From Crazy to Crazier
Considering how often “helicopter money” has been mentioned in the mainstream financial press of late, it is probably going to be on the agenda fairly soon. The always dependable Martin Wolf at the FT – who has never seen a printing press he didn’t think could solve all our economic problems – has come out forcefully in favor of the idea. See for instance his recent screed “The case for helicopter money”, followed by the promise – or rather, the threat – that “Helicopter drops might not be far away”.
The most vociferous establishment mouthpiece for more statism, more central economic planning, and specifically, more money printing: Financial Times chief economics commentator Martin Wolf – a dangerous money crank.
Screenshot via hallsofkarma.wordpress.com
What is truly funny is that Wolf actually argues that the money supply hasn’t grown enough! He is pointing to an esoteric money supply measure, so-called “divisia money” – apparently he found the one and only “money supply” measure that is coming to this absurd conclusion. However, money can be clearly defined and identified, and the true US money supply has increased by more than 120% since 2008 (this is to say, more money has been printed in the past 7 years than in the entire previous history of the modern fiat dollar). Here is Wolf:
“Measures of broad money have stagnated since the crisis began, despite ultra-low interest rates and rapid growth in the balance sheets of central banks. Data on “divisia money” (a well-known way of aggregating the components of broad money), computed by the Center for Financial Stability in New York, show that broad money (M4) was 17 per cent below its 1967-2008 trend in December 2012. The US has suffered from famine, not surfeit.”
And this is what this alleged stagnation in money supply growth, a.k.a. the “money famine” actually looks like:
Interestingly, Wolf admits in the very same article that “Central banks can indeed drive the prices of bonds, equities, foreign currency and other assets to the moon”, but he apparently seems to think that no money is needed for doing so. Please note: this guy is actually a trained economist.
After rambling on about the failure of the very policies he has sotto voce advocated to date, Wolf naturally comes to the misguided and dangerous conclusion that even more State intervention is needed. By golly, we will be printed to prosperity, by hook or by crook!
“[T]he case for using the state’s power to create credit and money in support of public spending is strong. The quantity of extra central bank money required would surely be smaller than under today’s scattergun quantitative easing. Why not employ monetary financing to recapitalise commercial banks, build infrastructure or cut taxes? The case for letting fiscal deficits facilitate private deleveraging, without undue expansion in overt public debt, is surely also strong.
What makes this policy so powerful is the combination of fiscal spending with monetary expansion: Keynesians can enjoy the former; monetarists the latter.”
The fact that both Keynesians and Keynesians-in-drag “enjoy” this dangerous nonsense is of course precisely why it should be avoided at all costs. As to the question “why not”, we would point A) to sound monetary theory (someone should really send this guy a copy of Mises’ “The Theory of Money and Credit”. It certainly seems he will have to start from scratch if he ever wants to say anything on the topic of money that doesn’t sound like the most moronic idea ever) and B) centuries of experience, beginning with the Roman Emperor Diocletian up to whoever is running Venezuela’s central bank at present.
Famous money cranks throughout history, who managed to completely ruin entire economies by pursuing the policies Mr. Wolf advocates with the required dedication: Roman emperor Diocletian (who continually lowered the silver content of Roman coins, and then tried to counter the effects with price controls), John Law (a Scotsman who managed to plunge the continental European economy into a more than 60 year long on-and-off depression) and German central banker Rudolf Havenstein (a strong believer in G. F. Knapp’s “State Theory of Money”, the bible of Chartalists, or “modern monetary theorists” as they call themselves today).
It was not too long ago when people like Mr. Wolf or Lord Adair Turner (whom Wolf mentions in an appeal to authority – Turner also supports employing the printing press in ever more extreme ways, i.e., he is yet another member of the John Law school of economics) would have been laughed out of the room. Believe it or not, there once was a time when economists actually knew what the difference between money and wealth is and were aware of the dangers of money printing.
However, as the modern-day resurrection of Keynesianism from the grave it was presumed to have disappeared into in the 1970s shows, no economic idea is bad enough not to be warmed up over and over again by statism’s intellectual handmaidens. Mr. Wolf knows most of the bureaucratic and political elite involved in central planning personally, and it is fair to assume that his jeremiads have to be taken as serious warnings of what is actually already in the pipeline.
Chart by St. Louis Federal Reserve Research
It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
3 Responses to “The Helicopter Wolf at the Door”
Most read in the last 20 days:
- Gold Price Skyrockets in India after Currency Ban – Part III
When Money Dies In part-I of the dispatch we talked about what happened during the first two days after Indian Prime Minister, Narendra Modi banned Rs 500 and Rs 1000 banknotes, comprising of 88% of the monetary value of cash in circulation. In part-II, we talked about the scenes, chaos, desperation, and massive loss of productive capacity that this ban had led to over the next few days. Indian prime minister Narendra Modi – another finger-wagger, as can be seen in this...
