Last Chance To Avoid Recession

Inflation is now effectively beaten.  Not only has it cooled significantly, but now the specter of deflation has recently been raised, and has already been seen in the prices of durable goods falling a bit recently.  Oil is also down as well, which has of course led to a recent drop in gasoline prices.  And this is in spite of the ongoing conflict in the Middle East, which otherwise would have raised oil prices, ceteris paribus, due to the resulting geopolitical instability and uncertainty. 

Deflation may sound like a good thing, especially after such a high inflationary episode, but if it persists, it can turn into a downward economic spiral that is far worse than inflation (think the Great Depression, or Japan's three decades of rolling deflation from the early 1990s until very recently).  It also amplifies the sting of debt, and with debt of all kinds at such stratospheric levels today, America needs that like a hole in the head.  Once such a spiral begins and sets in, it is very, very difficult to extricate from.  Not even QE can seem to end it (though giving such "helicopter money" directly to We the People might work). And deflation is, at best, very difficult to control.

So the FERAL Reserve really needs to cut interest significantly, and pause QT, yesterday, before they create a problem that is practically impossible to dislodge. And if that doesn't work, prepare to not only restart QE, but also implement "QE for the people" as well. say you weren't warned.

In other words, this is the LAST CHANCE to avoid recession or worse.  And there is always a lag of at least two quarters, so if they wait until the recession begins before they begin cutting rates, it would be too late, and would be like "pushing on a string".

That said, looks like the Fed decided to stop hiking interest rates, and signaled at least three interest rate cuts in 2024.  So now is the best time to put your money in a CD account to lock in the current rates.  But who knows when they will cut rates?

Hey FERAL Reserve, Cut Interest Rates NOW!

Inflation is now effectively beaten.  Not only has it cooled significantly, but now the specter of deflation has recently been raised, and has already been seen in the prices of durable goods falling a bit recently.  Oil is also down as well, which has of course led to a recent drop in gasoline prices.  And this is in spite of the ongoing conflict in the Middle East, which otherwise would have raised oil prices, ceteris paribus, due to the resulting geopolitical instability and uncertainty. 

Deflation may sound like a good thing, especially after such a high inflationary episode, but if it persists, it can turn into a downward economic spiral that is far worse than inflation (think the Great Depression, or Japan's three decades of rolling deflation from the early 1990s until very recently).  It also amplifies the sting of debt, and with debt of all kinds at such stratospheric levels today, America needs that like a hole in the head.  Once such a spiral begins and sets in, it is very, very difficult to extricate from.  Not even QE can seem to end it (though giving such "helicopter money" directly to We the People might work). And deflation is, at best, very difficult to control.

So the FERAL Reserve really needs to cut interest significantly, and pause QT, yesterday, before they create a problem that is practically impossible to dislodge.  And if that doesn't work, prepare to not only restart QE, but also implement "QE for the people" as well. say you weren't warned.

UPDATE:  Looks like the Fed decided to stop hiking interest rates, and signaled three interest rate cuts next year in 2024.  So now is the best time to put your money in a CD account to lock in the current rates.

Too Late To Avoid A Recession, But Let's NOT Make It Worse!

It looks like it is too late to avoid a recession at this point, as some degree of one is already baked into the cake at this point.  Not only are there several big headwinds right now (rising oil prices, rising insurance rates, record-high credit card debt, student loans coming due, Congressional dysfunction, and the prospect of a government shutdown), but the FERAL Reserve has obstinately kept interest rates high at a Fed Funds Rate of 5.25%.  While it may not seem high by historical standards, combined with their Quantitative  Tightening and record-high levels of debt throughout the economy, it can easily feel like the double-digit interest rates of the late 1970s and early 1980s.  Aside from oil (thanks to Russia and OPEC) and a few other things, which interest rate hikes are utterly useless and even counterproductive against, the recent inflation has already been largely defeated, and may soon turn to deflation.  Which sounds great in theory, but in practice is anything but.

While it is most likely too late to avoid a recession at this point, the very least the Fed could do is cut interest rates yesterday and end Quantitative Tightening to avoid an even worse recession or depression.  Don't say you haven't been warned.

UPDATE: As of September 30, the government shutdown was averted, but the issue was really just delayed by 45 days via a stopgap funding bill.  Additionally, as of early October, crude oil prices began falling but diesel fuel remains stubbornly high for a number of reasons such as a refinery crunch.

Dear FERAL Reserve: Cut Interest Rates NOW!

With inflation falling to around 3% per the latest report, which is within the normal range for a growing economy, we can safely conclude that the war on inflation has been won.  The dragon may not have been slain, but it has largely gone back to sleep for the foreseeable future.  Supply chains seem to have long since fully recovered for the most part, while most of the inflation since then has been wanton "greedflation" by mega-corporations consolidating and rigging the game (and thus interest rates are the wrong tool for the job).  And potential recession and even deflation clouds seem to be gathering on the horizon as we speak.  Even if there is no recession, keeping interest rates too high for too long can paradoxically increase inflation in the long run, or one could get the two for one special, as Canada unfortunately learned the hard way in the 1980s.  The "therapeutic window" for hiking interest rates to fight inflation is therefore closed.

