the dollar its corresponding value to other currencies?
            
            What causes a currency to devalue, to near worthlessness, as has occurred in other nations for similar reasons as to what is going on today in America in the last 80 years?....
            
            Imho a sovereign currency is maintaining its value through:
            1. balance between productivity growth and monetary growth
            2. total size of GDP
            3. ratio of total debt (public + private + corporate + financial) over total assets.
            
            If all points are fullfilled, there is high trust in the currency.
            But not all has to be fullfilled. Obviously the growth in money quantity and productivity gains do not match. So no. 1. is violated.
            
            Why does it not matter for the Dollar?
            Look at no. 3.: Typical total assets of an economy range from 600% (poor countries) to 1000% (rich countries) of GDP. If we play this trick on the US economy (rich country), then the 1,9 Trillion in question is roughly 10% of GDP or even less and thus represents the equivalant of 1% of total assets.
            
            If this happens once in a decade, no problem. If this happens year after year then eventually problems will show. Having said this: I don´t see any sign for a "collapse". There has been and will be a gradual decline, but no collapse.
            
            The real issue seems to be the productivity of an economy with sovereign currency (no. 1 on my list). There may be small countries where no.2 does not apply (f.e. Switzerland), but the Swiss are highly competitive, directly reflected in the value of the Swiss Franken. Even the EU and Euroland in particular are more competitive than the US, resulting in a devaluation of the Dollar compared to the Euro.
            
            Crypto currencies are not related to any of the 3 points in my list. Crypto currencies are not related to any real world producing, servicing and trading. Crypto currencies are a modern form of split tally sticks https://en.wikipedia.org/wiki/Tally_stick Crypto currencies are used today very much in a similar manner as centuries ago the split tally sticks.
            
            But just imagine what old indians would have thought if colonial Spaniards or Brits had tried to pay with tally sticks. Tally sticks only hold value, if created and issued under the rules of an economy. Tally sticks and crypto currencies are backed by absolutely nothing except the knowledge that they can´t be faked. Nothing to depend on in the real world and nothing to be afraid of.

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      2. 81

         GA Andersonposted 3 years agoin reply to this

         I do get the point Chris. Your "box" analogy was a good explanation. And your observation about the U.S. historically operating at a deficit is also accurate.
         
         However, unlike what proponents of MMT, (Modern Monetary Theory, aka a fiat currency), the well of dollars is not bottomless, and, I don't think, the trade and service balance can be simply viewed as a ledger factor.
         
         Just as the term's use of "balance" implies, the value of the purpose of each 'in and out of the box' ledger entry must also balance. Such as; spending $1.9 trillion for non-public benefit would affect that trade and services balance differently than the same number for for-public benefit would. In essence, the wisdom of the entry, on either side, is, I think< an equally important factor.
         
         Coincidentally, I recently heard a comment from West Virginia's governor—a conservative Republican, that also reflects your "box" analogy. He spoke to the point that even with the criticizable non-Covid expenditures, the U.S. would better benefit by just biting the bullet and accepting those expenditures as necessary to get the other critical benefits than it would by blocking them. Once more, I think the essence of his thought relates to your trade and services analogy.
         
         GA

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         1. 71

            Ken Burgessposted 3 years agoin reply to this

            I understood the point he was making, but it is limited in its scope and does not take into account what has happened when a dominant nation declines on the global stage.
            
            We have a variety of factors attacking the dollar, in addition to this insane spending (printing) spree that has been going on for a year now...
            
            We have a new currency becoming globally accepted in a variety of forms, the primary being Bitcoin, but Digital Currency is going to become the dominant method of transaction, soon... there are 5 billion people in the world that do not have access to a bank... but those same people can get ahold of a cell phone and download an App that allows them to make transactions with digital currency.
            
            And more importantly... bypass a "national" fiat currency that one day can be worthless.  As was seen occur in Venezuela when a government goes bad, the people suffer, this gives them protection from such abuses to a large degree.
            
            There are many reasons why the Dollars dominance is doomed, but none greater than the rest of the world wanting to be free of it.
            
            https://www.youtube.com/watch?v=iNNUVEfoNmE

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            1. 61

               CHRIS57posted 3 years agoin reply to this

               Ken and GA,
               i find your last video quite explaining, certainly interesting to watch.
               
               The questions was raised why we don´t have inflation if so much money is poured into the economy. Answer is not new if we  read John Maynard Keynes.
               
               He called the phenomenom: liquidity trap https://en.wikipedia.org/wiki/Liquidity_trap
               
               In my laypersons understanding: The money printing institutions never induce money directly into the real world money cycle. The Fed, the European Central Bank always inject money into a liquidity storage (savings from banks, corporations, private households), called liquidity trap.
               
