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R K

Bill Gross: More Q E, Helicopter Money & Basic Income

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https://www.janus.com/bill-gross-investment-outlook?utm_campaign=Bill%20Gross%20Feb%20IO&utm_medium=social%20&utm_source=twitter&utm_content=Bill_Gross_Feb

What should the policy response be? Retraining and education sound practical and are at the head of every politician’s promised ticket for the yellow brick road, but to be honest folks, I doubt that much of it will be worth the expense. Four years of college for everyone might better prepare them to be a contestant on Jeopardy, but I doubt it’ll create more growth; for the Universities perhaps, but not many good jobs for the students. Instead we should spend money where it’s needed most – our collapsing infrastructure for instance, health care for an aging generation and perhaps on a revolutionary new idea called UBI – Universal Basic Income. If more and more workers are going to be displaced by robots, then they will need money to live on, will they not? And if that strikes you as a form of socialism, I would suggest we get used to it. Even Donald Trump claims he won’t leave anyone out on the street – a liberal Republican thought if there ever was one. And they are on the street you know. Check out any major downtown in the U.S. if you want to see our future culture. Not the stadiums with the box seats; the streets with the tents and grocery carts. But the concept of UBI is not really new or foreign to capitalistic cultures like that of the U.S. We already have sort of a UBI floor. It’s called food stamps and the earned-income tax credit, but those alone will not keep the growing jobless and homeless off city and suburban streets. The question is how high this UBI should be and how to pay for it, not whether it’s coming in the next decade. It is. Strangely, the concept is endorsed more by conservatives than liberals and in Silicon Valley as well. Even with a theoretical $10,000 UBI per eligible citizen, the cost of $1-2 trillion dollars is seen as an income pool to consume many of the high tech products they produce.

Higher taxes are one way to pay for it, but let me suggest another – something that a Rand Paul or father Ron would have been good at. Drop the money from helicopters. Now, even though this idea sounds more fictional than Trump’s 15 foot wall, it really isn’t. Milton Friedman, then Ben Bernanke and now a host of respected economists including the conservative Economist magazine itself are introducing the idea. These advocates do not really intend to throw money out of choppers. In broader terms, they are advocating fiscal stimulus but stimulus that isn’t paid for with private borrowing or taxes. That last sentence is critical – “not with private borrowing or taxes”. Democrats and Republicans alike can endorse that.

Instead, the money can be printed by central banks as it has been recently. It’s a hard concept to understand and that’s why politicians never discuss it – nor do most central bankers, who want to preserve the sanctity of their “balance sheets” and independence of their institutions. But the independence between central banks and government is rapidly eroding – a new culture is forming if only by necessity. Printing money via QE is in effect a comingling of monetary and fiscal policy, of central bank and treasury. The Fed, the ECB, BOJ and BOE have in effect bought bonds from their treasuries for 6 years now in order to allow them to spend money in support of their sagging economies. They buy the bonds by printing money or figuratively dropping it from helicopters – expanding their balance sheets in the process. They then remit any net interest from their trillions of dollars or Yen bond purchases right back to their treasuries. The money in essence is free of expense and free of repayment as long as the process continues uninterrupted. Technically, the central bank will argue, they have not allowed their treasuries to finance for free because they will sell the bonds back to the free market one day. Not a chance. The only way out for Japan for instance with 350% of debt to GDP and much of it owned by the BOJ is to extend and extend maturities at 0% interest until private markets catch on. Which frankly is what they want. Global markets wising up to the scheme will precipitate the sale of the remaining JGB’s, weaken the Yen and create their magical 2% inflation!

Oh this sounds too good to be true. Just print the money! Well to be honest, a politician – and a central banker – should admit that increasing joblessness must be paid for somehow.

  1. Raising taxes (not lowering them, Donald) is one way.
  2. Issuing more and more debt via the private market is another (not a good idea either in this highly levered economy).
  3. A third way is to sell debt to central banks and have them finance it perpetually at low interest rates that are then remitted back to their treasuries.

Money for free! Well not exactly. The Piper that has to be paid will likely be paid for in the form of higher inflation, but that of course is what the central banks claim they want. What they don’t want is to be messed with and to become a government agency by proxy, but that may just be the price they will pay for a civilized society that is quickly becoming less civilized due to robotization. There is a rude end to flying helicopters, but the alternative is an immediate visit to austerity rehab and an extended recession. I suspect politicians and central bankers will choose to fly, instead of die.