Oh, and we have another housing bubble ready to burst at any time, apparently. 

So the FERAL Reserve really needs to stand down, stop raising rates, pause Quantitative  Tightening, and start cutting rates yesterday by at least 1% immediately, and eventually to below the inflation rate.  Or at least no later than their next meeting. Mr. Powell seems to be really begging for a recession (or worse) with his relentless tempting of fate!

This is the LAST chance we have to avoid a major financial crisis and severe deflationary recession (or worse), and that's if it's not already baked into the cake at this point.  Because once that happens, monetary policy (at least by conventional means) will be as utterly futile as pushing on a string.

QED

Do Interest Rate Hikes Really Fight Inflation?

Short answer:  In a word, NO.

Long answer:  It's a very nuanced and complicated issue, but in practice, hiking interest rates generally does more harm than good, and at best is really not very effective in fighting inflation. 

Interest rate hikes, far from being a "razor-sharp, double-edged sword" (as we at the TSAP used to say) in theory, they are in practice just as blunt of an instrument as tax hikes are.  And they only "work" insofar as they cause a recession, as history has shown.  When the FERAL Reserve raises interest rates, it is "pushing on a a string" when they raise them insufficiently to cause a recession, and "blunt force trauma" to the economy when they raise them enough to do so.  And when they cut rates, it is even more so like "pushing on a string", as the damage is usually already done by that point, and of course they cannot cross the "zero lower-bound" into negative rates without inherently turning the world of finance upside-down.  There seems to be no "Goldilocks zone" for interest rate policy during times of high inflation, and the "therapeutic window" is generally closed.

Knowledge says that choking the economy until it goes limp and then choking it some more technically reduces inflation by killing demand for goods and services.  But wisdom says that one could hardly call that a success.

Not only are interest rate hikes inherently recessionary, they can also paradoxically increase one of the two types of inflation, "cost-push inflation", even as they tamp down the other type, "demand-pull inflation."  Both types are two sides of the same coin, so it can easily result in (or exacerbate) chronic stagflation, for which the only "cure" is to hike the rates so extremely high to cause a deep recession or depression, followed by cutting rates very quickly, at the cost of massive collateral damage.  A "cure" that is worse than the disease.

And the fallout falls not on the rich, who are largely insulated from the consequences, but overwhelmingly on the poor and working class, and also the middle class as well.

Cutting the money supply, whether fiscally via austerity or monetarily via quantitative tightening, is also similarly recessionary and damaging as well.  Both forms of tightening, along with interest rate hikes, are at best "break glass in case of emergency" measures that should almost never be used, period.

In other words, if you "burn the village to save it", the village will eventually return the favor.  You reap what you sow.  That's literally how karma works.

Even Rodger Malcolm Mitchell himself has recently turned against the idea of interest rate hikes, a policy he once strongly supported.  That really says something indeed.  Ellen Brown would agree as well.

So what works instead?  According to Mitchell, the root cause of ALL inflations is shortages.  Whether it's oil, gas, energy in general, food, labor, or otherwise, shortages are the common denominator.  To cure inflation, we must cure the shortages.  Now that is often a lot easier said than done, but governments who issue their own currency can help resolve shortages by fiscally incentivizing more production of such scarce goods and services.  And, of course, to also refrain from creating shortages in the first place with things like price controls or other artificial restrictions by fiat that are known to backfire. 

Oil, gas, or energy shortage?  Incentivize more domestic oil/gas production in the short term, followed by renewable energy production in the medium to long term as well.  Buy oil/gas or energy at at premium and resell it or give it away at a loss.  Food shortage?  Buy food at a premium and resell it or give it away at a loss.  Computer chip shortage?  Incentivize domestic chip factories.  Labor shortage?  Implement a "reverse payroll tax" like the EITC but simpler and more straightforward, to boost the paychecks of workers without increasing costs for employers.  Or the government can hire the most in-demand workers directly at a premium.  And consider replacing all or some means-tested social welfare programs with an unconditional Universal Basic Income (UBI) that does not perversely penalize people for working.  And so on.  That's the power of creating one's own currency via Monetary Sovereignty. 

QED.  Case closed, at least until we find even more compelling evidence otherwise. Therefore, the TSAP's new position in interest rates shall supersede everything we have said in the past about the topic.

UPDATE:  So what is the ideal interest rate then?  Should we do what MMT advocates, and just park it at zero and leave it there? There is a good case to be made for that, and the answer probably depends on a number of factors.  But negative interest rates are really not a wise idea for a national currency (too negative and people just hoard cash under the mattress, while not negative enough is really no better than zero).  For complementary and alternative local currencies, negative interest (aka demurrage) can perhaps make sense, like the Austrian town of Worgl famously did during the Great Depression, but the benefits of such likely do not scale up very well.  Thus for national currencies, zero is the practical lower bound.  And if zero interest (i.e. being able to borrow money for free) is still not stimulative enough, then do "QE for the People" by printing more money and giving it directly to everyone, rather than the banks in "regular" QE.  Problem solved. 

