After all, digging and filling this kind of project does not require follow-up maintenance, but also more difficult to carry out corrupt operations, as opposed to the white elephant project (not only no benefits also need to constantly invest in maintenance costs, but also easier to carry out corrupt operations), digging and filling the pit is actually slightly better.
A hair of money and bad debts
Roosevelt hired people to dig and fill pits is to pay, where does the money come from?
In 1934, Roosevelt forcibly collected private gold, stipulating that gold could not be used to pay for transactions. Soon after, the U.S. government passed the Gold Reserve Act to adjust the price of gold from $20.67 to $35 per ounce.
The U.S. dollar is the U.S. government’s IOU, and within a few months, the U.S. government lowered the gold content of the dollar by nearly half, allowing the dollar issue to nearly double, which is typical of the government’s reneging on its debt.
How big is the hole dug by the Federal Reserve to nearly double the dollar issue in a short period of time?
The economy is nothing but production and distribution. Digging and filling the hole does not play a role in economic production, this behavior is essentially a kind of government to send money to the people. By government handing out money versus government reneging, it changes the distribution of society. The distribution is tilted toward the lower income (those willing to go digging) and higher marginal consumption rate of the population.
By handing out money versus reneging, the social distribution is altered. In the 1970s, the consequences of prolonged government reneging were concentrated and led to deep stagnation in the Western world. 1971, when the dollar was decoupled from gold and the currency lost its legal anchor, government reneging actually became routine, but it was more insidious because of the change in the anchoring method.
Two commodity (material) reserve system
Whether or not there is a legal anchor, the currency must be anchored, to anchor to keep the value of the currency stable, in order to make people willing to hold.
The top priority of central banks’ monetary policy objectives is to keep the value of the currency stable, in effect the default fiat anchor is its value against a basket of goods (CPI) stable. While modern currencies have lost their anchor in the legal sense, the default anchor is still in place, anchoring commodities (goods) by default.
After the 1980s, global economic stimulus all gradually switched from fiscal stimulus to monetary stimulus, and monetary stimulus, as opposed to fiscal stimulus, saw a shift similar to the shift from a gold coin standard to a gold bullion standard.
Gold standard is the direct use of gold coins (also can be silver or copper coins) as currency, while fiscal stimulus (big infrastructure) is the direct use of materials.
The gold bullion standard system is the national reserve of gold bullion, with gold bullion reserves as a reserve for the issuance of paper money, so as to issue paper money, as long as there is no run, it can pry the reserve of dozens of times more funds and keep the exchange ratio stable. Monetary stimulus is actually the commodity (material) as a reserve to issue money, as long as there is no material run, it can issue material reserves dozens of times more money and keep the price (equivalent to the exchange ratio of paper money and gold reserves) stable. But the problem is that any reserve system will eventually run. 1971, the gold reserve system eventually ended in a gold run.
What about this material reserve gold system after 1971?
Three U.S. infrastructure impact
After the completion of industrialization, speculative opportunities are greatly reduced, more sensitive to market information, private than the government’s ability to grasp the opportunity is stronger, this time to increase infrastructure will instead squeeze out private investment, this time the effect of monetary stimulus is stronger than fiscal stimulus.
After the completion of industrialization, the manufacturing capacity of commodities increased greatly, and the use of commodities (materials) as reserves to print money also gave monetary policy a huge room for maneuvering.
monetary stimulus – increase economic output – print money using economic output as reserves – monetary stimulus – Repeated cycle
As economic output increases, the monetary flood increases even faster, and a path dependence (monetary policy dependence) is formed. The monetary stimulus is based on the use of goods (commodities) as reserves, and as long as there is no run on goods, the ability to stimulate money remains. But it is clear that the rate of economic output is not keeping up with the rate of money printing, and the ratio of material reserves is getting lower and lower.
In 2020, the global economy is in tatters, representing a decline in material reserves. 2021, the dollar is becoming a cloud on global growth. The U.S. fiscal stimulus has been ramped up again and again, which will obviously push up U.S. bond yields, which will attract dollars back and force other countries to raise interest rates, which will suppress economic output in other countries.
In fact the dollar fiscal stimulus has a two-way effect.
1) Investment pulls the economy, exporting demand to the world and boosting global economic growth.
2) Pushing up U.S. bond yields, stimulating global dollar repatriation, exerting pressure on global financial bubbles, and suppressing global economic growth.
But the current world is dominated by finance, which determines that if the financial bubble collapses, the downward pressure on the economy it creates, which cannot be lifted by increasing fiscal stimulus alone. The dollar to increase infrastructure investment, stimulate the dollar back to suppress the global economy will have a more pronounced effect than the export demand to pull the global economy.
And suppress the global economic output, will eventually reduce the global material reserves.
Four One Fish N Eat
After the dollar was taken off the gold standard in 1971, the dollar was in fact printing money with global commodities (materials) as a hidden reserve. The half-century-long monetary stimulus has left the material reserve ratio in rapid decline. And other countries printing money with the dollar as a reserve leveraged it up again and the material reserve ratio continued to fall.
Financial assets are a right to draw on supplies, again with supplies as reserves, and the global ratio of financial assets to physical assets is at a record high as the material reserve ratio falls further. Debt-based capital is pledged against financial assets, increasing leverage again.
One fish n eat, and material reserves are that fish.
If the debt capital is just idle arbitrage, this only magnifies the denominator, and the run on the material reserves is rather small. But if debt capital is invested everywhere in the real world (including infrastructure investment), this will consume the material reserves, which is a direct reduction of the numerator, which will affect the rapid decline in the ratio of material reserves.
When the monetary stimulus reaches the limit, it means that the limit multiplier level of money has been issued with material reserves. And when the stimulus is tilted toward infrastructure, every bit of physical material consumption means that there are limit multiples of paper money corresponding to the material reserves disappeared ……
When the ratio of material reserves is too low, financial rights, M2 withdrawals will not squeeze the material reserves?
Summary: fiat money can be printed at will, but resources and food can not be printed; debt can be infinitely inflated, but the growth of resources and food subject to the availability of land can not be infinitely inflated; the volume of financial assets can grow rapidly, but the corresponding material withdrawal rights, but subject to the production capacity can not grow rapidly; when monetary policy reaches the limit, but infrastructure began to consume material reserves, the run on the material reserves, has gone into the final vicious circle.
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