President Jackson Demoted

14718744_10211199094120989_2623734186183054054_n

 

Here’s what they *should* say why President Andrew Jackson, the seventh President of the United States, was bumped to the backside of the $20 bill:

He was moved to the back of the Twenty because he paid off the national debt…(Yes, you read that right).

As counter-intuitive as it sounds, paying off the national debt, running federal gov’t budget surpluses, a spending sequester, are all glaring examples of why that federal-gov’t-is-the-same-as-a-household groupthink has it all backwards. To pay off the national debt, President Jackson’s administration ran sustained budget surpluses for 7 straight years (meaning sustained public sector deficits was replaced with sustained private sector deficits)…

Two years later, the Panic of 1837, the U.S. economy went into a depression, banks became insolvent, business failures rose, cotton prices dropped, and unemployment dramatically increased…

That depression lasted for four years until 1841 when, the national debt went back to increasing again (meaning private sector deficits switched back to private sector surpluses), and the economy began to rebound…

Not convinced? Take a look at these dates:

1817-1821

1829-1836

1852-1857

1867-1873

1880-1893

1920-1930

These dates above were the 6 periods in American history when the US federal gov’t had substantial yearly budget surpluses meaning, at the very same time, and by accounting identity, the non-federal-gov’t (everybody else) was being subjected to ‘savings deficits’. Next look at these dates:

1819

1837

1857

1873

1893

1929

These dates above were the starting years of all six economic depressions in U.S. history. Now let’s put all the dates together:

1817-1821 federal gov’t surpluses and the 1819 Depression

1829-1836 federal gov’t surpluses and then the 1837 Depression

1852-1857 federal gov’t surpluses and then the 1857 Depression

1867-1873 federal gov’t surpluses and then the 1873 Depression

1880-1893 federal gov’t surpluses and then the 1893 Depression

1920-1930 federal gov’t surpluses and then the 1929 Great Depression

Coincidence?

Here’s another example of federal gov’t surpluses having its fingerprints on economic downturns: The 2001 recession was also preceded by federal gov’t budget surpluses. The ‘Bush recession’ was triggered by the ‘Clinton surpluses’. In my opinion however, the economy was very strong during Clinton’s second term, not to mention that dot com internet stock hysteria was reaching full ‘silly-crazy’ stage, so in that particular case, those short-lived surpluses were justified, because they were analogous to tapping the brakes. Masterfully, that 2001 recession was a mild one because Clinton’s successor, incoming President George W. Bush, with both the Congress and the Fed Chair Alan Greenspan’s blessings, quickly resumed federal budget deficits with tax cuts passed on June 7, 2001 (a rare example of both monetary and fiscal policymakers being in sync and turning their launch keys at the same time)…

Alexander Hamilton, the first United States Secretary of the Treasury, who, it was also announced today, will remain on the front of the $10 bill, said in 1790, “A national debt, if it is not excessive, will be to us a national blessing.” (No mention of paying it off, in fact, he argued for the usefulness of safe, easily traded federal debt, that would provide a store of value, as collateral for deals, as a lubricant for business activity, making the economy more productive, which he predicted would help our new nation someday surpass England as a world power)…

Unless you truly need to slam the brakes on growth, and you actually want to slow down the velocity of those twenty dollar bills, sustained and prolonged federal gov’t surpluses throughout American history are a fiscal policymaking case study of What Not To Do.

 

 

Eddie D  <eddiedelz@gmail.com>

April 15th Tax Day is the “Big blind”