Private banks can fail but a central bank that can print money acceptable to global commerce cannot. I have long argued that this is a Ponzi scheme and it is, yet we are approaching a point of no return with negative interest rates and QE purchases of corporate bonds and stock. Still, I believe that for now central banks will print more helicopter money via QE (perhaps even the U.S. in a year or so) and reluctantly accept their increasingly dependent role in fiscal policy. That would allow governments to focus on infrastructure, health care, and introduce Universal Basic Income for displaced workers amongst other increasing needs. It will also lead to a less independent central bank, and a more permanent mingling of fiscal and monetary policy that stealthily has been in effect for over 6 years now. Chair Yellen and others will be disheartened by this change in culture. Too bad. If there is an answer, the answer is that it’s just that way.

Investment implications: Prepare for renewed QE from the Fed. Interest rates will stay low for longer, asset prices will continue to be artificially high. At some point, monetary policy will create inflation and markets will be at risk. Not yet, but be careful in the interim. Be content with low single digit returns.

I dare say theres probably multiple threads on basic income, money backed QE et al but Bill has gone all-in on all of them in one post so I started a new one.

nota bene: "asset prices will continue to be artificially high"

Edited by R K

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Money for free! Well not exactly. The Piper that has to be paid will likely be paid for in the form of higher inflation, but that of course is what the central banks claim they want.

So according to Carney's prediction of higher inflation then Brexit will be good.

Edited by billybong

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None of that crap will work, which is probably why in general there seems to be so much resistance to it.

Each drop of chopper cash will work for just as long as it takes to flow into the hands of the usual suspects and then another sortie will be required. What is needed is a re-distribution of assets, not income.

Of course the second and subsequent sorties will be harder since they'll have to overcome the inertia caused by the inequality overhang that the first sortie exacerbated before it can have any impact.

There are two choices to establish a workable society: re-distribute assets, or destroy assets. The former requires a re-working of the financial and tax system and the latter requires de-facto negative interest rates.

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The tycoon owns all the assets the game is over, a procession of mugs paying rent, luckily we have an open door policy. Only one thing will reallocate assets. Unfortunately the politicians and the bankers control interest rates.

Edited by GreenDevil

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(negative rates don't reduce property prices and rents)

Yes they do, when you view things comparatively. As long as negative rates co-exist with deflation, which they would do, then prices are falling at the same time as financial assets are being extinguished. This means that those with the most to lose are 'paying' for the majority of the price reductions, whereas those with the least to lose (no assets) are gaining the most.

An asset re-distribution achieves basically the same thing, but is arguably less desirable because ideally one wants a reasonable degree of de-centralised market forces and decentralised decision making to decide which are the least worthy assets that get retired/destroyed.

Certainly there are many unworthy financial assets and over-priced tangible assets that need to be expunged before we can get some sensible balance.

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Unfortunately the politicians and the bankers control interest rates.

No they don't. They can only follow market led movements with official rates, or try and simulate such movements with other tools; with the latter being called 'unconventional'.

How long is it going to take people to understand that the central bank cannot just set rates at any arbitrary level it sees fit?

Edited by scepticus

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The word robot was derived from the Czech word 'robota' which meant 'forced labour'- ie. Slave.

The thing about slaves is not that they don't create value, they do, but they have no recognized claim to any ownership of that value, so the convention is that it is the slave's owner who has the claim to that value.

This 'slavery' model is of course the defaut when it comes to actual robots- even if I sat around all day and did nothing but switch my robot workers on in the morning and off at night the value they create would somehow be deemed as belonging to me, on the basis that I own the robot.

The problem with this model historically is that by laying claim to all the value created by the slaves the slave owners destroyed the local economy- one reason the southern states in the USA lost the Civil war was the poverty of their economy relative to the north- their slaves worked for free, undercutting local labour and what wealth those slaves created was captured by a small number of plantation owners. The result was a southern economy that barely functioned above subsistance level for most of the people living there.

If this slavery model were to be replicated on a global scale via robots the outcome would be similar- small islands of super wealth amidst an ocean of poverty.

So the question is- who owns the value created by our machines? Conventional wisdom argues that the man who owns the machines owns the value they create, and this seems self evident. However this assertion does present a problem. If I do virtually nothing to create the value my machines deliver how can I justify taking all that value for myself? What is the basis of this claim?

