Kate and Xtine discuss the issue currently causing the most discourse amongst Homestuck fans: The Federal Reserve’s unprecedented open market operations in the context of the ongoing 2020 recession, what their expansionary monetary policy means and what its implications are for working people and the economy as a whole.
Listen to this episode at https://pgenpod.com/updates/episodes/90
Transcript[]
Kate :The perfectly generic podcast contains spoilers, occasional adult language and Alan Greenspan. You've been warned. This show is supported by listeners like you on Patreon. We'd like to thank the following Crockertier patrons for their generous support per episode [Names]. Live blog this episode with hashtag pgenpod.
[intro]
Xtine:Is this recording?
Kate: Oh yeah.
Xtine: Oh shit.
Kate: Xtine just woke up so we're just gonna start. We're just gonna fucking start recording.
Xtine : Yeah, this is how it always happens whenever I'm on an episode. I just start talking, and you're like, let's just start recording and-
Kate: Yeah, right. I should have just started recording before you join because you really-. No, I had a first line for this episode planned out and everything.
Xtine: Oh, you did?
Kate: Oh, right. Yeah, I was gonna go like: Welcome to Ron Paul radio and it was gonna echo like a reverb effect.
Xtine: Uh huh. Well, you could just add it in there, but I mean since I'm here, I'm just gonna keep going on with my story and I don't even remember what I was talking about.
Kate: You were talking about how before quarantine you were going on a bunch of dates 'cus you're a Chad, before quarantine.
Xtine: Yeah! Because you know everyone's saying that before quarantine was happening everyone was getting their life in order and that was me. I was going on dates every week or so, I was drinking Lacroix like daily, and I was going to school and my sleep schedule was perfect like I was always waking up at nine o'clock every single day. And then now the quarantines hit, I'm drinking Coca Cola, I'm drinking coffee, you know all these stimulants just to feel something and I go to sleep at 3am every day and also I haven't been logging on to like my dating apps for so long they like- [discord exit voice chat sound]
Kate: ...Hello?
Xtine: [reenter chat noise] Uh, you're trying to steal my white claws and I was really, really mad.
Kate: [laughing] I did? so you cut out for thirty seconds and you came back with “you were trying to steal my white claws.”
Xtine: Really? I cut-
Kate: Yes
Xtine: Well, I was saying that I had, in my dream last night. You didn't ask but it was a zombie apocalypse setting. You were there and you were trying to steal my white claws and I was really, really mad.
Kate: Classic me. That's a classic Kate move. I've never actually had a white claw.
Xtine: Really? Yeah, they're like the classic white girl drink. You should live up to that. Like I had a bartender friend and she worked at a lesbian bar- she also was in my creative right workshop which was like super cool to find out. But anyways, she said that every time someone ordered a white claw, she would judge them very heavily, but I'm like I love white claws. I get kinda fucked up on two of them.
Kate: So, I wanted to have you here today because when I run into Homestuck fans, you know at the at the various reopen America lawncare chud protests that I'm all the time at-
Xtine: Wait, they expose themselves as Homestucks there?
Kate: Yeah, right right. Well, Homestuck fans have completely embraced their reactionary leanings and are now just fully a wing of the Republican Party and so, you know, obviousl,y I've been going to meet the people at their various hair salons and pedicure shops and, wherever they are you know, and what Homestuck fans are always asking me is Kate, what does the exponential growth in the M2 money stock caused by the Fed's recent expansionary monetary policy mean for the future of the American economy? All the time, these kids online are asking me this question.
Xtine: Oh, this is true. I've seen them ask you this question.
Kate: I mean, you know, if I tweet, they reply to me with, you know, Kate , talk about the Fed, Kate talk about the Fed. And, if I don't if I'm not on Twitter, they email me Kate, talk about the Fed, talk about the Fed.
Xtine: It was honestly so, it was so much to see and that's the reason why you left Twitter is because they wouldn't they wouldn't stop haranguing you with these questions, right?
Kate: Right. Like I understand that, you know, the massive amounts of open market operations and the return of quantitative easing is a big and confusing movement and it's been dramatically under reported by the media mostly because journalists are mostly stupid. And the Federal Reserve is a thing that is designed to not be noticeable by the stupid, but I trained. I sat under a fucking waterfall.
Xtine: Fuck yes.
Kate: And I learned all about the Federal Reserve. So, I wanted to sort of take you through this.
Xtine: Uh huh, thank you.
Kate: And I wanted to talk, on this podcast, about economics obviously, about what is going on with the American economy? So, a lot of people know this right, that line has continued to go sideways. Even wall based like, you know, two thirds of Americans have a significantly changed relationship to employment. Demand has plummeted. Many Americans are struggling to pay rent. There's a collapse in the commercial real estate market. But stocks are remaining completely stable. Right? Yeah, that that's a confusing dissonance for a lot of people. It's confusing and enraging.
Xtine: Isn't that just because there's something about how- oh no, never mind actually I was gonna talk about these Congress people I think the governor or the Congresswoman for one of the Carolinas, the richest person in Congress, she sold her stocks-
Kate: Kelly Loeffler.
Xtine: Yeah, yeah, yeah. her-
Kate: From Georgia
Xtine: Yeah, Georgia. Yes. Yes. Yeah. Sorry, not one of the Carolinas. But, yeah-
Kate: Georgia's one of the Carolinas, that's my take.
