Week 21 of the Quarantine
SAN MARTIN, ARGENTINA – Can you solve this philosopher’s conundrum… or answer this child’s riddle?
What is something and nothing at the same time?
If you’ve been paying attention this week, Dear Reader, you already know the answer:
It’s the feds’ transfer payments.
A “transfer” must have a “to” and a “from.” But these miraculous money manipulations leave the transferor unaware… as if he had not lost a single penny.
And yet, the transferee is indisputably richer. He can take his $1,200 check… or his $600 a week unemployment bonus… or his forgivable business loan… and go out and spend, spend, spend. He can get real stuff – a haircut, a Harley, a hunk of Halibut.
How could that be?
This week, we’ve been guessing that the huge spike in “transfer” payments was not just the product of an unexpected virus. The transfers were already loaded on the train… rolling down the tracks… and running off the rails.
In 1970, Americans earned almost 90% of what they spent. By 2019, approximately one dollar in every three came to them as a “transfer” payment from the government.
But we haven’t quite figured out what these “transfers” are. Like a ghost train trundling into an empty station, we’re sure there’s trouble aboard. But what? And where are all these transfers – trillions of them – coming from?
Big, Round Numbers
The federal budget called for $3.2 trillion in “transfers” even before the calendar year began. That was in addition to the approximately $1.5 trillion of other spending – military spending, funding government agencies and departments – also transferring money from the person who earned it to someone else who didn’t.
Then came the CARES Act – $2.2 trillion – boosting the federal deficit for the first nine months alone to $2.7 trillion.
And, of course, the Federal Reserve pitched in with $3 trillion… which it lent out at silly rates to Wall Street.
In big, round numbers (which are the only kind worth mentioning… since precision, accuracy, or even honesty in federal finances are an illusion), that’s already about $10 trillion.
And the latest news out of Washington is that Republican and Democratic “negotiators” are making progress. They say they’ll make a deal by the end of the week.
And what exactly are they “negotiating” about? How much more money to transfer! And to whom! From Bloomberg:
The negotiators are trying to reconcile differences between the $3.5 trillion Democratic plan passed by the House in May and the $1 trillion package that Senate Republicans introduced last week.
The Senate is scheduled to leave for an August break on Friday and the House is already out. But lawmakers could be brought back to vote on 24 hours notice.
In the meantime, the $2.2 trillion in stimulus passed in March is drying up.
All together, the U.S. government will probably “transfer” about $12 trillion in this calendar year – if things go well.
But if the market sinks again (very likely; imagine a close election)… the Fed will almost certainly toss a few trillion more into the boiler.
Hey, a trillion here… a trillion there… and pretty soon, you’re broke!
Twelve trillion dollars? Who’s got that kind of money? Who can the feds transfer it from…?
We can easily see who it goes to – people who’ve lost their jobs… businesses that have figured out how to play the feds’ Payroll Protection Plan (including billionaires… Chinese owners… and one guy who used the money to buy a Ferrari)… speculators on Wall Street… cronies… and some ordinary citizens, too.
But the entire U.S. labor force was only expected to earn less than $10 trillion in 2020 – and that dropped to an $8.6 trillion annual rate after the virus struck.
Now, with halting openings… reluctant consumers… and a difficult election coming… who knows what they’ll finally bring home? Whatever it will turn out to be, it will almost certainly be much less than the “transfers” made by the feds.
So, even if we confiscated 100% of the money earned in America this year… it still wouldn’t be enough to cover the government’s “transfers.”
Which is where the metaphysical problem arises. You can’t transfer what you don’t have.
Something and Nothing
We all know where the money comes from – the printing press. And we all know that printing-press money is intrinsically worthless. There is no real wealth behind it. Which is why the feds can create as much of it as they want.
And yet… though it be worthless, it can still be used to claim real stuff. It really does transfer wealth.
So, it is worthless and not worthless… something and nothing… here and gone – at the same time. It’s a “bezzle” worthy of Ponzi. Or better.
The recipients are happy to get it. While those who have been robbed think they still have it.
What’s really going on? Since there is not enough current income to cover spending, the feds must be transferring wealth from the balance sheet, converting America’s capital – her real, accumulated wealth – into spending money.
Which brings us back to an old metaphor: Money is best seen as a claim check. You go to a nice restaurant. You check your coat. You get a ticket proving that you are the owner of the coat.
Fake, printing-press money is like additional claim tickets… with no additional coats.
So by handing out the additional claim tickets, the feds have actually transferred your coat to someone else. Only, you don’t know it yet.
Just wait until winter.
Like what you’re reading? Send your thoughts to [email protected].