Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury | TigerDroppings.com

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Doc Fenton
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Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury



Wow! And yet another idea that I have been arguing for years suddenly makes its way into the WSJ, this one from last Wednesday: " Bring on the 'Helicopter Money'."

Arbess is a hedge fund manager and general partner at Perella Weinberg, and here's what he writes about the idea, which actually goes back to my hero Milton Friedman (I didn't even know this!):

quote:

There is another possible solution. A decade ago in a widely noted speech, Ben Bernanke, then a Federal Reserve governor, encouraged Japan to finance tax cuts with money printed by the central bank and credited directly to the budgetary arm of the government without issuing any more interest-bearing debt. This idea was first proposed by Milton Friedman in 1948, who likened it to a "helicopter drop" of money for combating deflation. Today "helicopter money" is more politely called "overt monetary finance."

The Fed has already printed about $2.5 trillion of new money. Overt monetary finance might offer a more direct way to channel that money into the economy than trying to push debt through banks to the private sector. Such an approach would bypass the credit channel and send cash straight to the Treasury, where it would be deployed as directed by Congress.

The Fed would be making the equivalent of an equity investment in the Treasury, which is important because it is prohibited by law from directly buying Treasury debt. This mechanism might offer an optimum combination of fiscal and monetary stimulus without increasing private or public debt.


EDIT: I also didn't realize that Bernanke had recommended this to Japan. I sure as shite wish he could have done it here in the U.S. instead.

quote:

Overt monetary finance is only a crisis-fighting tool. Once the economy stabilizes, the nation's elected leaders must find a responsible way to correct the nation's long-run budgetary imbalances.


Sounds pretty spot on to me.



This post was edited on 5/19 at 7:47 am



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I Love Bama
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


Love milton....but this is over my head





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Coeur du Tigre
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


quote:

Such an approach would bypass the credit channel and send cash straight to the Treasury, where it would be deployed as directed by Congress.
This may be the reason it hasn't been done before. The Fed needs to have some control over where the funds end up. As they have far more control over the banks compared to Congress, putting The Big Money directly into the hands of Congress would not be Plan A. JMHO.






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Doc Fenton
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


That really doesn't make any sense.

Congress controls the budget either way.






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Coeur du Tigre
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


quote:

Overt monetary finance might offer a more direct way to channel that money into the economy than trying to push debt through banks to the private sector.
To which banks is he referring?






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Doc Fenton
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


BAC, C, JPM, WFC, GS, MS, USB, PNC... those banks.





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Coeur du Tigre
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


Ok, thanks. I am thinking these banks are independent of Congressional interference and will direct (or not...) the funds accordingly. As they would be more responsive to the wishes of the Fed in this regard, after their mountainous provisions are taken care of, this option would be better than losing it to the D.C. Beltline.





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LSURussian
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


quote:

and send cash straight to the Treasury, where it would be deployed as directed by Congress.

quote:

That really doesn't make any sense.

Congress controls the budget either way.








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foshizzle
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


quote:

Once the economy stabilizes, the nation's elected leaders must find a responsible way to correct the nation's long-run budgetary imbalances.








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BennyAndTheInkJets
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


Doc, you know coupons paid to the Fed get immediately remitted back the the Treasury already. The only thing that is actually paid is the principal which can be rolled pretty easily. We've gone at this enough you know I'm one of the biggest Fed supporters and QE defenders, but this situation just creates the biggest moral hazard in history. Interest is controlled by supply/demand of our debt so the Fed can smooth out the economic and market thirst for our debt but principal is still controlled by the budget. The budget is controlled by politicians, and if you think Keynesiasm creates a blank check for the government this would be creating a money tree. Politicians are short sighted enough.





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el duderino III
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


quote:

Politicians are short sighted enough.
+1. Something tells me Bernanke's criteria for a crisis is not quite the same as the criteria politicians would be wont to use in a given situation. I might be more in favor of it in a country with a balanced budget amendment in it's constitution and congressional term limits.






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Doc Fenton
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


quote:

Interest is controlled by supply/demand of our debt so the Fed can smooth out the economic and market thirst for our debt but principal is still controlled by the budget. The budget is controlled by politicians, and if you think Keynesiasm creates a blank check for the government this would be creating a money tree.


I just can't possibly fathom how it would be any worse than what we've seen the last 5 years, and I also can't understand why a blank check for government to cut taxes until inflation arrives is any worse than a blank check to completely override the pricing mechanism for money & interest rates.

Like I always say, ZIRP is more dangerous than people think. This would be a more honest way to pay for government expenditure, in my opinion. It makes far more sense to just cut taxes across the board and make up for it with a counteracting inflation tax, rather than to pick winners and losers and subsidize the financial industry while creating odd pockets of asset price bubbles as the remainder of the economy continues to erode.

The CPI index fell from March to April this year for the first time since 2003. Things are not looking good.