James Gailbraith makes a great case for low interest rates overall.

Thus, like MMT, the natural interest rate should be assumed to be zero by default, but unlike MMT, we should still not tie our hands and take higher rates off the table completely as a "break glass in case of emergency" measure.  Nor should Treasury bond sales be completely discontinued either, as those help stabilize the financial system in times of instability.

But what about speculative bubbles?  Don't low interest rates encourage those?  Yes to some extent, but only if Wall Street is deregulated like the Wild West (like now).  Therefore, better regulation of the big banks and shadow banking system, and a financial transactions tax, are a better idea to rein in reckless speculation than high interest rates. 

TL;DR version:  In a nutshell, raising interest rates has a tendency to backfire and generally does more harm than good, once all the jargon and accoutrements are stripped away. Occam's Razor would say that deliberately making everything effectively more expensive across the board (by making money itself harder and costlier to get) to engineer a recession is a terrible way to fight inflation, and can only encourage a perpetual quagmire of stagflation.

What about the Canadian experience in the 1980s?  Well, their inflation and unemployment were even worse than the USA despite (or more likely because) they kept their interest rates higher for longer.  And that disparity persisted well into the 1990s, until they devalued their overvalued currency, and then cut interest rates, which seemed to solve the problem.

The Stimulus: Too Little, Too Late--But Still A Good Start

The much awaited stimulus package finally passed Congress and was signed into law by Trump yesterday.  While it is a good start, it is far too little and far too late to prevent a coronavirus recession, let alone recover from it--but it may just be enough to prevent or delay it from turning into a full-blown depression.  Hopefully, at least.

First, the FERAL Reserve fired their "bazooka" and cut interest rates to 1% and then to zero, restarted QE, and even cut the reserve requirement to zero as well.  The stock market still crashed.  Then they pledged unlimited cash assistance (via bond and asset buying) to any banks who may need it, a sort of QE on steroids or "UBI for the rich".  The stock market continued to tank, though ultimately seemed to reach an (interim) bottom after declining about a third from its mid-February all-time high.  Then Congress belatedly realized the need for fiscal stimulus, as the FERAL Reserve's measures really only shore up Wall Street and generally fail to "trickle down" to Main Street.  And now the FERAL Reserve is essentially out of ammo in terms of monetary policy.

The CARES Act, the third and most notable of the three coronavirus-related stimulus bills passed so far, among other things bails out businesses big and small, gives relief money to hospitals, expands unemployment benefits, and most famously, gives a one-time $1200 per person to most adults and $500 for children.  The whole package is $2.2 trillion dollars total  While good, this is still unlikely to be sufficient.   Rodger Malcolm Mitchell estimates that we need as much as $7 trillion in newly created dollars to really fix things for good.

What really needs be done are Rodger Malcolm Mitchell's Ten Steps to Prosperity, starting with abolishing FICA, implementing Medicare For All, and implementing Universal Basic Income (UBI), all paid for with new money creation.  We also need a Green New Deal and to improve our public health infrastructure as well.  Also, we at the TSAP believe that we need to pass an Act of Congress adding another, much more effective tool to the Fed's toolbox:  QE For The People, in which the Fed would deposit newly created money directly into the bank accounts of every single American.  This can be done in existing bank accounts, via debit cards, and/or by giving everyone with a Social Security number or ITIN an account at the Federal Reserve.  The latter was actually recommended by an author at The American Conservative of all places, who even described it as similar to UBI, showing that this idea is not just for leftists anymore, but rather transcends the entire political spectrum.  QE For The People will be far more effective than QE for the banks, since it works to stimulate the economy from the bottom up and middle out, not from the top down.

Also, the federal government should use its power of infinite money creation to purchase (at several times the market value) ventilators, masks, PPE, hospital beds, and any other essentials in short supply now, and distribute them for free.  And it would literally cost taxpayers nothing.  And yet, it took a crisis of such massive  proportions to finally and belatedly force the government's hand to even grudgingly give Americans free testing, paid sick leave, and modestly expanded food assistance in the first two stimulus bills.  Now is NOT the time to be cheap!

And lest anyone grouse about the National Debt, keep in mind that our Monetarily Sovereign federal can just print (or more accurately, keystroke) the money.  Yes, really.  That is what it means to be Monetarily Sovereign.  Money is just a simple accounting entry nowadays, so make the entry and be done with it.

Yesterday.

And if Fitch or Moody's or S&P threaten any credit rating downgrades for the USA, let them do what they will.  Then we should #MintTheCoin (i.e. a multi-trillion-dollar platinum coin) and call their bluff.  Problem solved.  Done, done, on to the next one.

