Thursday, March 14, 2019

Where's All The Inflation? Ask Your Grandparents; MMT And An Immigration Disaster

This morning on Yahoo Finance I found an article on the topic of the low overall inflation that the U.S. has been experiencing despite the Fed keeping interest rates ultra-low for over a decade (I say "overall" inflation because I'm aware that some specific things out there have been experiencing quite a bit of inflation). Here's the article: There's A Fight Brewing Over Government Debt, Low Inflation And What To Do About It.

Basically, the article explores the question of massive government spending and whether or not it's a problem anymore (from the perspective of sparking runaway inflation). This is a question right now because of something called "Modern Monetary Theory," (MMT) which is rearing its head thanks to the so-called "Green New Deal," an approximately $93 trillion total remake of the U.S. economy, government, and culture.

MMT, in a nutshell, holds that a country such as ours that only deals in its own money can run the printing presses to cover its own debts, and that inflation can be controlled by using tax policy to increase or decrease the amount of money removed from circulation.

Maybe they could get away with this, but it's probably not for the reasons the people pushing these ideas think.

If this is what they really want, then they're going to have to build President Trump's border wall and lock down immigration to a point where almost no one can get in to the U.S., something that the same people pushing MMT are vehemently opposed to.

What do these things have to do with each other? Well...

The thing that's in this article that caught my attention, which gets glossed over completely, is this:
"Front and center is what to do about inflation. Powell has ruled out raising the 2 percent target. But he’s also evinced concern about the risk of the U.S. falling into a disinflationary spiral.
That’s what happened to Japan more than two decades ago –- with disastrous results. Because the Japanese expected prices to keep falling, consumers put off purchases and companies shelved expansion plans, and zero-rates policy at the central bank failed to entice them. Eventually, a combination of cheap money and budget deficits succeeded in shoring up demand, but only after years of lost growth."
That Japan was mentioned in this article is important, but that the entirety of the discussion was on monetary policy shows you that the people considering this question are failing to consider it in the complete context of the society they're examining. In particular, they left out one huge factor that drives the whole thing, almost regardless of the monetary policy adopted: age.

Note that the article states that deflation began in Japan about two decades ago, so roughly 1998-1999.

Japan experienced a post war baby boom, much like the U.S. did, between 1947 and 1949.

If you were born in Japan between those years, then twenty years ago, you were in or just entering your 50's.

There's a good chance that at stage of your life, your kids are grown and have moved away from home. Your career isn't quite over but you're probably settling down into "cruising mode" for the remainder of it, maintaining, but not seeking big raises. Maybe during this time you've downsized your home. You might be spending more on vacationing, but "big purchases" are a thing of the past for you at this point. In general, your consumption is going to decrease because your advancing age finds you in a different place with different needs.

Couple that with the fact that you and your peers had far fewer kids than previous generations, and suddenly there's a chronic shortage of workers, too, so there's less cash getting into the remaining hands out there...

Inflation is an increasing supply of money chasing a static or decreasing supply of goods and services. When there's more units of money available, people can offer more of them in exchange for the stuff that exists in the market, driving prices higher. Deflation is the opposite, when there's a static or increasing supply of goods and services, but it's DEMAND that is going down. Then the money supply can be static, or even increase dramatically, and it just won't matter. Prices will tend to fall as providers in the market compete for the smaller and smaller number of buyers out there.

Japan has been experiencing this for several decades now because of domestic trends, but also because they're an island nation with incredibly strict immigration controls. You pretty much can't just walk in to the place and set up shop, you mostly have to fly in, and then the immigration authorities can track you.

The U.S. is experiencing much of the same thing when it comes to aging. Our baby boomers are now turning 65 at a rate of 10,000 per day, which will continue for about eleven more years. More importantly, this phenomenon began in 2011 (note the date of the article I just linked), almost as long as the Fed has been keeping interest rates at record lows...

So with one quarter of our population moving beyond their big production and consumption years, and with subsequent generations being smaller, or about the same size but more spread out in terms of birth years (and therefore life stages and the paired spending and production characteristics of those stages), it shouldn't be a mystery why inflation seems almost impossible to stoke by printing more money. If demand is down, but goods and services are static or increasing, prices will fall. They have to, there's no point in raising prices on stuff that's collecting dust on the shelf.

So if your population is old, didn't have as many kids as previous generations, and the following generations are having even less, how can you grow your population?

Immigration.

Let's say then that MMT becomes policy, and AOC and other socialst/communist dipshits are running the presses until they smoke, launching this social program, that "green" construction program, shoving corks up cow butts, etc. There's trillions and trillions of new dollars out there, but inflation is still not a big deal because the population is basically not consuming much and it isn't growing. Maybe it's even shrinking.

Then 42 million people show up on the southern border and walk right in. 
 

They're poor, they're desperate, they're hungry and they're injured. Immediately they want some of that "Green New Deal" largess for themselves: food stamps, housing, utilities, education, medical care, universal basic income, you name it. In fact, that's why they came. The myopic U.S. socialists/communists have laid out a buffet and never came up with an effective means of limiting seating to U.S. citizens only. In fact, they opposed pretty much everything that could have prevented this flood of humanity from pouring into the country.

So now there's all kinds of new units of currency floating around, and then all at once, a new population walks in that's a bit over half the size of the entire boomer generation, and this group of new arrivals tends to have a lot more kids than the natives do...

Now there's demand for goods and services. LOTS of demand. And all this cash floating around...

And then inflation goes wild...

And then we're Zimbabwe.

So, to sum up, running big debts and deficits is something that I'm generally opposed to, and that includes creating more units of currency to "paper over it all." But, I do have to admit, the experience of Japan does make an interesting case for why maybe it wouldn't matter. BUT, the U.S. would need to essentially recreate Japan's island nation status with physical and policy barriers to new immigration that we currently just do not have. This would require that the left (and several on the right who constantly put the interests of big business ahead of all else) to agree to and support creating "island nation U.S.A." But they won't. They look at uncontrolled immigration as a source of new voters, in particular dependent voters, what they hope will translate into an unbeatable voting bloc that will keep them in power for generations. To them, the economic disaster that would be MMT plus uncontrolled immigration likely represents an opportunity to permanently entrench themselves by reducing the majority of the U.S. population to grinding poverty, dependent on them for welfare.

Further reading, some stuff to think about for investing in the shadow of the "gray wave":

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