The only basis for it is the social convention that assumes that ownership is a property that can propagate itself. So-for example- my machine creates a widget and because I own the machine I therefore own the widget, despite the fact that I had no direct involvement in it's creation. Somehow my ownership of the machine has been passed down to the widget.

Ok- this seems obvious of course, but it's actually a rather slippery idea. For example, suppose it were true that the technology I own that created the widget that I also apprantly own was derived from a research project that was funded by publc taxation- in other words the technology upon which that machine was based was originally owned by the whole society whose taxes paid for it- can we therefore assume that just as the claim on the widget was inherited from the claim on the machine that made it, society as a whole also has a claim on the widget, since the machine that made the widget was itself a product of wider social inputs?

The point being once we allow that claims on the wealth created by technology can be propagated down the causal chain it becomes possible to argue that since all innovation utlimately arises from the Gestalt of society in totality then everyone in that society has some kind of claim on that wealth.

Sounds absurd? Well yes- but consider the legend of the Geek in his garage who invents 'the next big thing'. Our mythology suggests that he alone is responsible for the thing he creates- but is this really true? Did he, for example, dig and refine the ore's from which his components are made? Or did he design and personally create the microchips his device employs? And how about the electricity grid that delivers the power to make his device work- did he personally design and build that too?

Obviosly not- it turns out that our maverick inventor is in reality the inheritor of a vast network of endevour and innovation, some of it the product of public taxation and investment, all of which has made his innovation possible.

So perhaps one way to solve the moral problem of redistribution of the wealth created by our technology is to recognize that this technology is the birthright of all of us, not just the possession of a few who lay claim to it's fruits as theirs and theirs alone.

If the claim of the machine owner is that his ownership of the machine grants him ownership of the wealth it creates then I will make a claim of my own-,that the machine itself is a product of the society that made it's creation possible and therefore that society too has a claim on the wealth created by that machine.

Edited by wonderpup

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Quite. We need an asset reset. Or tax assets to pay for the income with the view that it is steadily re-balanced. (negative rates don't reduce property prices and rents)

Otherwise you remain at the end of a game of Monopoly. You pass Go to get your £200 but you don't have any property and finally the rents break you.

Or better yet. Taxation of assets, like land, houses etc, and lowering the income tax thresholds so as to make work pay.

The first 20,000 pounds are tax except, 20001 to 400000 @ 20% etc...

The power wil shit from asset owners to workers incomes. This will stop bubbles, increase consumption, fix the pension's and so forth

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What happens when the all assets have been sold and spent.....who will pay the rents?

Once the assets were more evenly distributed, and more easily obtainable now they are slowly but surely being transfered into fewer hands....people getting poorer.

Who will pay the rents?

;)

Edited by winkie

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Or better yet. Taxation of assets, like land, houses etc, and lowering the income tax thresholds so as to make work pay.

The first 20,000 pounds are tax except, 20001 to 400000 @ 20% etc...

The power wil shit from asset owners to workers incomes. This will stop bubbles, increase consumption, fix the pension's and so forth

Giving the government more money to waste helps how exactly???

Wealth accumulation by the 1% is the issue and there people already avoid taxes. What you propose will hit those on the lowest incomes the most in percentage terms.

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So..give the poor people money..keep them happy...within a month it will be in the pockets of the rich.

When they run out...give them more...within a month it will be in the pocket of the rich.

They really do think we are all f**king stupid.

At some point the FIAT currency will collapse. It's all slightly worrying.

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So..give the poor people money..keep them happy...within a month it will be in the pockets of the rich.

When they run out...give them more...within a month it will be in the pocket of the rich.

They really do think we are all f**king stupid.

At some point the FIAT currency will collapse. It's all slightly worrying.

That is exactly what is now happening......the poor will never earn enough to accumulate anything, taxed on both income and expenditure.

The wealthy have access to cheap debt, have the security to purchase tax efficient assets, get incentives to employ cheap labour to enrich them further...know all the best places to hide it, know all the best advisors, and can afford to pay them to help them in the best tax efficient way to protect their family wealth.......private profits, public losses.....same as it's ever been. ;)

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They all want an easy way out, basically useless gravey train dead weight.

Go and get job doing something useful like cleaning toilets on minimum wage.

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None of that crap will work, which is probably why in general there seems to be so much resistance to it.

Each drop of chopper cash will work for just as long as it takes to flow into the hands of the usual suspects and then another sortie will be required. What is needed is a re-distribution of assets, not income.