- Gold Price Skyrockets in India after Currency Ban – Part II
Chaos in the Wake of the Ban Here is a link to Part 1, about what happened in the first two days after India's government made Rs 500 (~$7.50) and Rs 1,000 (~$15) banknotes illegal. They can now only be converted to Rs 100 (~$1.50) or lower denomination notes, at bank branches or post offices. Banks were closed the first day after the decision. What follows is the crux of what has happened over the subsequent four days. India's prime minister Nahendra Modi, author of the...
- Gold Price Skyrockets in India after Currency Ban – Part IV
A Market Gripped by Fear The Indian Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes would no longer be legal tender. Linked are Part-I, Part-II and Part-III updates on the rapidly encroaching police state. The economic and social mess that Modi has created is unprecedented. It will go down in history as an epitome of naivety and arrogance due to Modi’s self-centered desire to increase tax-collection at any cost. Indian jewelry...
- A Note on Gold and India – What is Driving the Gold Price?
Hidden Motives It is well-known that India's government wants to coerce its population into “modernizing” its financial behavior and abandoning its traditions. The recent ban on large-denomination banknotes was not only meant to fight corruption. Obviously, this very bad Indian has way too much cash. Just look at him, he looks suspicious! Photo via thenewsminute.com In fact, as our friend Jayant Bhandari has pointed out, fresh avenues for corruption ...
- Will Trump Do What Reagan Couldn’t?
Depravity and Degeneration BALTIMORE – Finally, it’s over. We were both delighted and appalled by the news. A smile spread over our face... and our steps lightened... as we looked ahead to four years without Hillary Clinton’s know-it-all mug in the news. Praise be! This mug will be largely missing from the airwaves and the intertubes in coming years. And your caption scribbler PT won't have to look for a fall-out shelter! We thank the Lord and the American public for...
- India's Currency Debacle – An Interview with Jayant Bhandari
A Major Crisis Last week Jayant Bhandari related the story of the overnight ban of certain banknotes in India under cover of “stamping out corruption” (see Gold Price Skyrockets In India after Currency Ban Part 1 and Part 2 for the details). Banned 500 rupee banknotes The problem is inter alia that the sudden ban of these banknotes has hit the Indian economy quite hard, given that 97% of all transactions in the country are cash-based. Not only that, it has...
- Inflation Expectations Rise Sharply
Mini-Panic Over Inflation After Trump's Election Victory We have witnessed truly astonishing short term market conniptions following the Donald Trump's election victory. In this post we want to focus on one aspect that seems to be exercising people quite a bit at present, namely the recent surge in inflation expectations reflected in the markets. Will we have to get those WIN buttons out again? A 1970s “whip inflation now” button. The only thing that was actually needed...
- There Are Two Types of Credit — One of Them Leads to Booms and Busts
Stumped by the Bust In the slump of a cycle, businesses that were thriving begin to experience difficulties or go under. They do so not because of firm-specific entrepreneurial errors but rather in tandem with whole sectors of the economy. People who were wealthy yesterday have become poor today. Factories that were busy yesterday are shut down today, and workers are out of jobs. What has caused the bust? The modern-day economic orthodoxy continues to be unable to provide...
- Will the Swamp Swallow Trump?
Permanently Skewed TRUMP HOTEL, New York – Trump’s rambling army – professionals, amateurs, camp followers, and profiteers – is marching south, down the I-95 corridor. There, on the banks of the Potomac, it will fight its next big battle. Lieutenants in Trump's army: Bannon, Flynn & Sessions Photo credit: Drew Angerer / AFP Here at the Diary, we do not like to get involved in politics. But this is a special time in the history of our planet – a...
- Gold Bull Market Remains Intact – Long Term Fundamentals Outweigh Short Term Market Gyrations
A Strong First Half of the Year, Followed by Another Retreat In early 2016 gold had a big bull run. The precious metal rose close to 25% this year, pushed higher in a summer rally that peaked on July 10th. Gold experienced a bumpy ride over the remainder of the summer though, as investors became increasingly concerned about a potential rate hike by the Federal Reserve. Uncertainty returned to gold market and has intensified further since then. Initially, gold rallied sharply...
- Too Early for “Inflation Bets”?
The Trump Trade After 35 years of waiting... so many false signals... so often deceived... so often disappointed... bond bears gathered on rooftops as though awaiting the Second Coming. Many times, investors have said to themselves, “This is it! This is the end of the Great Bull Market in Bonds!” The long bond's long cycle – red rectangles indicate when the post 1980 bull market was held to be “over” or “over for sure” or “100% over”, etc. We have...
- All Aboard! Trump’s Express Train to the Future
Free Money! BALTIMORE – Last week, the Dow punched up above 19,000 – a new all-time record. And on Monday, the Dow, the S&P 500, the Nasdaq, and the small-cap Russell 2000 each hit new all-time highs. The last time that happened was on the last day of December 1999. Ironically, two events that were almost universally expected to trigger large stock market declines were followed by quite rapid and strong gains. Would the market have fallen if Hillary Clinton had won...