People’s QE Is Coming And The Result Will Be A Disaster

We understand and feel the anger, but do hope and pray the backslide toward tribalism will be reversed sometime soon.

People’s QE Is Coming

Because the wealth disparity is so vast, as it has become in the past seven years, the efficacy of asset inflating or, what we call “jack asset” monetary policy diminishes, and more and more Fed stimulus is needed;  as are higher, and higher asset prices.

That is why we believe that during the next recession, the Fed will be forced to roll out some sort of “people’s QE.”  That is, the direct financing of consumption, possibly in the form of financing a universal basic income, the direct bailout of public pensions, and the funding a massive jobs facility, for example.

Ray Dalio seems to agree that such policies are only a few years away.

Of course,  the new QE will likely be executed through the direct purchase of Treasury securities earmarked for such programs.

Smells Like Argentina

Wow, this smells a lot like late 1980’s Argentina.   I was there and witnessed very similar policies.   The major difference is the Argentine austral was not a reserve currency.

A “people’s QE” will supposedly ensure the new liquidity is injected directly into the hands of those who will spend it, generating the demand to lift the economy out of its morass.

Sticking with the old QE policy,  or just augmenting it with the Fed’s direct purchase of equities and corporate bonds, will prove ineffective due to the growing wealth disparity.  The marginal propensities to consume of high net worth groups approach zero as wealth increases.

End Game

The result will most likely be a disaster.  The dollar will tank and its role as the world’s reserve currency will be over. Yes, there will be another deflation scare but it will sow the seeds of inflation as the policies mentioned above are ushered in.   Are you listening, deflationistas?

Maybe the Fed should have never have ventured down this road, transforming the economy into the asset driven beast that it now is, but we are way beyond the Rubicon Crossing, folks.

Until then, let’s focus on making money.  Everything is awesome.

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