Being that the avenues in which the Federal Reserve, and other central banks, try to induce inflation by “controlling the supply of money” in the economy has failed miserably for the past twenty years, the dilemma will inevitably face them after this era of transitory supply chain-induced inflation ends in a spectacular bid-down of asset prices.
They will have to start coming to terms with the fact that perpetual Quantitative Easing has done nothing for them, and thinking up new ways to hardly control money supply in the real economy will become moot. If we are to assume that they are fine with being reckless and trying something new, then we must look no further than the Central Bank Digital Currency (CBDC). We’ll get to that in a bit, though - first we must analyze other options they have.
Gun to the Head Approach
See, the Fed can’t control commercial banks’ disinterest in lending and perpetual risk-off long-term sentiment. If they do try to interfere with the banks’ “sentiment” by basically forcing them to lend, then that creates a whole plethora of moral hazards and resource misallocation. We saw with Japan, how putting a figurative gun to the figurative heads of banks doesn’t do much for economic stimulation. Do the same here, with a populace that is extremely indebted, and watch a similar effect take place. This kind of “economic stimulation” would not happen, however, as no one in congress is willing to put their reputation on the line to pass legislation that will force commercial banks to do the moneyprinting on the part of the Fed.
No, the headache that it would cause would be too disastrous. More debt doesn’t make people want to spend, it just makes the jenga tower more shaky. Well, if we can’t make banks lend, then why don’t we just do a jubilee of all debt!
Jubilee
Forgive all the debt! Let bygones be bygones! Well, good luck with that. You have businesses, infrastructure, educations, medical care, car payments, and financed products all throughout the economy. You can’t just declare debt null and expect financial and political infrastructure to still be in tact. This is something that generally happens before a socialist takeover of government. It’s how you completely and utterly destroy a financial system and annihilate the global economy in the matter of minutes.
That’s the thing, though. You don’t just forgive all debt, without the government paying down all of these financial institutions, which would literally destroy money in the process - as in the assets would be destroyed as the only thing left in surplus is interest denominated in Central Bank Reserves (CBRs), which banks, realistically, do not need at this point. What they need is Treasuries. However, another problem arises in the banking system, as the entire world has trillions in dollar-denominated debt that would like to be eagerly forgiven in this event. How does this end up being remedied? It doesn’t, and the financial system would collapse as no one knows if they would be able to be made whole, and the dollar is bid-down in an expectation of escalated unpredictability. I wouldn’t be surprised if, in this event, we went back to a gold standard, to help price things out properly again.
This doesn’t work either.
Moneyprinter
This is the best and most reliable option. Third-World shitholes love using this option and creating so much inflation it leads to their entire economy collapsing! Right, well let’s do it! Send out a $1,000 check to the people! Oh look, yes, inflation is rising! W-wait… oh only a few months later and it’s falling back down! That can’t be right. We need those housing prices and stuff to keep rising, so uh, I guess send another!
You get where I’m going with this. You raise short-term aggregate demand, which greatly impacts future supply and demand, and you have to keep pumping out the money. Unfortunately, we are not in an era of the 1970s where economic expansion is keeping the dollars flowing, and much of this would just go to paying down debt. Ironically, printing money might end up having the complete opposite effect of what it is intended to do.
Likewise, there is the political aspect that would blow back. Any American of the rightist persuasion is pretty keen on the fiat funny money’s machinations, and is just going to convert their dollars into gold and silver the minute this happens. Yet again, this prevents velocity from rising, and that is what the Fed and gov’t want at this point, for the 1.115 velocity of M2 to rise back to the 2.2 it was in the late 1990s, which they just won’t get due to the poor economic growth and massive amounts of debt we have.
Central Bank Digital Currency
Okay, well here’s a great solution the commies are trying out:
Just get rid of commercial banks, and bypass the entire banking system itself to give people buying power, and get this, they have thirty days to spend it! Badabing! Then we can also track their payments and prevent them from using any other form of money at the consequence of fine or imprisonment! Yes! Surely this will go perfectly well!
Yeah, you get the sarcasm. The fact people think this is even going to get off the ground is pretty surprising. Not only is the very fact that everyone who has their fingers in the innerworkings of the banking system won’t allow this to happen, due to their heavy political sway, because they know this would not benefit them and hand over the gavel to politicians, but it’s just a great way to not bid up asset prices, which is the entire objective of the Fed. Yeah, people forget that. They don’t want inflation just for inflation’s sake - they want the houses’ prices’ to keep going up so, well, not only can they make money, but their reliable boomer voters are eager to keep voting for them.
I’m not shitting you, it’s literally entirely a ponzi scheme.
And to paint a better picture of how impactful this would be on how money even works, the Fed would marry the Treasury and the Central Bank Reserves would become legal tender.
Central Bank Reserves = Money/Ledger System of Banks
Bank Deposits = Made proportionately to CBRs (this is the money you see in your bank account)
Effectively, the Fed/Treasury Hybrid (Freasury?) would bypass the bank deposit part, because they could just lend, borrow, create, and destroy money on a whim, so why have competing commercial banks? Yeah, once you say it out loud, it sounds really fucking stupid.
However, this is how they will try to induce inflation if they ever have the balls and oxygen depletion (from sniffing their own farts too much) to do it. In my opinion, they won’t do it, because they don’t need to, and the slow deflationary collapse is much more preferred in the interim. This way, they can still maintain hegemony over the entire global economy, and have the last laugh. A CBDC would, like all other options, just spur a further international resentment of the US and create unneeded animosity.
Conclusion
With all of that said, I am no soothsayer, but I am really good at espousing unpopular opinions that turn out to be truer than the naysayers thought. The system is overrun with debt, and in a scenario where the average person is more privy to either paying off said debt, or either just not caring and defaulting, the same end is ultimately had - the excess is drained out. The former seems to never happen, but is much more preferable, as the latter would lead to a plethora of different horrible futures that none of us want to live in. Hopefully people understand they are supposed to act like fucking adults and pay what they’re required to, but I think the system is in for a lot of resentful, fat twerps who think that debt is just something you fandangle around with like it’s nothing who will actively crash the system and lead to a massive 1929-style deleveraging. Regardless, this will happen no matter what, because the more debt we have, the less revenue is had, and therefore, the more awful and stagnant our economy and lives are.
*Sigh* poor man pays twice.
“Forecasting our futures is built into our psyches because we will soon have to manage that future. We have no choice. No matter how often we fail, we can never stop trying.”
Alan Greenspan