Of course the second and subsequent sorties will be harder since they'll have to overcome the inertia caused by the inequality overhang that the first sortie exacerbated before it can have any impact.

There are two choices to establish a workable society: re-distribute assets, or destroy assets. The former requires a re-working of the financial and tax system and the latter requires de-facto negative interest rates.

Agree.

But since re-distributing assets is even lower on the agenda than QE (already done), helicopter money (currently being "normalised" by just about everyone except herr Schauble) & even basic income (everyones favourite post-robotic society solution) that will be even further down the road. (gross refers to it as option no. 1 then discounts it for obvious reasons)

Oh this sounds too good to be true. Just print the money! Well to be honest, a politician – and a central banker – should admit that increasing joblessness must be paid for somehow.

  1. Raising taxes (not lowering them, Donald) is one way.

Theres a difference between whats likely coming and what will work, but it doesnt alter the likelihood of the former. NIRP didnt last long after all & is only destroying (or taxing) around $25bn p.a. which is risible.

Edited by R K

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There are two choices to establish a workable society: re-distribute assets, or destroy assets. The former requires a re-working of the financial and tax system and the latter requires de-facto negative interest rates.

What you're describing is a general reset.

Throughout history that has been achieved either violently (typically through a revolution/uprising/war as no asset owner willingly gives up their assets) or through a slightly more controlled general cancellation of debts.

Neither option is particularly palatable but the current state of affairs is clearly unsustainable

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Agree.

But since re-distributing assets is even lower on the agenda than QE (already done), helicopter money (currently being "normalised" by just about everyone except herr Schauble) & even basic income (everyones favourite post-robotic society solution) that will be even further down the road. (gross refers to it as option no. 1 then discounts it for obvious reasons)

Oh this sounds too good to be true. Just print the money! Well to be honest, a politician – and a central banker – should admit that increasing joblessness must be paid for somehow.

  1. Raising taxes (not lowering them, Donald) is one way.

Theres a difference between whats likely coming and what will work, but it doesnt alter the likelihood of the former. NIRP didnt last long after all & is only destroying (or taxing) around $25bn p.a. which is risible.

My perception is that helicopter money is about as far away from becoming an established reality as NIRP is. The former is supported by the asset rich like Bill Gross (presumably because they realise that they will still come out on top) and the latter is preferred by central banks who really don't like the idea of helicopter money. Currently neither are politically acceptable to the man in the street.

And the only NIRP we have had thus far is de-fanged faux-NIRP that makes bugger all difference to anything, a bit like QE the last 4 years. QE isn't radical, its just OMO on steroids. Both NIRP and helicopter money are qualitatively different so I year more jaw-boning before anything really changes and one or the other gets tried in anger. We'll need another Lehman's to move things along and who knows when that will happen.

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Helicopter money is a fantasy, there is zero chance of any free money hand out to the plebeians from the banksters.

Lehmans were loaded with derivatives. There are a few other candidates that are equally loaded, can the sink (ie the CB) absorb the hit.

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My perception is that helicopter money is about as far away from becoming an established reality as NIRP is. The former is supported by the asset rich like Bill Gross (presumably because they realise that they will still come out on top) and the latter is preferred by central banks who really don't like the idea of helicopter money. Currently neither are politically acceptable to the man in the street.

And the only NIRP we have had thus far is de-fanged faux-NIRP that makes bugger all difference to anything, a bit like QE the last 4 years. QE isn't radical, its just OMO on steroids. Both NIRP and helicopter money are qualitatively different so I year more jaw-boning before anything really changes and one or the other gets tried in anger. We'll need another Lehman's to move things along and who knows when that will happen.

Don't always agree with you scepticus, but always recognised a powerful mind at work.

I'm wondering about other motivations. QE, negative rates on commercial bank deposits... yet in Europe at least, bank shares down and down, in some connected associated move, as people get this view of free money/helicopter drops. Don't like to think this way, but I do wonder against all of it, if some are looking to get positions in the market at low/lower value prices, for the long term hold, whilst they champion 'free money' solutions.

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I stopped reading after this nonsense :

"Higher taxes are one way to pay for it, but let me suggest another – something that a Rand Paul or father Ron would have been good at. Drop the money from helicopters"

and

" But the independence between central banks and government is rapidly eroding "

Ron Paul is smeared , he is for sound money , he is for gold, why would he ever do helicopter drops of fiat, the antithesis of sound money ?

and it's actually : " But the interdependence between central banks and government is rapidly eroding"

Gross should retire.

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