Xtine: That's the hottest take so far, I think. But yeah. So, I mean, I don't think that has anything to do with how stocks have remained stable. But I mean, that's what I've heard.
Kate: A significant number of senators, Republicans and Democrats both, sold massive amounts of stocks after a private, classified briefing regarding the severity of the upcoming Coronavirus pandemic.
Xtine: Yeah, yeah.
Kate: And many of them continued to reassure the public that everything was going to be fine even after dumping their financial portfolios . And one of them currently, I believe it's Richard Byrd, is currently under investigation by the FBI for that from North Carolina. So, you were -
Xtine: I was on the dot somewhere
Kate: Right, exactly. You were conflating Georgia and North Carolina because all these scumbags are becoming increasingly difficult to tell apart.
Xtine: Right, right.
Kate: But before anyone thinks this is a uniquely Republican crime, Dianne Feinstein in California was also on the list of people who dumped their assets after this briefing.
Xtine: Oof
Kate: Yeah.
Xtine: I mean we can't really trust the Democratic party at all.
Kate: Oh, not at all because the Democratic Party you know, they have no-
Xtine: They have no scruples! They have no backbone.
Kate: Right. I mean, you know, one of Joe Biden's key economic advisors is Larry Summers, who was the architect of like shock therapy in Russia in the 90s and was partially responsible for nobody going to jail after the last financial crash.
Xtine: Oh great
Kate: Yeah, I don't know if anybody noticed. But after the last financial crisis, there were democrats in power and none of the problems got solved. So, I wanted to start by- I'm gonna read an article from Axios. That's a sort of overview of the actions that the Federal Reserve has taken over the last the last few months. And then we can sort of discuss any questions that you might have about that and sort of dig deeper into the causes behind these actions.
Xtine: I like this personalized lecture I'm getting. It's really helpful. And I know this sounds sarcastic, but I'm being genuine. I really do need this kind of information spoon-fed to me.
Kate: I thought it'd be fun to talk to you about the Federal Reserve. I just thought my good friend Xtine, and I can talk about the Federal Reserve because, you know, we are we're working class people-
Xtine: We are
Kate: - who are not expected to have a fluency in this sort of thing. And it often feels a little bit like arcane magic that is not meant to be understood by people who aren't millionaires, right?
Xtine: Yeah.
Kate:
So, the federal government's Coronavirus response risks spiking inflation by Dr. Ravelin from Axios. This is from April 28.
The combination of the Fed's seemingly limitless monetary policy and the open floodgates fiscal response from the White House and Congress has investors worrying about inflation again.
Why it matters: Inflation not only increases the cost of goods and services, but it could force the Fed to raise interest rates before the economy has recovered, depressing growth as the U.S. starts to emerge from the coronavirus-induced recession.
The pandemic is currently choking off growth and inflation, but once nationwide lockdown orders are removed, the unprecedented action could spark inflation levels not seen in a generation.
Flashback: Many feared inflation would flare up when the Fed unveiled quantitative easing to battle the global financial crisis in 2008, and it never happened.
That may have provided policymakers a bit of false confidence, warns David Kelly, chief global strategist at JPMorgan Asset Management, and could "give us another opportunity to ignite the inflation bomb."
You come on, we always talk about inflation or shit like that whenever you're on.
Xtine: It's one of our favorite topics to talk about. It’s what I’m known for
Kate: Following the 2008 recession, the U.S-
-I want to be clear, we're talking about inflation parentheses economic.-
Following the 2008 recession, U.S money supply stayed muted as banks hoarded capital and refused loans to riskier borrowers despite piles of money from the Fed.
Then the Dodd-Frank Act passed, increasing bank capital requirements.
That was followed by spiking income inequality and Congress enacting various fiscal austerity measures.
Those all "acted as a brake on the demand for goods and services and diverted income towards the purchase of financial assets," Kelly says in a note to clients.
The intrigue: That was the exception, writes Michael Ashton, research director and portfolio manager at Real Asset Strategies. This recession follows the rule.
There is no current banking crisis, so the Fed’s "massive balance sheet expansion, coupled with a relaxing of capital rules, has immediately produced a huge spike in transactional money growth," he says.
"M2 has grown at an 88% annualized rate over the last month, 34% annualized over the last 13 weeks, and 14.8% annualized over the last 52 weeks."
Xtine: Wait, did I miss what M2 is?
Kate: No, what it means, and here's the next sentence of this Axios article.
What it means: M2 is a measure of the U.S. money supply that includes cash, checking deposits, savings deposits, money market securities, mutual funds and things like certificates of deposit.
It is a closely watched inflation indicator.
Xtine: I see
Kate: Why you'll hear about this again: The year-over-year M2 growth rate through April 13 is 10 times what it was at this stage in both 2018 and 2019, according to an Axios analysis of Fed data. It's also higher than it ever reached during the financial crisis.
Ashton finds that the growth in the money supply has broken the record from 1976. "And they're just getting started."
So that's the complete article. And again, it's written for people who speak finance a little bit. So, I wanted to sort of break down what this article is talking about.
Xtine: Oh, please do. My brain feels really smooth right now. Like, there are no wrinkles to catch, a lot of that information. Oh, it just kind of slid off like, putty. Yeah, water. Yeah.
Kate: So, I wanted to talk about, basically this last year, at this time last year, there were $14 trillion in the money stock. And this is effectively the best measure of, how many US dollars exist, right? How many are in circulation? So, 14 trillion.
Xtine: That's a good thing?