Today, in the post-gold-standard era, and especially on tax day April 15 (April 18 this year because of the Emancipation Day holiday in Washington, D.C.), the present narrative that the US federal government must collect federal taxes in order to finance it, is analogous to the federal government saying that it must hitch horses to its brand-new 2016 Ford Pickup in order to pull it.
Here’s another analogy regarding those federal taxes for Texas hold ’em poker fans:
Imagine a casino, not your ordinary casino, but one with the most action in the history of mankind, with many poker tables inside, and each of the separate poker tables are just like a separate local and state gov’t inside that casino, the federal gov’t. Then picture local and state taxes being like the “Rake”; and federal taxes being like the “Ante”, or more precisely, the federal taxes are like the “Small blind” and the “Big blind”. The players pay all rakes and blinds (federal, state & local taxes) with casino-issued chips (federal, state & local tax credits)…
The blinds are different from the rake. The blinds (the federal taxes) paid before dealing each new hand do not finance that poker table; instead, the rake (local & state tax) confiscated from the winning pot finances that poker table. This is because the casino (the federal gov’t) is the issuer of chips, while each of the poker tables throughout the casino (the state & local gov’t) are not the issuers of chips. The poker tables and the poker players are the users of chips…
The casino never worries about getting chips. Only the tables and the players worry about getting chips, while the casino has other, much more important things to worry about. The casino doesn’t get their chips from players from China, from Japan, not from anyone. Unlike the tables or the players, the casino issues the chips by fiat. The casino is who first enters the chips into existence. The tables get their chips from the casino. The players get their chips from the tables…
Rather than funding the poker table or the casino, those blinds prevent all poker players in the casino from just waiting to be dealt pocket aces, or never risking their chips unless they get a royal flush on the river card. The blinds are just making sure that all players, especially those few players with a lot of chips can’t just sit there, hoarding their chips, never calling a bet, and never slide anything into the middle of the table…
The rake ‘funds’ the tables, while the blinds ‘facilitate’ the tables. Local and state gov’t finances itself by raking some of your chips, but unlike that rake, the purpose of the blinds is not to finance anyone. That Big blind (that federal tax) players must pay once every round (every April 15th) is an imposed redistribution of chips. In addition, both those small and big blinds speed up the game, they increase chip velocity, by creating an urgency to play because those blinds remind the players that they will bleed their chips away if they stop trying to win more chips…
Most important, the rake and the blinds must be paid for, can only be paid for, with just those casino-issued chips (those federal, state & local tax credits). Throughout the casino, no matter which table you play on, you can only spend those casino-issued chips, which gives full monopoly control of the flow of those chips, full power over the entire chip dominion, to the casino, the sovereign issuer…
The users of chips, the local & state gov’t, as well as all the players, stay focused on either breaking even or winning. Meanwhile the issuer of chips, the federal gov’t, stays focused on growing the action, improving the casino, adding gaming diversity to the floor, or upgrading the facilities, which gins up enthusiasm for more people to play. The federal gov’t is also that ‘eye in the sky’ that watches for cheats or other criminal activity to make players feel secure…
In the post-gold-standard, modern monetary system, it’s important to understand the dynamics between the rake (collected by the non-sovereigns) and the blinds (imposed by the monetary sovereign). The purpose of the rake is to fund that table (local & state gov’t); and the purpose of the blinds is for the casino (federal gov’t) to create your need to keep trying to get more of those chips, which leads to more consumption using those chips, in a perpetual pursuit of profit and/or happiness…
It’s not those chips that the federal government needs from you today, it’s your work at the tables, your interactions with the players, and your spending of those chips that it always only needs.
Many happy (federal) returns,
eddie d  <eddiedelz@gmail.com>

All About That Base

Just a thought…

Going back to the start of the Large Scale Asset Purchase (LSAP) program right after the Lehman bankruptcy in Sept ’08…

The reason why those bond ‘kings’ and hedge fund ‘stars’ predicted that so-called QE, QEII, III, etc., would cause massive hyperinflation and sky-high interest rates were so wrong, was because as we (hopefully) now know, there’s a difference between the newly-printed dollars that finance deficit spending (that add net financial assets into the banking system), and the newly-printed dollars that financed LSAP (that do not add any net financial assets to the banking system). The reason why LSAP was not an increase of dollars in the banking system, why it had nothing to do with the money supply at all, and why it had no inflationary bias whatsoever, was simple: The Fed was only swapping newly ‘printed’ dollars (a.k.a. reserves) going into the monetary base (not part of the money supply), for the exact same amount of bonds (also not part of the money supply), that were ‘unprinted’ out from the secondary bond market. If you just understood that, then consider yourself ahead of 98% of the population, ahead of Nobel-laureate economists, ahead of all policymakers, and especially ahead of the Very Smart People of the mainstream media that constantly bark fake narratives relying on outdated, gold-standard-era mentality over the airwaves today…

Outside of normal Open Market Operations (OMO), there are two scenarios where that present * $2.1T balance of reserves that were previously printed by buying Treasury bonds from banks during LSAP could be reduced by selling Treasury bonds to banks. More specifically, when those $2.1T of reserve balances are transferred from that bank’s checking account at the Fed (the Reserve account) into that bank’s savings account at the Fed (the Securities account)…

In the first scenario, a bank purchases more Treasury bonds outright, on its own volition, directly from the Treasury, at initial offering in the primary market, paying for those Treasury bonds with their reserves, reducing their amount of reserves sitting at the Fed, decreasing the net amount of total reserves in the monetary base. ‘Net’ because this is not a bank or financial institution buying bonds from (or trading bonds with) another bank or financial institution, which would only be a reallocation of reserves. Out of a total of approx $4.1T in reserves that were printed during LSAP to buy both Treasury and Mortgage-Backed Securities, this has already been happening to the tune of $2T in total Fed reserves reduced. (Note: This is not saying that the $4.1T in Fed liabilities that were increased during LSAP are no longer on the Fed’s balance sheet, but that instead of being reserves, that $2T has become liabilities in other forms such as increased Federal Reserve notes to meet rising demand for cash currency and reverse repurchase agreements to defend the Fed’s target overnight rate, etc.)…