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el duderino III
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


quote:

This would be a more honest way to pay for government expenditure
agree
quote:

rather than to pick winners and losers
But do you have any concern that funding the treasury this way could lead to even bigger stimulus packages in future economic downturns instead of across the board tax cuts? Which inevitably involves a lot of picking winners and losers. Or do you think this method wouldn't affect the ratio of tax cuts to stimulus much? I have little faith that future politicians will collectively vote to give themselves less power and pass on opportunities to play santa clause when they can convince voters it's in response to a "crisis".

quote:

subsidize the financial industry while creating odd pockets of asset price bubbles
so the argument is that this should only be done the event of a financial crisis? To increase the money supply more quickly via tax cuts, instead of through the banks? At what point would you distinguish staving off a crisis from returning to the standard practice, near zero interest rates, etc, to combat a lagging economy following the crisis, and who would decide that? If it's at the fed's option, then I agree it would likely be a much better method for injecting money into the real economy, but if it's a standing option for congress, that distinction seems suspiciously arbitrary to me.






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Doc Fenton
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


quote:

At what point would you distinguish staving off a crisis from returning to the standard practice, near zero interest rates, etc, to combat a lagging economy following the crisis, and who would decide that?


Huh? I'm not really following that sentence, but the idea is to keep interest rates at a healthy level until the threat of a deflationary collapse is gone. (EDIT: and to keep them at a healthy level after, never having to resort to ZIRP)

When do you know when to stop? Easy. Whenever inflation returns.



This post was edited on 5/20 at 10:18 am


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el duderino III
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


I still dont understand how funding only the tax cuts would have enough of an impact on the money supply to not have to augment it with OMO's though. Or is the argument that the Fed should finance all treasury spending until the threat of deflation subsides?

eta: i dont have a subscription so I couldn't even read the full article, if that matters



This post was edited on 5/20 at 10:34 am


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Doc Fenton
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


quote:

I still dont understand how funding only the tax cuts would have enough of an impact on the money supply to not have to augment it with OMO's though.


Really? The U.S. takes in over $2.5 trillion in taxes a year. Pumping hundreds of billions of dollars ex nihilo into the economy every year would definitely have a huge impact on consumer prices.

I'm not saying that rate cuts wouldn't still be in order, but it would be rate cuts from 6% to 2.5% rather than from 6% to 0.5%. There's a huge difference there.






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Shankopotomus
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


I'm not sure any plan which advocates printing more money and making it easier to access in a budgetary since is a good idea

I mean, do we want the dollar to be worth anything anymore?






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el duderino III
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


Oh ok I see why I was confused now. I was thinking of the tax cut amount relative to base money instead of M1 or M2. I was like, ok the fed jacked up the MB by over a trillion immediately following the 08 crisis, 5% or so of a few trillion...does not equal a trillion.

But yeah, now that I understand it, that does seem like it would be much more effective than ZIRP. Interesting stuff.






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BennyAndTheInkJets
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


quote:

I just can't possibly fathom how it would be any worse than what we've seen the last 5 years, and I also can't understand why a blank check for government to cut taxes until inflation arrives is any worse than a blank check to completely override the pricing mechanism for money & interest rates.

Because the government would still indirectly affect the pricing mechanisms for money & interest rates, and at the end of the day it depends on who you give this authority to. Who would you rather have the printing press, the Fed or the government. Because if you allow this, you do in substance give this power to the government. I'm sorry, but I can't see how you think this wouldn't be worse than the past 5 years. Our budget deficit is actually decreasing now thanks to the sequestration and tax receipts. Be it as it may, the sequestration completely cuts future growth drivers (R&D) while not cutting growth headwinds (entitlements), but that's a different conversation.

quote:

Like I always say, ZIRP is more dangerous than people think. This would be a more honest way to pay for government expenditure, in my opinion. It makes far more sense to just cut taxes across the board and make up for it with a counteracting inflation tax, rather than to pick winners and losers and subsidize the financial industry while creating odd pockets of asset price bubbles as the remainder of the economy continues to erode.

ZIRP is dangerous, but giving government unlimited money is infinitely more dangerous. How is it an honest way to pay for expenditures is for them to have no consequences for expenditures? That makes no sense. So your point is to cut taxes across the board, give the government a free checkbook, then tax when inflation rises? That's under the assumption that politicans do what's economically right. Come on Doc.
quote:

The CPI index fell from March to April this year for the first time since 2003. Things are not looking good.

They aren't looking absolutely horrible either. That's kind of what we're in for a while. We have three distinct pockets in the global market: Negative growth in Europe (possibly Japan), Slower but positive growth in the US (possibly Japan), and higher growth in EM.








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BennyAndTheInkJets
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re: Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury


Furthermore here is my biggest worry with your suggestions, you have two scenarios.

1 - The Fed hikes rates when inflation rises.
2 - The government raises taxes when inflation rises.

Historically, #1 has been late while I'd argue #2 has never happened. Would you really and truly put your faith that #2 would happen before #1?






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