Kate: Well. That's just that's just what it was a year ago.
Xtine: Okay.
Kate: One year later. There are 17.8 trillion US dollars. So, over the last year $3 trillion have been created out of thin air . So, this is common. So, the Federal Reserve is the money printing authority of the United States right. So, in response to economic downturns, the Federal Reserve can effectively purchase assets. So, it purchases loans and bonds and can also just literally just edit the amount of money that a bank has that one of their banks.
Xtine: Damn
Kate: And in doing so it creates US dollars. So, they purchase assets and they put them on the balance sheet right, and they keep them.
Xtine: Yeah.
Kate: And so, when it purchases an asset it writes a check to the financial institution it purchases an asset from, and that money literally comes from nowhere, right-
Xtine: They just conjure money from nowhere and It just exists because money is fake
Kate: Yeah, yeah, Right? It's true. And then to decrease the money supply they sell the assets on their balance sheet, right? So, somebody will pay them $50 for a thing, and then they'll just destroy that. $50. Right.
Xtine: Yeah.
Kate: That's how the Federal Reserve manages the money supply. And I know that this sounds fucking ridiculous, but this is the way that modern liberal economics works, right?
Xtine: I'm struggling to grasp on to it, but just keep going and maybe it'll just stick better,
Kate: Right? But overall, if you look at this and say, like, 10 years ago, there was $8.5 trillion in the US economy. Now there's 17.7 trillion, right? So that's, that's like a three times growth. That's more than three times growth has more than tripled. The amount of US dollars in circulation is more than tripled in the last 10 years.
Xtine: So, I guess the question is, where's that money now? Why aren't we seeing any of it?
Kate: Exactly that's the question, right? Because you will notice that your dollar- so you'd think there's three times more dollars out there, right? But there's not three times more people, right. And the United States hasn't gotten three times wealthier in the last 10 years, in fact, has spent a significant portion of the last 10 years in recession. Right? And so, the question then becomes, how come if there's more money, everything still costs the same? Right?
Xtine: It really makes you think
Kate: Right
Xtine: It really makes me think,
Kate: Right, it really does make you think. And so before I get into answering that question and talking about that a little more, I want to distinguish between this growth of the overall money supply, and something like the checks that were sent to most Americans recently in response to that. So actions like that, and what you'll hear the $2 trillion cares act, right, like the thing that was passed by Congress and signed by the president.
Xtine: Is that the Stimulus Checks?
Kate: Yes. The Stimulus Checks and also it created something called the Paycheck Protection Program, it created a significant amount of lending. Most of that $2 trillion was not to the stimulus checks, the stimulus checks were sort of a bonus distraction to people.
Xtine: Okay. Oh, I see
Kate: Most of that money went to large businesses to help sustain their balance sheets. And so that money that's allocated by Congress and the President is allocated directly from the US Treasury. It does not come from the Federal Reserve. All right.
Xtine: Yeah.
Kate: There's two different -so I want everyone to understand I'm holding up my hands. I'm holding up my hands, like I'm holding one thing in each hand
Xtine: I'm watching, I'm visualizing.
Kate: Yeah Thank you. So, you know, there's the Federal Reserve, which is a central bank, that is an independent authority that can create and destroy money, right?
Xtine: Yes, yeah.
Kate: And then there's the Treasury, which is the United States government. And it cannot just print dollars. When it sends out money. It has to either have that money on hand or it has to borrow, right
Xtine: The money has to already exist, basically.
Xtine: Exactly, but the US but the but the Treasury can borrow money from the Fed, which is one of the ways that the Fed creates money by just directly lending it to the Treasury. Right. And so, you end up with this interesting situation where the Federal Reserve - so you hear about the giant United States debt. The Federal Reserve like the United States actually owns a third of its own debt. Because of this-
Xtine: Right, shrimpteresting
Kate: Very shrimpteresting right
Xtine: It's very shrimpteresting
Kate: A lot of people think that the, you know, the US debt is owned primarily by foreign countries and that the national debt actually represents our literal debt to other nations. That's not true.
Xtine: I knew that the US debt wasn't as big of a deal as people try to make it sound sometimes but I wasn't aware it was because of the Federal Reserve.
Kate: Yeah. And the significant chunk of the debt is also owned by United States companies and individual wealthy investors. The only threat that comes from having a large US debt is that the larger the debt, the larger the interest payments and the less money that you have to pay for other things because you're paying more money servicing the interest on your debt.
Xtine: Wait, I have a question. So, going back to your previous statement, you said debt that is owed money to various big companies/investors in the United States, right? Now, does that mean that the United States owes money to like those parties then?
Kate: Yeah. So, in fact, you can buy a federal bond. Right. And that means that means that you basically float the federal government money, and then they pay you interest on that bond for the life of the bond until it matures. And so over 10 years, you'll make a return on that bond, depending on what the interest rates are on it. So, effectively, a government bond is selling investment in the future stability of the country, right, if somebody is saying, I am confident that the US government will exist in 10 years and pay out the full amount of interest on this loan. So, it is a stable and safe investment to purchase a bond, to purchase us debt. Government debt is one of the more stable elements, especially since the United States is committed to never defaulting on its debt no matter what even if it means printing money. And so, this is complicated stuff, right. And you get cranks, who almost, almost get it, right? Like the Ron Paul types, who come to the conclusion that this is very bad. That this is a way for the economy to run that fundamentally prioritizes large banks and large capital markets right and their response is, well, we should just go on the gold standard, like it's medieval times. That's, oh, I don't even want to talk about this shit right now. I just want to make it clear that I'm not talking about the Federal Reserve because I'm a deranged libertarian. I'm talking about the Federal Reserve, because I'm a deranged leftist. [laughter]
Xtine:Alright go on, go on.