It's not only about saving the economy from ruin, but now it's also literally a matter of life and death at this point.  Seriously.  So what are we waiting for?

UPDATE:  As of April, the Federal Reserve apparently has also begun helping Main Street as well as Wall Street, and taking unprecedented steps to do so.  Not quite full QE For The People yet, but hopefully it will eventually pave the way for it.  It's like they finally realized that a fully functioning Wall Street cannot really exist for long without a fully functioning Main Street.  After all, a purely FIRE economy cannot exist without an actual physical economy to back it up.

Interest Rates: A Razor-Sharp, Double-Edged Sword

After debunking the Big Lie of Economics (namely, that federal taxes actually pay for federal spending and that the federal government can somehow run short of dollars) in our previous post, the question of inflation and how to control it remains.  Most economists (including Rodger Malcolm Mitchell) believe that raising interest rates is the best way to do control inflation, while others (mainly in the Modern Monetary Theory (MMT) school of economics, along with Ellen Brown) believe that doing so is practically blasphemy and will only make things worse, relying instead on taxes of various kinds (if anything at all) to control it, albeit crudely.  So which is it?

Well, it seems that the answer is a lot more nuanced than either side likes to believe.  For starters, there are at least two different kinds of inflation: 1) cost-push inflation, and 2) demand-pull inflation.  Sometimes both types occur together almost equally, other times one clearly outweighs or excludes the other.  And whether raising interest rates is helpful or harmful depends on exactly which kind of inflation one is trying to fight.

For cost-push inflation, which is caused by rising production costs resulting from things like higher fuel prices, taxes, or borrowing costs on businesses that get passed onto consumers.  And raising interest rates will only make that kind of inflation worse by increasing borrowing costs for businesses even higher still.  Doing so is like fighting fire with gasoline, and should generally be avoided like the plague.

For demand-pull inflation, which is caused by demand for goods and services outstripping supply for same, on the other hand, raising interest rates is highly effective at preventing and curing such inflation.  If interest rates are (artificially) coupled to money supply, raising the former will effectively shrink the latter, which is of course disinflationary or deflationary.  But even more importantly, whether they are coupled to the money supply or not, raising interest rates also increases the demand for dollars by increasing the reward for holding them.  Remember, as Rodger Mitchell explains, Value = Demand/Supply, and Demand = Reward/Risk, where inflation and default are the risks and interest is the reward.

(Since the risk of default is by definition zero for a Monetarily Sovereign government that consistently acts like it and is not foolish enough to borrow money denominated in a foreign currency, that leaves only inflation vs. interest.  And the net reward is given by:  Interest Rate - Inflation Rate = Real Cost of Money.)

Note too that interest rates can have both types effects, but which one outweighs the other depends on the type of inflation as well as the general condition of the overall economy.  At the same time, the effects of raising and lowering interest rates need not be symmetrical, since lowering interest rates to stimulate the economy often amounts to "pushing on a string" in terms of effectiveness.  Especially since interest on Treasury securities is literally new money that is pumped into the economy, and lowering rates will reduce that money accordingly.  True, there is in fact a positive correlation between the effective Fed Funds Rate and the CPI inflation rate, but that is as much of a chicken-and-egg problem as anything, given that the two types of inflation are both measured the same way, and that the FERAL Reserve usually raises rates in response to or in anticipation of inflation.  (For all their faults, they have generally succeeded in keeping inflation more or less under control at least since the post-gold standard era.)

But how exactly does one distininguish which type of inflation predominates at a given time, and thus whether to raise or lower interest rates?  Usually it is fairly simple.  When the velocity of money (the rate at which money circulates through the economy) is going "too fast for conditions" relative to the economy, that is a fairly strong indicator that demand-pull inflation predominates and that interest rates ought to be raised, even if there is some cost-push inflation mixed into the overall inflation rate.  But if the velocity of money is sluggish, raising rates will likely be counterproductive, at least in the absence of massive deficit spending (i.e. new money creation).

Because regardless of whether or not there is any link at all between interest rates and the actual supply of money, raising rates (especially when raised higher than the inflation rate) will always slow down the velocity of money, ceteris paribus.  Likewise, cutting interest rates accelerates the velocity of money at least somewhat, even if that alone doesn't always stimulate the economy enough in practice.

So what about taxes, then?  In theory, raising taxes and/or cutting government spending should also control inflation by effectively shrinking the money supply.  Remember, since the federal government is Monetarily Sovereign, any tax revenue they raise is effectively destroyed in practice (just like how all deficit spending effectively creates money out of thin air).  But this is a very crude way to do it, and is too slow and political to be particularly useful.  That said, having some level of federal taxation can indeed act as an "automatic stabilizer" even with no changes to the tax code, since when the economy overheats, the velocity of money is high and thus more tax revenue is removed from the economy, while the reverse is true during recessions when the the velocity of money is slower.  That is especially true for the idea of the Universal Exchange Tax, since it specifically taxes the movement of money, but can be true for all taxes.  But interest rate control is ultimately a superior method--as long as the inflation in question is the demand-pull variety resulting from an excessive money supply and/or velocity of money.  And knowing that, there is no good reason why a Monetarily Sovereign government should be shy about creating enough money to fulfill any of its ambitions that benefit the the bottom 99%.