               Theory behind: This liquidity storage has rigid walls, so any volume infusion results in an immediate rise of liquidity pressure inside the storage, thus leading to investment in the real world and pushing positive inflation.
               
               The reality: The liquidity storage (trap) has no rigid walls. It is like a balloon that inflates and only allows minor rise in investment pressure. So whatever the Fed does with its monetary policy, it has very, very limited impact on anything in the real world, not pushing inflation, not controlling inflation. As we all know, if a balloon gets bigger and bigger, the pressure rise per volume added decreases. Guess what is happening to our liquidity trap balloon?
               
               I found a recent Christmas lecture by a retired German economist professor. The video in minute 31.12 holds a diagram that explains the context. Sorry, German only. https://www.ifo.de/en/lecture/2020/chri … n-of-Money
               
               And - yes, Europe faces the same problems as the USA does. Quantitive easing programs are everywhere on our planet, even China has it, but there it could be called quantitive housing program.
               
               The US is used to quantitive easing which injects into the liquidity trap. What is bad about government injecting Covid relief money directly into the real world money cycle? Government will immediately nurse their budgets from funds inside the liquidity trap.

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2. 0

   PrettyPantherposted 3 years ago

   Eh, I can't get too worked up over it, since it's just more of the standard operating procedure that has been in place for over a hundred years. As pork goes, a new bridge isn't too bad, as long as it serves a useful fuction. It will provide some good paying jobs during construction at least.
   
   As for the cost, yeah, it's a lot of money and the vast majority is for relief from the devastating economic effects from COVID. I'll save my outrage over spending for something far less important, like giving the Pentagon more money than they asked for.

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   1. 71

      Ken Burgessposted 3 years agoin reply to this

      Actually, it hasn't been in place "for the last 100 years".
      
      There were substantial restrictions to the ruination of our economy that have been eroded (eradicated) over the course of the last 50 years.
      
      The largest Domino to fall was taking the U.S. Dollar off the Gold Standard, making it a fiat currency with no real value.
      
      The next big step was taken with a variety of things put through in the 90s, from NAFTA to the repeal of Glass Steagall.
      
      What we are witnessing now it the 'Death Knell' the 'Swan Song' the imminent demise of the American dominance of the global economy as we have known it our entire lives.
      
      When the damn breaks, it will be fast, like Venezuela's startling collapse which began in 2014, or Germany in the 1930s, one day you will wake up and a loaf of bread will cost $100, and the next day $1,000, and until they reset with a new currency/system there will be substantial suffering and chaos we will have to work our way through.

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         PrettyPantherposted 3 years agoin reply to this

         My SOP thought was about excessive spending in general and pork in particular.
         
         I am aware of your point about the removal of safeguards over the last fifty years. Not being an economist, I can only hope you are wrong about the rest but cannot argue in support of or against your predictions.

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         1. 71

            Ken Burgessposted 3 years agoin reply to this

            I understand.
            
            But the insane amount of "pandemic" money they have been authorizing into existence had not been going on in past years, this is not at all the 'same old song'. 
            
            This is the 'end game'.
            
            33% of all "dollars" ever in existence were created in 2020.
            
            A loaf of bread that you could buy for $2.99 in 2019 will likely now cost $3.49 or more today.  Until the system goes into complete failure, which is what this massive amount of "printing" fiat money will cause, and then the value of the dollar spirals quickly to worthlessness.
            
            And we have historical examples (as I noted) for how this happens, quickly, with almost no warning... one day you wake up, and your money isn't worth the paper it is printed on... and neither will those digits in the bank accounts.  And then we'll see what they create to replace it.

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3. 95

   wildernessposted 3 years ago

   What little I've seen of it, you're right - this is not a COVID relief bill at all.  It is primarily a Democrat/Pelosi wish list of expenditures, much like the first one Pelosi submitted and backed off of. 
   
   No, it is not sound economic policy to simply borrow to buy whatever you wish to spend.  If you can't afford it, don't spend it.

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4. 76

   Valeantposted 3 years ago

   I have my worries about hyper-inflation, it's one area I agree with Ken.  But c'mon, where have you been for the last four years and the $7.9 trillion in deficits?  It seems a bit disingenuous to raise these concerns when sitting on your hands for the entirety of the Trump term.
   
   And here is Seth Myers talking with Secretary Pete about why aid for his department was included in Covid relief:  https://www.youtube.com/watch?v=oQE6gOVYs1E

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5. 81

   emgeposted 3 years ago

   You have raised interesting points, Ken. You have a point regarding the American economy but who is responsible for this mess? When you spend like a billionaire and earn as a millionaire, you're bound to sink. That's the problem with America and Biden is going to fail.

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