Kate:So let's get back, now that we know that the central bank is not the Treasury. Right? That money that has been created by the Treasury is not those 1,200 dollars that you're holding, right? It's not that and so now that we've established that I want to go back again and say there's more than three times more money than there was 10 years ago, and you are not three times richer. What happened? How did this happen? Now, not only are you not three times richer, but also the US dollar is not weaker, right? It's not right three times weaker, you'd think if you tripled the money supply without tripling the actual material wealth of the United states that the US dollar would be weaker? Right?
Xtine: I smell something fishy going on here.
Kate: Right? So, the reason why is that this money that has been created over the last 10 years came with significant restrictions. It came with capital rules. And so, one of the ways that you can avoid inflation while increasing the money supply and giving banks more liquidity to loan is by increasing the reserve rate making banks have to hold on to a higher percentage of money at all times, to, you know, to service their loans.. And that makes banks more stable, less likely to default when they loan out a lot of money and so, these and, you know, something like the Dodd FrankAact which significantly increased the amount of friction to actually moving this money around, right. And so, what's extraordinary about this recent spike in the monetary supply is that it has been accompanied by a wholesale reversal of almost all capital regulations. So almost all capital rules that were implemented in the wake of the 2008 financial crisis are currently suspended by the Federal Reserve. And this includes stuff like Wells Fargo, you remember they made they committed a massive amount of accounts fraud right where they effectively opened accounts in the names of people without their permission, among other financial irregularities,
Xtine: I remember vaguely hearing about that , yeah.
Kate: And so, all restrictions that were placed on them after that have been suspended . So, there's been more than three different suspensions of rules. The Federal Reserve has been loosening the restrictions to try to encourage lending. And so, the purpose of this move, right is the Federal Reserve says, we will print this money, we will increase the amount of money on hand in banks, and then the banks will be able to loan to corporate debtors at highly aggressive cheap rates, right. so , corporations that are currently experiencing a shock to their income, right, because there's significantly less consumer activity can take out these loans and continue to cover their expenses. And the idea behind this was that they would continue to cover their expenses by for example, retaining their employment base,
Xtine: Hmm.
Kate: But these loans did not come with any restrictions, and they did not come with any regulations that you had to retain your employees to use them. So, this is how you end up-
Xtine: So, they came with the hope that you would is what you're saying
Kate: Right exactly. So, what we did, this was true of everything, but the paycheck Protection Program, small business loans. So the vast majority of both Treasury money, and all of the Federal Reserve money that has been pumped into the economy during this crisis came with very few restrictions whatsoever, and it did not actually end up leading to the retention of the workforce, right. Like, a massive amount of Americans have been laid off more than in the financial crisis, more unemployment growth than in any month of the Great Depression. And, you know, more and more people are out of work every week and this is more people that have ever been out of work in one you know, and in one go than ever before and the recorded United States economy.
Xtine: Yeah, heard about that
Kate: And so, but again, so you have to ask the question, well, then what the fuck did this money go to?
Xtine: That's what I want to know, too.
Kate: And I think you probably have a guess, right?
Xtine: Well Jeff Bezos became like the trillionaire like, really recently,-
Kate: Jeff Bezos is on track to become a trillionaire by 2026. Now, I like to think that there's another thing that might happen to Jeff Bezos by 2026 that I like to imagine. And I like to think about when I wake up in the morning so that I get out of bed,
Xtine: And when you go to sleep at night. Yeah,
Kate: Right and when I go to sleep at night, but yes, So, effectively what has happened is that these companies have taken this money and have just directly pocketed it.
Xtine: Yeah, right.
Kate: And, and so what they have done is that by experiencing a massive increase in available capital from cheap or free loans, while flashing their expenses in terms of laying off most of their workforce, these companies have managed to maintain a roughly equal valuation so far for the duration of this crisis. There was Brief stutter, a brief fall in the financial markets line went down for a little bit before these actions took place. And so now, like we are quite literally printing money and depositing it directly into the bank accounts of large corporations and investors so that they don't bail on their stocks so that the stocks stay the same.
Xtine: So, I guess my question is like, how did they let this law pass without adding any restrictions to it?
Kate: Well, because Republicans don't want restrictions and Democrats don't either.
Xtine: Well that's what I figured the answer was, but I wanted it like laid out clear.
Kate: Yeah because there's effectively no political will and either the democratic or the republican party to place any realistic limits on the on the financial speculation in America, because both parties are extremely intertwined with the financial speculation that has exploded in recent decades
Xtine: Gotcha cool, cool, cool, cool.
Kate: Yeah, I hate to say this like this is not a conspiracy theory thing there's just no political will for this. You know I'm not saying there's some secret Illuminati of Connecticut Wall Street guys who are like heh heh heh we're gonna get away with this. We've just consistently elected people to Congress and the presidency that don't give a shit about this that do not want restrictions that believe restrictions are imnicle to economic growth right like this is not a conspiracy This is really happening and it's not some shadowy cabal it's just all of our elected officials basically.
