It explains why inflation isn't taking off (disregarding those prices at the grocery store and my favorite hash house, I guess) despite very low interest rates. It also illuminates the problem that has arisen because such bank lending that has taken place has not gone to fuel productive activity. (Stock buy backs may be an example of such unproductive use of low-interest corporate borrowing though that's just my thought and not something mentioned in the article.)
You'll learn that lenders are in fact tightening up on lending standards rather than choosing to goose the economy as the Fed desires. This also interferes with the Fed's master plan to stimulate more lending at lower rates to allow borrowers -- who are not watching productive investments pay off and enable proper debt service -- to pay off earlier high-cost debt with new lower-cost debt to keep the wolf of money destruction/deflation from the door.
If the banks won't lend/goose then it seems the Fed might have to consider direct lending to the unwashed to keep inflation going. This isn't "helicopter money" exactly as that appears to involve a gift to the unwashed whereas the authors speak of "direct lending" with the Fed playing the new role of lending bank.
If the Fed manages monetary policy with the same tools of the last decade, inflation is not likely to rise meaningfully. The Fed understands the trap its monetary policy leaves them in.[1] To escape, the Fed may consider printing money. We suspect doing this via direct lending efforts is their way out of the trap.I could have chosen a different title for this piece but, regardless of the monetary realities referred to in this quotation, I just have to regard that bit of elite contempt for the law like a cut diamond the size of a basketball. Life in a "law as optional" society and don't I love it. Interstate Commerce Clause limitations? Gone. Natural born citizen requirement for president and vice president? So yesterday. Congressional declaration of war? "terrorism," boss, and don't you forget it. Federal health care catastrophe? Right there in Art. I, Sect. 8, Darlene. U.S. District Court orders with nationwide effect? Sooo? Federal right to have an abortion? Plain as day, slick.A popular rebuttal to our synopsis is that it is illegal for the Fed to make direct loans. That is very true, but neither is the Fed allowed to buy corporate bonds. They chose not to abide by the Federal Reserve Act and Congress did not stop them.
As long as congressional oversight is weak and the public is blind, the Fed has the tools. If the Fed wants inflation, they can get it.[2]
Anyway, back to the main event. There's probably little difference between helicopter money and direct lending, as what politician with the customary gelatinous spine won't recoil from any serious (LOL) attempt to force repayment of said "debt." So, bogus "debt" (if it ever happens). And no mandate for helicopter money either, unless the Fed's mandate is actually "pursuit of the good life."
Cut to the chaise lounge, the abhorrent deflation seems to be inevitable as monetary and fiscal tools are losing their mojo in a big way and Mr. Debt Service never, ever ceases to come round on the hour to demand the vig. In irons as the sailors would say.
I'll close with observations I've made before. It's tragic that so much of our national life is now being determined by tiny, tiny groupings of Wise Men and Latinas at the Fed and in the Supreme Court, to name but two. WTF on that, brother trucker.
And . . . underneath the Fed's 2% inflation target[3] is the reality that 2% inflation necessarily means that, according to the Rule of 72, $1,000 your grandson might put in the bank today will be worth $500 in 36 years (plus some pittance gained from the going rate of interest on his account). That means that your grandson is guaranteed a life on the treadmill, if nothing else, just to stay ahead of inflation and keep what he had in the first place.
Life as a Wal Mart greeter looms for the elderly who failed to turn the hamster wheel fast enough to adjust for the wisdom of a benevolent Fed and its precious 2% inflation target and navigate the shoals of risk-on investing. Built in instability, impermanence, anxiety and confusion.
And did I mention the astronomical loss of purchasing power of the dollar since 1913 due to the Fed's "stewardship"?
And yet this is all "normal" brought about in part by the swashbuckling Janet Yellen.
Denzel himself couldn't stop this runaway train.
PS -- For some healthy perspective on this see Peter Schiff's insights into vat ees goink on. I salute him for his most important insight that "this" just isn't "capitalism." It's a dog's breakfast of central planning and socialism that bears as much relationship to real-deal capitalism as a Happy Meal does to a medium-rare rib eye feastaroonie.
Notes
[1] "Under our economic construct, unproductive debt needs more debt at lower interest rates to sustain it. At some point, and we are likely near, or at the point, it needs inflation to reduce its burden" say the authors, debt that can't be repaid being deflationary.
[2] "The Fed's Bazooka Is Broken – Will Direct Lending Be Next?" By Michael Lebowitz and Jack Scott, ZeroHedge, 9/30/20 (emphasis removed).
[3] An inflation rate that it somehow conjured out of its dual mandate of price stability, SHMG, and maximum sustainable employment! Out of curiosity, what fisking "price stability" do they have in mind?
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