The best, of course, is when interest is NOT coupled to the creation of money.  But until they end the charade and implement Overt Congressional Funding instead, and also fully nationalize the FERAL Reserve, the best way to fight stagflation is to raise interest rates (to fight inflation) while also increasing deficit spending (to fight stagnation), effectively decoupling the two for the time being.  And to fight high inflation in an overheating economy, raise interest rates first with no changes to deficit spending, and if that doesn't work, then reduce deficit spending.  But don't keep interest rates too high for too long--eventually they need to be cut to avoid doing more harm than good to the economy.  And note also that there is no historical correlation between deficit spending and inflation, at least not during peacetime and post-gold standard.  Only during truly major wars has there been any sort of correlation between the two, given how wars tend to create shortages of goods and services.

Wait, what?  That's right, there has been no correlation between federal deficit spending (i.e. money creation) and inflation in recent decades, meaning that any relationship between the money supply per se and inflation is a very tenuous one.  Let that sink in for a moment.  So we are nowhere near the point where increasing the money supply poses any risk of runaway inflation.  And even if we were, we know precisely how to prevent and cure it.

In other words, it looks like both Rodger Mitchell and Ellen Brown are both correct to one degree or another.  But what about what the FERAL Reserve is doing right now, raising interest rates (and implementing Quantitative Tightening) in the midst of historically high deficit spending?  Well, seeing as how inflation is still low and currently dominated by oil prices and the Trump tariffs that are just beginning to bite, it is safe to say that cost-push inflation, not demand-pull inflation, thus predominates now and in the near future, and thus raising interest rates any further now is probably not the wisest idea.  Especially given that, as Ellen Brown notes, the banksters have currently set a minefield of trigger points for variable-rate loans and mortgages, that will be set off if the Fed Funds Rate goes up much higher.  And these oligarchs thus stand to pull off one of the greatest wealth transfers in history, from the bottom 99% to the top 1% and especially the top 0.01% (i.e. to the oligarchs themselves).

Bottom line:  While taxes are more of a blunt instrument when used to control inflation, interest rates are essentially a razor-sharp, double-edged sword, one that we need to be very careful about using willy-nilly.  Don't say we didn't warn you.

How to Prepare for the Next Big Crash (Part Deux)

As we have noted before, things are really not looking good for the global economy this year.  Whether we actually experience another financial crisis on the order of 2008 or even 1929 (or worse) is a matter of debate, but the time to prepare for such a scenario is yesterday.  At the very least, another recession is inevitable at this point by 2019 at the very latest, since no economic expansion has lasted much more than eight years straight in this country (with the notable exception of 1991-2001 that lasted exactly ten years).  Granted, the expansion from July 2009 to the present mostly benefited the rich, and until around 2014 practically entirely benefited the rich, but it was still technically an expansion of the economy even if the growth was largely uneconomic in practice.  And expansions can only go on so long before a contraction (i.e. recession or depression) inevitably occurs--it's just a fundamental truth of the business cycle.

One thing is for sure--things are very different this time around at least in terms of monetary policy.  At least in 2008, interest rates were well above-zero, and could be cut to stimulate the economy (or, more accurately, stop or slow down the hemorrhaging).  When that proved to be futile, then the Feral Reserve and many of the world's other major central banks resorted to "quantitative easing" (i.e. creating money out of thin air and giving it to the banks directly).  In late 2014, the USA tapered off and ended its QE policy, and in December 2015 ended its zero interest-rate policy by raising the Fed Funds Rate to 0.25-0.50%.  Since then, the FERAL Reserve has raised rates five more times, most recently on March 21, 2018 to 1.50-1.75%, and many more hikes are on their way.  And combined with Trump's new trade war against China, that may have been enough to finally lance the massive bubble--make that the festering BOIL--that the stock market has been in for years now.  And since they now have a little bit of room to cut it--if they don't wait too long to do so--they probably seriously think that they can somehow engineer a soft landing if (and that's a VERY big "if") that is even possible at this point.  But not much room, really.

But many of the central banks of the world are still starting from zero or close to zero--and some banks including the European Central Bank and the Bank of Japan have even resorted to negative interest rates (!) by 2016.  That means they are effectively charging depositors for the "privilege" of depositing money, and effectively paying borrowers to borrow money, which basically turns the world of finance upside-down.  Such negative rate territory is uncharted waters, since until a few years ago no country has ever dared to do such a thing.  And there is currently no evidence to suggest that such a move will be beneficial in the long run, and may in fact turn out to do more harm than good overall.