Xtine: It's all in the open
Kate: Yes, it's all in the open. You know, I've been doing sort of a bit where I become more deranged and I post eye emojis and shit right and it's fun. But you know this thing that I read you was quotes from financial speculators themselves. From managers of, hedge funds, I'm just relaying to you their news releases and trying my best to sort of describe the buzzwords the terminology that's been used-
Xtine: And like decipher it for me, for a typical layman
Kate: Right. And so, the problem now is that there's this massive increase in the money stock, right? And we don't notice this in terms of massive inflation, right? We don't notice this in terms of everything getting more expensive because there's more money to buy it with. Right,
Xtine: Right.
Kate: And that is partially first off because the like, you know, these large financial institutions and these and wealthy people are not moving this money. They're simply pocketing it, right?
Xtine: Yeah.
Kate: So, this money exists, it's in the money stock, but it's not actually circulating in the economy in any real way. Right, because it's not being used to pay workers for labor. It's being used to buy and service other financial instruments. on and on. This is, and I’m sorry to go full Marx here. But this is a further decoupling of capital from labor, right?
Xtine: Yes.
Kate: Because the fiscal instruments are continuing to be traded at the same rate or growing rates. While the amount of labor and productivity done in the United States has dramatically sharply declined. Um, and so it's a bit like a Wile E Coyote in the cartoons-
Xtine: Bring in the metaphors. I love this.
Kate: Yes. You know, how he runs off the cliff, and he just keeps running until he looks down.
Xtine: I'm seeing it , yeah
Kate: Yeah, and you know, he's just sort of suspended in the air running until he looks down and realizes that there's no ground there and then he falls, right.
Xtine: Yeah. Is that us right now?
Kate: A little bit, a little bit. So basically, the question then is - so right now this is being masked right by the massive deflationary pressures and so deflationary pressures are things like everybody staying at home and not spending their money. Right.
Xtine: Right. Fancy how that happens
Kate: Right. So, the Federal Reserve has decided that because of these massive deflationary measures, they can effectively print all this money for free and not pay for it in terms of inflation, because people aren't spending their money. But the thing is, is that that's an impermanent circumstance, right?
Xtine: Yeah. Hopefully, we're not stuck in our homes forever.
Kate: Right. Although this is going to go on longer than I think anyone in the mainstream press is willing to completely acknowledge, right, yeah, we either have to continue with extreme amounts of restrictions on our lives because of the Coronavirus or face an obscene intolerable amount of mass deaths. but that's a story for another day. Yeah, it's a different discussion that's happening. And if you live in a red state, many of your governors are experimenting with the latter option.
Xtine: Oof. Yeah.
Kate: Blue states. Many of your governors are experimenting with the latter option as well, but they're just a little slower, and they're using more woke language about it.
Xtine: Right basically I think in Maryland, Senator Hogan or Governor Hogan, Mr. Hogan, he says he wanted to, , to reinstate businesses or whatever. But I think the county I am in is not letting that happen. And also, I work in DC. So, I don't know what it's like in DC. But basically, I'm just waiting until my boss texts me back and it's like, here's your work schedule and
Kate: Here's the thing because There's no unified federal regulations. Regarding the Coronavirus restrictions, it's become a patchwork of 50 different responses. And many states have kicked the can down the line like Wisconsin, their Supreme Court overruled the fact that the state could continue implementing emergency measures. Now, it's a county by county response. Basically, it's continually being shrugged down the line until there's this sort of insane patchwork of basically every possible different response to the Coronavirus crisis, except for the one that actually works, which is a unified response that involves having public health officials performing a large amount of tests, tracing where outbreaks occur, and warning people in individual locations when restrictions are required until those individual outbreaks die down. We don't have that and we're no we're not any like we're not really any closer to have that on a national level when we were at the beginning of all this.
Xtine: We're just going about the least efficient way of addressing the Coronavirus in general I think
Kate: Yeah
Xtine: It's not great
Kate: Yeah, it’s not great, it's not great but either with this thing that's happening with the with the reopen the economy people were I meet all the Homestuck fans at because again I’m so glad they've just gone mask off reactionary and you know, they're just out there with the Tea Party guys. It's great. It's awesome. They finally found their ideological allies, because those guys also don't like it when there's stories involving gay people.
Xtine: Oh, yeah. yea, yeah, I see
Kate: But no, no. And so, what's happened is that eventually economic activity will spin up again. And what's happening is now there's a massive amount more cash to play. The Fed has riskier and riskier assets on its balance sheets, banks are engaging in more and more loans to companies that don't have realistic income. And the Fed is propping this up with short term loans in terms of overnight operations to shore up what's called the commercial paper market, which is sort of short-term loans for mortgages and shit. . So, the debt has grown while the economy has shrunk, right? And so, that is how you get inflation, if that continues over a long period of time. And so, there's only a few options to get out of this. Right.
Xtine: Yeah.
Kate: And so, part of it would be a massive decrease in the money supply from the Fed, right, like deliberate deflation at the end of this crisis by purchasing a huge amount of their assets back right. And that's one possibility. But again, the Fed has not indicated any thought about l, what happens next. Right now, they're just like, pedal to the floor. They have literally put out a statement saying they will do an infinite amount of open market operations to continue the regular functioning of the market. Right.
Xtine: So, does that mean that they're just gonna continue inventing money is that what you-?
Kate: Money printer has not stopped going burr money printer is still going burr. Like, let's be clear about that.
Xtine: They're still putting money out into the- they're still printing money, basically.
