QE did not dump trillions into the system.
Jerry Jordan
1

QE did not dump trillions into the system.

Then you’re unaware of how QE functioned. The US Treasury issued debt, and the Fed then printed trillions of dollars to buy that debt back. The debt was held by individuals, corporations and other organizations. The payment of those notes then went back into the economic system through those entities.

It was very targeted, and as it turns out, mostly useless, because it didn’t get banks to lend.

Ah. I see the disconnect. You’re thinking of TARP, the Toxic Asset Relief Program, not QE. The idea there was to buy the crap derivatives from the banks, clear their balance sheets, so they’d be in a better position to lend and jump start the economy. You’re right. That didn’t work. Mostly because bankers are pricks who don’t care about Main St. They used the money mostly to pay themselves bonuses and increase their capital holdings.

What most are talking about re UBI is giving EVERYONE money. If you give everyone money, then all of that spending will cause a ramp in prices. period.

Now, I want to stop here and reset expectations. When we’re talking about inflation, what is it we’re talking about? Because the situation I’m describing is rampant hyperinflation of the kind that topples banana republics. The kind of inflation that can be caused purely by monetary policy is more modest.

Say, you’re a grocer, and suddenly you have triple the client base because of UBI, product flying off your shelves. In that case, yes, you’ll feel safe to raise prices slowly, but not so much as to scare away your customers to the grocer down the street. Modest inflation can be caused purely by additional currency — but only if that currency is in the hands of a lot of people.

So, when you say that everyone being more avid consumers will increase prices, I would agree with that, but I’d also contend that those price increases would be modest due to the natural market competition for those consumers. Also, I believe those prices would go back down once the new paradigm of additional consumers is normalized into the expectations of the producers.

However, the type of inflation you had originally envisioned is dramatic hyperinflation, which can only be cause by a glut of money chasing too few resources. Scarcity is required for that sort of market behaviour.

When everyone wants gasoline, and there’s not enough to go around, gas prices spike. The price of avocados, of all things, has recently gone through the roof, as has oranges, because China has discovered the pleasure of avocados and oranges, and there is now a scarcity issue. When there is little inventory on the housing market, the market is said to be a “sellers’ market”, meaning that more buyers than sellers exist, and the price of those homes will increase.

But absent scarcity — if there is no competition to acquire goods that are plentiful — there is no market pressure for dramatically rising prices. If I suddenly have more money in my pocket, as long as there’s still enough bread and cheese and milk to go around, the amount of money in my pocket doesn’t cause the cost of those goods to explode, because competition among sellers for my business will prevent that sort of gouging. Modest increases to take advantage of the increase in new consumers? Sure. But hyperinflation needs scarcity.

In a market condition without scarcity, dramatic price increases simply moves the market to other providers. In an affluent community, with many restaurants, a restaurant survives by providing value for dollar spent. A high-end fine dining restaurant can justify higher prices through the quality of the experience and food. However, a restaurant that is in trouble, with too few customers, cannot raise prices in order to recoup. Rising prices will chase the remaining customers away, and you’re left with an empty storefront. And that’s in a community with a lot of excess capital to spend.

And because it would all be financed by debt, you’d have a rise in interest rates (maybe even a spike), which then makes everything more expensive.

Frankly, I don’t know how it would be financed. My suggestion was to take the savings in labor costs realized by companies that automate their workforce, and fund UBI through that mechanism. But your suggestion that national debt would spike interest rates is belied by our experience of the past 15 years. The Iraq War was entirely on Uncle Sam’s credit card, as was the Wall St bailout. No spike in interest rates. I’m not saying there’s no connection, but it isn’t nearly the cause-and-effect relationship you’re suggesting here.

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