So monetary policy basically needs a new set of tools and a new game plan to deal with the next crisis, whenever it occurs.  The Feral Reserve and the other central banks of the world are basically still using an outdated playbook.  In the near-term, two things need to change yesterday.  First of all, they need to abandon interest-rate targets altogether for the time being, and instead focus on targeting the growth of the overall economy.  Like Paul Volcker did in 1979-1982, but done in reverse since the "inflation dragon" is not the problem this time (unless the Trump tariffs really begin to bite). Secondly, implement Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money into everyone's bank accounts.  Granted, the latter measure would probably require an Act of Congress to allow it to occur legally, but as the Feral Reserve was just two years ago seriously debating the legality of negative interest rates, I'm sure they could find some sort of a loophole to allow it in an emergency such as a massive financial crisis.  And of course fiscal stimulus would likely be necessary as well, in additional to much needed reforms to regulate Wall Street and the big banks (a law that rhymes with "brass seagull" comes to mind, as well as a financial transactions tax and better regulation of the shadow banking system), but those two changes to monetary policy would go a long way towards preventing the next recession/crisis from turning into another 2008 or 1929 or even worse.  And the silly idea of negative interest rates really needs to be abandoned as well.

More fundamentally, of course, we need to nationalize the FERAL Reserve to make it a truly public national bank that creates money interest-free, and take the power back from the big banks.  Ellen Brown has written books about that very subject.  In the meantime, though, the aforementioned recommendations would still work in the near term.

But let's be brutally honest here.  What we are really witnessing these days is the slow and painful death of a woefully obsolete system, one that has been kept on life support for many years now.  And eventually we will have to pull the plug on it, sooner or later.  It's just a matter of time.

How to Prepare for the Next Big Crash

As we have noted in the previous article, the risk of the next big economic crash continues to loom larger than ever before, and it is most likely too late to actually prevent it from occurring entirely.  That's not to say that there aren't things that should be done to prepare for it to make it less catastrophic, though.  Back in 2014, the TSAP had predicted that a crash would occur within a few short years, and we had written an article then discussing how to prevent it before it occurs or at least take the edge off of it, while ending the previous economic "stagpression" for good.  We also reiterated such ideas in 2016 as well, the year for which the insightful Thom Hartmann predicted the epic crash that was his book's namesake.  (Being off by two years or so is still fairly accurate in our book.)  And we should note that these things would indeed help take the edge off of the next looming financial crisis as well.

Two things come to mind right away:  1) a Universal Basic Income Guarantee for all, an idea that is LONG overdue, and 2) Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money directly into everyone's bank accounts and/or via debit card.  Additionally, we need to better regulate the Wall Street casino so such a crisis could never, EVER happen again, and also JAIL the banksters who caused the crisis (instead of bailing them out) like Iceland did.  A complete debt jubilee would be even better still (in general, but especially for student loans), but even the things we just mentioned are a fairly tall order for a government who is bought and paid for by the banksters/oligarchs.  While other things need to be done as well in the long run, such as critical investments in infrastructure and education, the aforementioned measures would go a long way towards fixing our soon-to-be-ailing economy.

Those are the things that should be done at the government level, of course.  At the individual level, there is really not much one can do except get OUT of the stock market while you still can, and take at least most of your money OUT of the big banks (before the "bail-ins" begin) and put it into smaller banks, credit unions, or even under your mattress.  Or even in a big, brown bag inside a zoo (what a thing to do!)

How to Prepare for the Next Big Crash (Part Deux)

As we have noted before, things are really not looking good for the global economy this year.  Whether we actually experience another financial crisis on the order of 2008 or even 1929 (or worse) is a matter of debate, but the time to prepare for such a scenario is yesterday.  At the very least, another recession is inevitable at this point by 2017 at the latest, since no economic expansion has lasted much more than eight years straight in this country (with the notable exception of 1991-2001 that lasted exactly ten years).  Granted, the expansion from July 2009 to the present mostly benefited the rich, and until around 2014 practically entirely benefited the rich, but it was still technically an expansion of the economy even if the growth was largely uneconomic in practice.  And expansions can only go on so long before a contraction (i.e. recession or depression) inevitably occurs--it's just a fundamental truth of the business cycle.

One thing is for sure--things are very different this time around at least in terms of monetary policy.  At least in 2008, interest rates were well above-zero, and could be cut to stimulate the economy (or, more accurately, stop or slow down the hemorrhaging).  When that proved to be futile, then the Feral Reserve and many of the world's other major central banks resorted to "quantitative easing" (i.e. creating money out of thin air and giving it to the banks directly).  In late 2014, the USA tapered off and ended its QE policy, and in December 2015 ended its zero interest-rate policy by raising the Fed Funds Rate to 0.25-0.50%.  But now, the central banks of the world are starting from zero or close to zero--and some banks including the European Central Bank and the Bank of Japan have even resorted to negative interest rates recently.  That means they are effectively charging depositors for the "privilege" of depositing money, and effectively paying borrowers to borrow money, which basically turns the world of finance upside-down.  Such negative rate territory is uncharted waters, since until a few years ago no country has ever dared to do such a thing.  And there is currently no evidence that such a move will be beneficial, and may in fact turn out to do more harm than good overall.