Kate: Yes. Like, so a month ago on April 20. There was $17.2 trillion in the economy. Now there's 17.8.
Xtine: They really are just still going,
Kate: Right? Like I'm going to make the art of this, the m2 money chart from the Fed that shows the last 10 years because you will see and I'm going to show Xtine this right now.
Xtine: Oh yes. I'm excited.
Kate: You will see how extraordinary this is.
Xtine: Oh, I see a little bump at the end.
Kate: A little bump right?
Xtine: Yeah, it's actually a big bump.
Kate: Yeah, so that's just the last 10 years. Here is the extant data going back to 1980. And you will see that there has never been anything like this.
Xtine: [laughter] They just felt like doing this because they're feeling lol random XD, I guess.
Kate: Well effectively we are operating a massive economic experiment. Right?
Xtine: Mm hmm.
Kate: Where we are, I guess our lives and livelihoods are the guinea pigs. Right.
Xtine: Right, great. Great, great. Yeah.
Kate: Yes. So, I wanted to read a little bit from a USA Today article as well
The Fed’s mandate from Congress is to maximize employment and stabilize prices. In doing so, it effectively steps on the gas during times like this and hits the brakes when the economy appears to overheat, and prices rise too fast.
Just as it can increase the money supply by creating money, the Fed can also reduce it by making moves that increase interest rates, such as selling some of the securities on its balance sheet, effectively taking money out of the system.
Going too far in either direction at the wrong time can hurt the economy. In this economic emergency, the Fed has signaled it will do what it takes.
The Fed’s “lending facilities are constrained by approval of Treasury, and ultimately Congress holds authority over the Fed,” said Duy, who publishes a blog on the Fed called "Fed Watch."
“But in theory, the Fed can just keep buying assets,” such as Treasury and mortgage-backed securities.
At the same time, Congress's spending still creates debt from the Treasury that has to be paid back. The Congressional Budget Office recently projected the budget deficit will more than triple to $3.7 trillion in the current fiscal year, with federal debt held by the public at 101% of gross domestic product.
Xtine: Oh cool.
Kate: How much debt is too much?
Fed chair Jerome Powell told reporters that the U.S. has not been on a "sustainable" fiscal path for some time, noting the nation's debt is growing faster than the economy. He added that those concerns now must take a backseat to getting out of this crisis.
Xtine:Cool, great, fun.
Kate: So, yeah. And so, there was a blogger. There was a fucking What's her name? Tcherneva. Pavlina Tcherneva is an MMT proponent and an economist at Bard College in New York but she said she
downplayed debt concerns in the long term, noting that Japan is still able to service its debt despite having a debt-to-GDP ratio more than double that of the U.S. in recent years. Japan also issues its own currency.
“We actually don’t know how much (debt) is too much,” Tcherneva said. “Is there a limit? If the interest on the debt exceeds the growth of the economy, that could be a problem."
She said the Fed has tools that can help keep long-term interest rates below the economy's growth rate, though others would say those rates are mostly controlled by the market.
And, of course, there's the Fed's magic printing machine.
“The United States can pay any debt it has because we can always print money to do that,” former Federal Reserve chairman Alan Greenspan said on NBC in 2011. “So, there is zero probability of default.”
Xtine: Is this you talking to me now? Or is this Are you still reading
Kate: That was a quote by Alan Greenspan that was the end of that USA Today article which I will also link in the description. I will link both the Axios and USA Today articles that I have read. And so that's the institutional response, right. So, the response is effectively we're on an unsustainable path and the rate of profit falling, but you have to ignore that and get out of this crisis. Right.
Xtine: Meaning like Coronavirus, or like the financial crisis?
Kate: The 2020 recession. -
Xtine: Okay,
Kate: -that has been exacerbated by the Coronavirus. But let's be clear, there was a yield rate inversion in 2019. We were on a path through a recession anyway.
Xtine: I see
Kate: Covid just significantly sped up and deepened the recession into a possible depression. yeah. And I just like the economy, I have depression while thinking about this. So, I wanted to finish this by saying, I've read a lot from liberal sources about this, right.
Xtine: Yeah.
Kate: So, I also want you to understand that like this crisis, like though it is a response to an extraordinary world event, it's not particularly different from what we've been doing basically every 10 years, as long as the instrumentations of capital have existed. And so, I wanted to read from you from 1847, Friedrich Engels, the principles of communism, which is a small wonderful, wonderfully readable pamphlet, and I want to read from section 12 here
What were the further consequences of the industrial revolution?
Big industry created in the steam engine, and other machines, the means of endlessly expanding industrial production, speeding it up, and cutting its costs. With production thus facilitated, the free competition, which is necessarily bound up with big industry, assumed the most extreme forms; a multitude of capitalists invaded industry, and, in a short while, more was produced than was needed.
As a consequence, finished commodities could not be sold, and a so-called commercial crisis broke out. Factories had to be closed, their owners went bankrupt, and the workers were without bread. Deepest misery reigned everywhere.
After a time, the superfluous products were sold, the factories began to operate again, wages rose, and gradually business got better than ever.
But it was not long before too many commodities were again produced and a new crisis broke out, only to follow the same course as its predecessor.
Ever since the beginning of this (19th) century, the condition of industry has constantly fluctuated between periods of prosperity and periods of crisis; nearly every five to seven years, a fresh crisis has intervened, always with the greatest hardship for workers, and always accompanied by general revolutionary stirrings and the direct peril to the whole existing order of things.
