American Default: The Untold Story of FDR, the Supreme Court, and the Battle Over Gold.
This is a history book about the Great Depression, and it's controversial and it's a long read. What I like about this book is that it explains the opposite argument of quantitative easing, which is something we don't get to read in mainstream media, i.e. why printing money to bail out companies and markets lengthens the recession.
The rhetoric is always central banks acted quickly to release money to prevent a market crash. Hail central banks! However, where does all that money come from and where does it go?
The anti-QE argument is that the government will need to eventually cut back on spending or increase taxes to recoup the amount of money it printed. The businesses that would have otherwise failed, are artificially propped up, much like putting businesses on expensive and no-yield life-support machines. If the unprofitable businesses were not put on life-support, the impact would have been faster and greater, and the survivors would be able to grow their business because they are able to increase their market share (the share that was previously held by the unprofitable businesses). This will allow the market reset to happen faster, and end the recession faster too.
The pro-QE argument is that when there is a demand or supply shock, or in the case of covid19, demand AND supply shock, we must save all businesses, regardless if they are profitable, because if the profitable businesses shut, the impact to the economy will be greater, i.e. profitable businesses take a very long time to develop. The idea is also that when the economy recovers, the government will be able to earn back the money, so the priority is to reduce shock and spread out the impact, by flooding the markets with money to support businesses, support jobs, etc, much like the damping graph in physics.
In1930, they printed so much money that the government had to unpeg the dollar from the gold. It was also a difficult choice because there were bank runs one after another as there were thousands of banks and many were collapsing. The government had to print money to bail out the banks. The unprofitable ones were made to shut or consolidate. All the while, the government maintained a ratio, reduced the ratio when they needed to print more money, and eventually they printed so much money that all the gold in the world was insufficient to back the dollar, so they unpegged from gold. That was the road to stocks prosperity for those who like to analyse stock markets from 1929 when the great depression started. However, behind that rosy stock market growth, was the supposedly untold stories of government forcing farmers to destroy crops so that prices can rise, and help farmers earn more, and also ensure the president get re-elected because farmers form a big majority of voters. The government also confiscated all gold from every citizen, reduced all asset values by 40%, banned export of gold, banned import of commodities, so that prices of goods could be controlled and be increased by the government.
The similarities with what's happening in the US now is the trade tariffs imposed to help protect the US farmers. The intent is to fix prices to raise prices, so that farmers earn more, and also win the farmers vote. However, if we don't address the real problems, of perhaps quality, costs, and demand, the economy is never real.
Eventually demand never really improved and the political struggles across the world led to World War II. Unfortunately, it was WWII that helped reset the markets. The post war rebuilding efforts was a big driver for the recovery of economies around the world. The arms race was the growth engine.
Moral of story: markets need to reset, wipe out the unprofitable companies, redistribute market share, to get out of a recession. Somehow, based on those arguments, I feel that we never really got out of the recession from 2008. The big question is how many cycles can such money printing cushion the impact of recessions? To a certain point, it's effect will not be felt. Inflation may be so high that causes the income gap to rise because of uneven asset distribution, and then people fight among themselves again because they feel that they have nothing else to lose.
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