So monetary policy basically needs a new set of tools and a new game plan to deal with the next crisis, whenever it occurs.  The Feral Reserve and the other central banks of the world are basically still using an outdated playbook.  In the near-term, two things need to change yesterday.  First of all, they need to abandon interest-rate targets altogether for the time being, and instead focus on targeting the growth of the overall economy.  Like Paul Volcker did in 1979-1982, but done in reverse since the "inflation dragon" is not the problem this time.  Secondly, implement Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money into everyone's bank accounts.  Granted, the latter measure would probably require an Act of Congress to allow it to occur legally, but as the Feral Reserve is currently debating the legality of negative interest rates in the future, I'm sure they could find some sort of a loophole to allow it in an emergency such as a massive financial crisis.  And of course fiscal stimulus would likely be necessary as well, in additional to much needed reforms to regulate Wall Street and the big banks (a law that rhymes with "brass seagull" comes to mind, as well as a financial transactions tax and better regulation of the shadow banking system), but those two changes to monetary policy would go a long way towards preventing the next recession/crisis from turning into another 2008 or worse.  And of course the silly idea of negative interest rates needs to be abandoned as well.

But let's be brutally honest.  What we are really witnessing these days is the death of an obsolete system, one that has been kept on life support for many years now.  And eventually we will have to pull the plug on it, sooner or later.  It's just a matter of time.

How to Prepare for the Next Big Crash

As we have noted in the previous article, the risk of the next big economic crash continues to loom large, and it may be too late to actually prevent it from occurring entirely.  That's not to say that there aren't things that should be done to prepare for it to make it less catastrophic, though.  Back in 2014, the TSAP had predicted that a crash would occur within a few short years, and we had written an article then discussing how to prevent it before it occurs or at least take the edge off of it, while ending the previous economic "stagpression" for good.   And we should note that these things would indeed help take the edge off of the next looming financial crisis as well.

Two things come to mind right away:  1) a Universal Basic Income Guarantee for all, an idea that is LONG overdue, and 2) Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money into everyone's bank accounts.  Additionally, we need to better regulate the Wall Street casino so such a crisis could never happen again, and also JAIL the banksters who caused the crisis (instead of bailing them out) like Iceland did.  A debt jubilee would be even better still, but even the things we just mentioned are a fairly tall order for a government who is bought and paid for by the banksters/oligarchs.  While other things need to be done as well in the long run, such as critical investments in infrastructure and education, the aforementioned measures would go a long way towards fixing our ailing economy.

Those are the things that should be done at the government level, of course.  At the individual level, there is really not much one can do except get OUT of the stock market while you still can, and take at least most of your money OUT of the big banks (before the "bail-ins" begin) and put it into smaller banks, credit unions, or even under your mattress.  Or even in a big, brown bag inside a zoo.

End This Depression NOW--For Real This Time!

The latest news shows that the Dow Jones recently reached a record high, and remains above 16,000.  Corporate profits are at a record high, and even the unemployment rate has FINALLY dropped to a 5-year low of less than 7%.  So by these numbers, some people seem to think that the recession is finally over for good.  Happy days are here again!  So cue the music, Maestro:

HALLLELUJAH!  HALLELUJAH!  HALLELUJAH, HALLELUJAH, HALL.....er, wait a minute.  Seriously?  This is the kind of thing that passes for "recovery" these days?  Please.  The majority of Americans would certainly NOT consider happy days to be here again!  Certainly not with sobering statistics like these:

• A real unemployment rate (U6) that is actually in the double-digits (13%), and not falling nearly quickly enough.  In fact, when long-term discouraged workers are included and added to U6, it reaches nearly 25%, and has actually risen since the phony "recovery" began in 2009.
• A labor force participation rate that has fallen to a 35-year low, reflecting (in part) those discouraged workers who simply gave up looking for a job.
• A poverty rate that remains stubbornly higher than in 2009, as evident in the record number of people on programs like SNAP (food stamps).
• Near-record levels of income and wealth inequality, approaching Gilded Age levels.  The top 1% controls nearly half of the nation's wealth, while the bottom 80% are left to fight over crumbs.
• Falling real wages, with a real minimum wage that is at least 30% lower than in the late 1960s despite a doubling of productivity.
• Cities declaring bankruptcy.  Detroit is the canary in the coal mine.
• Record levels of student loan debt ($1 trillion), combined with considerable unemployment and underemployment of college graduates.
• A national debt of over $17 trillion, and growing despite fairly harsh austerity measures.
• A real inflation rate that is nearly 10% when measured the way it was in 1980 and earlier.  Combined with the real unemployment rate, the real "misery index" would be a whopping 22-33.  Ouch!