What follows from these periodic commercial crises?
First: That, though big industry in its earliest stage created free competition, it has now outgrown free competition;
that, for big industry, competition and generally the individualistic organization of production have become a fetter which it must and will shatter;
that, so long as big industry remains on its present footing, it can be maintained only at the cost of general chaos every seven years, each time threatening the whole of civilization and not only plunging the proletarians into misery but also ruining large sections of the bourgeoisie;
hence, either that big industry must itself be given up, which is an absolute impossibility, or that it makes unavoidably necessary an entirely new organization of society in which production is no longer directed by mutually competing individual industrialists but rather by the whole society operating according to a definite plan and taking account of the needs of all.
Second: That big industry, and the limitless expansion of production which it makes possible, bring within the range of feasibility a social order in which so much is produced that every member of society will be in a position to exercise and develop all his powers and faculties in complete freedom.
It thus appears that the very qualities of big industry which, in our present-day society, produce misery and crises are those which, in a different form of society, will abolish this misery and these catastrophic depressions.
We see with the greatest clarity:
That all these evils are from now on to be ascribed solely to a social order which no longer corresponds to the requirements of the real situation; and
That it is possible, through a new social order, to do away with these evils altogether.
Xtine: Hell yeah.
Kate: There's your options. We can either service the debt forever, we can either continue printing money that you don't see. Or we can take matters into our own hands and reorganize society and you will never have to hear me talk about what M2 is ever again.
Xtine: I know what I wanna do, but how do we start doing it? Do you know?
Kate: Well, there's some great books about it. Obviously many of them are old and many of them will need to be adapted and understood to apply to our current circumstance in America . And certainly, America is the most is the you know, is the center of capitalist society. And a revolutionary act has like revolutionary circumstances, though they have frequently threatened the United States have never
Xtine: Actually, taken hold
Kate: Right, I've never taken hold. So, it is important to learn from those movements that have come before us. And especially, I would say that this is a once in a century event, right? This is similar to the financial crashes at the end of the 1920s. And so, it's important to learn from those events a hundred years ago, and it's important to understand and so the main recommendation, I know it's so hard to say well, what should I do? This all seems so fucking impossible. The main motivation is that you must now work to understand the conditions of your fellow workers. You must make connections with those workers. And you must determine where the weaknesses of the current system are. And you must structurally amass power to disrupt those weaknesses in whatever way is possible in your locality in whatever way is possible in your workplace or former workplace in whatever way is feasible to you and in doing so, in accumulating and amassing power and an agitating, you will be better prepared for any future revolutionary circumstance. Even if a future revolutionary circumstance does not arise, the acumen of power will often lead to critical concessions from the liberal hegemony . For example, in response to the massive upswell of socialist movements in the United States after the Great Depression, the liberal hegemony countered with the new deal, a massive investment in infrastructure and employment that brought the economy more in line with the real circumstances of working people. Right?
Xtine: Yeah.
Kate: Even if you are not a revolutionary communist like me, you should still be thinking about how to assemble worker power. Because when the workers are powerless, there is no reason to give them concessions. And, so here's the thing. I personally do not believe that there is a point where this order can be maintained, with its constant crises with its constant privation and with its billionaires becoming trillionaires. I don't believe that there's anything that they could offer aside from the complete abolition of the bourgeoisie as a class, that could make up for this, mass death, this pain and privation, but maybe you're living somewhere else. I don't know, that's fine. Between here and there, there's sure a lot of territory of which there is a broad agreement on .And so, you have to just look at and think what are the elements of state and corporate power that can instead that can be routed around that can instead be built into local forms of power, right? It might be as simple as starting a community garden or something. So that you know so you're not so reliant on the on the corporate supply chain right can be as simple as it can be as simple as you know, you and you and your you and your colleagues banding together to tell your employer hey, our working circumstances aren't safe like we need to be paid more and we need safer working during this otherwise we will not show up we will we have all agreed together not to show up to work until these demands are met. Also known as a strike, and there is a massive upswing and strike action happening in the United States right now as well. It can be talking to the fellow tenants in your apartment building, saying, Hey, we can't fucking afford rent right now. We need to all tell our landlord. We are standing together, and we need a cancellation of rent, right?
Xtine: Yeah. Which is what we did
Kate: Yeah. How did that go for you?
Xtine: It works. I mean, like, she kind of already knew it was going to happen. She was like, going to do it anyways. So, I mean, it was already like a foregone conclusion. But I mean, we still banded together and
Kate: You don't know. She can say she was gonna do it. Anyways, all she wants you still asked, and you got it right?
Xtine: Yeah tldr. We got the rent thing. We're not paying rent right now and it's cool.
Kate: This can happen. All of this is possible. I know. It seems. is impossible to imagine a completely new and revitalized social order in this country and on this planet. But the only way to get there from here is to take little steps like this. And I know it's hard and I know it's miserable. And I know that we're all right now trying simply not to fall into despair, at all of the death occurring around us and we are all trying you know, simply to survive and keep our friends and family safe from this deadly virus right
Xtine: And to exist. Yeah. Yeah,
Kate: But it is not hopeless. It is not hopeless. It we are there we are, we are
Xtine: Stronger, together?