In the second scenario, a bank purchases Treasury bonds, not on its own volition, but directly from the Fed, in the secondary market, after that bank is ‘assigned’ Treasury bonds, not for OMO, but in an intentional Fed unwinding of LSAP.  Again, those bonds are paid for by that bank’s reserves, reducing their amount of reserves sitting at the Fed, decreasing the net amount of total reserves. (This has not happened, nor will ever, unless the Fed decides to unwind their balance sheet +/or there is a sudden, unexpected US economic boom that is so strong that the Fed needs to slam on the brakes and quickly ‘unprint’ reserves to drive interest rates higher)…

Unless those $2.1T in reserves are not significantly reduced by either of these two scenarios and the banks continue to let their reserves sit idle deep in the monetary base down below, then for reasons beyond LSAP’s good intentions, we shouldn’t expect much change in the money supply up above.

In the meantime, what if we monitored the changes of those total Fed reserve balances that are reported every week. If the balance increased, we should interpret that as financial institutions and investors taking caution (a ‘risk-off’ yellow flag); and if the balance decreased (a ‘risk-on’ green flag), it means they throttled up (?)

If you agree, here are those quarterly numbers:

 

Consolidated Statement of Condition of All Federal Reserve Banks
‘Other deposits held by depository institutions’  (total reserves at the Federal Reserve bank)
Fed balance sheet liabilities (In millions of dollars):
DATE FED RESERVES EVENTS
06/30/17

 

 

03/30/17

 

 

 

 

12/31/16

 

 

 

 

 

 

 

 

09/30/16

2,118,108

 

 

2,337,776

 

 

 

 

1,942,983

 

 

 

 

 

 

 

 

2,085,237

06/14/17 FOMC rate hike to 1 to 1-1/4 percent

 

03/15/17 FOMC rate hike to 3/4 to 1 percent

01/20/17 US President Donald Trump inaugurated

12/31/16 Investors poured a record $97.6 billion into U.S. equity ETFs since the U.S. election

12/14/16 FOMC rate hike to 0.50% and 0.75%

11/08/16 Donald Trump elected US President

06/30/16 2,199,119 06/24/16 Brexit
03/30/16 2,336,086
12/30/15 2,208,683 12/16/15 Janet Yellen announces ‘liftoff’, the first rate hike by the Fed since June 2006, which closes the chapter on an unprecedented era of easy monetary policy
09/23/15 2,602,196
06/24/15 2,493,529
03/25/15 2,737,802
12/24/14 2,609,635
09/24/14 2,707,185 10/29/14 US Federal Reserve Chair Janet Yellen announced it is ending LSAP that added approx $4T worth of assets to its holdings ($2.4T UST + $1.7T MBS)
06/25/14 2,628,060
03/27/14 2,611,169
12/25/13 2,450,733 12/18/13 The Federal Reserve announced Wednesday it would start to taper its aggressive bond-buying program to $75 billion a month beginning in January
09/25/13 2,307,013 9/18/13 The Federal Reserve holds its asset purchase program steady, putting off any decision for tapering until later in the year
06/26/13 2,017,729 7/19/13 Ben Bernanke says the Fed could begin to taper its purchase of bonds later this year, if the economy continues to improve as Fed officials expect
03/27/13 1,829,612
12/26/12 1,532,687
09/26/12 1,470,536
06/28/12 1,491,988 9/13/12 FOMC announces continued LSAP beginning in September 2012 (“QEIII”)
03/29/12 1,564,982
12/28/11 1,569,267
09/28/11 1,608,996 9/30/11 FOMC announces re-investment of maturing MBS into UST ceased (to instead re-invest in more MBS to maintain MBS level)
06/30/11 1,622,395 6/22/11 FOMC announces re-investing principal to maintain total balance sheet $2.6T level
03/31/11 1,458,165
12/30/10 1,020,726
09/30/10 984,139 11/3/10 FOMC announces continued LSAP from November 2010 to June 2011 (“QEII”)
06/24/10 1,062,348 8/10/10 FOMC announces re-investing principal to keep levels current
03/25/10 1,147,747
12/31/09 1,025,271
09/24/09 903,044
06/25/09 745,173
03/26/09 822,412
12/29/08 819,404 3/18/09 FOMC announces  Large-scale Asset Purchases (LSAP) to last from Spring 2009 – Spring 2010 (“Quantitative Easing”)
09/25/08 95,301 9/15/08 Lehman Brothers bank filed for bankruptcy, the largest in US history
06/26/08 12,833

* (Note: This is an updated version of the original post from April 2016)