So by just about any rational measure, we are still stuck in a pretty deep depression.   In fact, the progressive site Daily Kos coined a new term to describe it:  stagpression (a combination of stagnation and depression).  So why the huge disconnect between corporate profits and the stock market with the reality on the ground?  The answer is pretty simple.  Our government has been giving money, favors, and tax cuts to the rich and mega-corporations for years now, and what have the plutocrats done for us in return?  Sit on their massive cash, pay CEOs more, cannibalize their workforces, and buy back (i.e. manipulate) their own stock to paper over their declining sales.  And historically, what do they do if they get higher marginal tax rates?  Re-invest more in their own businesses and/or hire more workers.  Counterintuitive, yes, but it actually makes sense when you think about it.  As for "quantitative easing", the Feral Reserve has been printing trillions of dollars out of thin air, and nearly all of it goes to the big banks (i.e. the plutocrats) where it certainly does NOT trickle-down in any meaningful way.  To date, both fiscal and monetary policies have consisted of weak and inefficient half-measures, where the benefits accrue to the elites while the consequences (inflation, debt) accrue to the rest of us.  Thus, the rich get richer, the poor get poorer, and the middle class continues to shrink.  And the customers become too broke to buy anything, and the economy continues to stagnate or sink even further in a downward spiral.   No wonder our "recovery" has been so hollow!

So how can we break this vicious cycle for good, before the resulting bubble bursts leading to the next big crash?  The answer is really quite clear:  adopt the TSAP party platform ASAP.   But since it is unrealistic to expect either corporate party in the elephant/jackass duopoly to take up an entire platform that literally threatens their own interests, we have devised a list of the highest-priority measures to take before the inequality-fueled crash of 2016 happens:

1. Raise the top marginal tax rate to at least 50% (if not 70%) for incomes above $1 million, and simplify the tax code by removing loopholes geared towards the wealthy.
2. Reduce the corporate tax rate to 20-25%, remove all loopholes, and tax only retained earnings.
3. Reduce tax rates for the bottom 80% of Americans, and un-tax small businesses with earnings less than $100,000 per year.
4. Raise the minimum wage to at least $10/hour if not higher, and index it to inflation from now on.
5. Remove the "sequester" cuts ASAP, and sharply increase funding for infrastructure, education, green energy, and other crucial goals to put Americans back to work.

Of course, it would even better if the entire TSAP platform were adopted, but doing just these five things alone would probably be enough to, in the words of Paul Krugman, "end this depression now".  Because that's what this "recession" really is.  And ending it is long overdue--five years overdue to be precise.

But if we could do just one thing that could be done to end the stagpression quickly, it would be this:  replace "quantitative easing" (that really only benefits the rich) with direct payments of about $2000 per person or so to ALL Americans, yesterday.  It would take an Act of Congress to enable the Fed to do such a thing, but it would be well worth it.  Of course, followers of the TSAP know that we have long advocated a guaranteed basic income (citizen's dividend) for all Americans period with no strings attached, ideally funded via various kinds of tax revenue such as carbon taxes and financial transactions taxes.  But this alternative means to the same end would be the next best thing, at least temporarily until our other ideas get implemented.  And if it happens, the depression will be over and full employment restored within a year or two--provided it does not end abruptly without some of our other measures to replace it next year.  So what are we waiting for?

Happy 100th Birthday, Feral Reserve!

The Feral Reserve has now turned 100 years old.  For the past century, the Feral Reserve (not a typo, since they are really no more "federal" than Federal Express) has been in charge of our nation's money supply and interest rates.  Owned by the big banks and run by a few unelected individuals, this Creature from Jekyll Island has had enormous financial power over us all for the past century.  They have created numerous business cycles, serious inflation, and made a killing by charging interest on the money they have printed while getting the nation into ever-deeper debt.  And it's long past time to end it.

As recently as last year, the TSAP party platform called for abolishing the Fed entirely and going back on the gold standard.  But we have discovered a much better way instead.  What is America's best kept secret?  Look no further than North Dakota, the only state to avert the Great Recession--it's called public banking.  Because it works.  The TSAP now believes that the Fed should be replaced by a truly public national bank.  One that is fully accountable to the people, and lends money to the goverment interest-free.  The power to create money should be returned to its rightful owners--a government of We the People, not a faceless quasi-private entity controlled by a cabal of international elite bankers.  And if we were to nominate a chairperson, it would have to be Ellen Brown, author of Web of Debt.

What better time than now?

The Feral Reserve Keeps Printing Money

Bernanke, chairman of the Federal  Feral Reserve, declared the recession to be over (rotflmao) and yet he wants to keep the interest rate at 0% to 0.25%. In other words, continue to print a record amount of money. He wouldn't even raise the rate to 0.50%, which is still really low. If the Fed keeps rates too low for too long, like during the previous recession, we will just get a new bubble. What will it be next time?

Gold already broke $1000 recently, a signal that inflation is on its way. Deflation will no longer be an issue it seems.