Kate: [sarcastically] Yeah, thanks Hillary. I have met a I have met too many people who are young, committed and are devoting their entire lives to the building of a better social order to believe that it is impossible with the labor of a lifetime. And basically what I want to say is, what we've seen is there's trillions and trillions of dollars out there. We sit on a hoard of wealth enough to ensure that everyone can meet their basic needs and that there needs to be. There needs to be no homelessness. There needs to be no bankruptcy among regular people. Everyone can have access to medical care, everyone can have access to food, everyone can have access to schooling. There is enough resources for this they are simply being held away from us by those who profit off the privation caused by the scarcity of resource
Xtine: By evil people
Kate: By evil people that are bad.
Xtine: Yeah.
Kate: And, and if you hate those people like I do, or you don't hate those people, and you just want them to give up some of their stuff, so that people can have enough stuff to live . Then you know, either way, you can begin applying pressure to them and this can happen. This is possible. That's the fucking that's the fucking take.
Xtine: Thank you, Kate, that was beautiful. I feel just energized just listening to you, even though I did just wake up so that's why I've been really like, like not responsive during this whole story.
Kate: That's fine. Thank you for joining me for this. I know this was an extremely unconventional episode. So Xtine I'm glad that you joined me to talk about this
Xtine: Thank you for explaining everything to me now I have a little bit more to be angry about, but I know where to direct that. I have some small like steps to like direct the anger towards
Kate: Yeah, you know. So, I'm going to link the articles that we discussed here. I'm going to link the principles of communism by Friedrich Engels if you are a reading type. And Valerie's in the other room, so I'm going to say this very quietly so she doesn't strangle me but if you want if you're reading type and you want to understand more about the current liberal order, you can read capital in the 21st century by Thomas Piketty. If any of this stuff fascinates you. Obviously, if this stuff doesn't fascinate you, and you're just like, that sounds like a lot of fucking money that goes to rich people, we should just break it ,that's also fine too. To be clear, that's the right conclusion to take. It can be useful to understand these mechanisms while they're still existent. Here's the thing, as working people, there's no element of this that is arcane, you know, it's taught that this isn't our business, right? That we don't need to think about this. But it's like, this is your business, right? You work in a workplace. You live in a building where you can't pay your rent, like the consequences of this financial crisis are affecting you the most, right?
Xtine: Sure are. Yeah, continue
Xtine: It's important to . Understand,, why are there these massive unprecedented relief measures that aren't fixing that?
Xtine: We don't see them personally.
Kate: That's important. And that's our show.
Xtine: Yeah, you told me all this stuff before I even had breakfast. So, this is a lot of information to chew on.
Kate: Yeah, everyone out there, you know listener if you listen through all this thank you, I know this isn't the usual provenance of this show. And I know that I basically just come here to rant about economics these days. And I love you guys. I love I you know, I love Homestuck me and the community are a little bit of a chilly we're in very having a conscious separation right now.
Xtine: You're just having a break.
Kate: Yeah, I'm having a break to go do communist things for a moment. Yeah, that's our show. You can find us on overcast iTunes, Spotify, Google Play and more and at pengpod.com or at pgenpod on Twitter. The music for the show was by Goomy and you can find links to find more of their music in the description. You can support this show at patreon.com/pgenpod. Patrons get access to 29 bonus episodes and counting on intermission and I'm recording another one with Dani tomorrow. Your support is shared equitably with everyone who makes each episode possible. That means the musicians, the guests, people who appear on episodes if you edit an episode don't appear on it you get paid like you know this, this is equitably split with everybody that matters. And we've also recently increased the amount of pay for transcribing episodes if you want to check the transcripts channel on the pgenpod discord, if you can. Transcripts help make this podcast accessible to those who are hearing impaired or those who have auditory processing issues, which I do as well. And you know, that I thank our transcribers so much, and I'm so glad that your patron support has enabled us to create and to increase the compensation for this strange little economic engine here that exists this little flying thing of independent media. Next week, Sarah Zedig is going to be talking about mortality and Homestuck. So, I hope you look forward to that. We're gonna have an episode about death because that's where we're at right now.
Xtine: Sounds cool. Yeah.
Kate: So at the end of the show, we'd like to thank our Skylark tier patrons for their support per episode and that's [Names] all right you can find you can find you can ind my micro blog posts at Shrike dot club slash at Kate. Where can folks find you Xtine
Xtine: I'm on twitter.com @galnax. I believe it is. I'm just still there.
Kate: Cool. All right. Well, thank you so much for coming on. Thank you for listening.
Xtine: Yeah, thanks for telling everything to me
Kate: No, no, I figured this like this is more economic activity. This is more economic change than has happened in this country in about 100 years. And it's desperately important that we understand that what's happening even while we're embroiled in our own concerns,
Xtine: Like I said, I appreciate it being like spoon fed to me, like I say that
Kate: Here's the thing, it's not a spoon-fed thing. Right, like, like, I'm a dumb bimbo. I'm a dumb bimbo. But it's like we all have the capacity to understand this and none of it is beyond us. We all deserve to understand this and be able to engage with it right? we all have that capacity within ourselves and it does not make you superior to already have an understanding of it. And in fact, if you already have that understanding, you lord it over people then you're just a dick. In the spirit of that if you want to talk about any of this insane capital shit in the current events channel or the pgenpod book club channel, either one, in our discord by you know, I always love talking about this stuff with you guys. And you can live blog this episode. Wait, that's too late fuck. I'll put that on the top. Alright. Thanks for listening. See you next week. I won't be here but Sarah Well, goodbye,
Xtine: Bye everybody.
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