Money derangement

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, recently called for another “more restrictive lockdown, state by state, for up to six weeks,” in order to “save lives, and save the economy.”

By more restrictive, Kashkari and his co-author mean “mandate sheltering in place for everyone but the truly essential workers . . .. ” Most people would be allowed to leave home only for “food shopping and visits to doctors and pharmacies while wearing masks and washing hands frequently.”

Setting aside whether six weeks of Vitamin-D deprivation will save lives, it’s not clear how another round of lockdowns—more restrictive than the last—can save the economy. How will those millions who are already unemployed—and the millions more who would likely become unemployed—survive? The same answer we’ve been given since government untethered the dollar from gold back in 1971: borrowing and spending.

We already know that Kashkari fully endorses this approach: back in March on “60 Minutes” he said, “There is an infinite amount of cash in the Federal Reserve. We will do whatever we need to do to make sure there’s enough cash in the banking system.”

In March we’d just tapped into that “infinite amount” of cash to the tune of $2.3 trillion. The debt has since grown by $3 trillion, bringing the total to $26.5 trillion. Nonetheless, Kashkari and his co-author say “traditional concerns about racking up too much government debt do not apply” today.

Why? Because any borrowing can and will be financed by those who—unfairly in their view—have managed a savings rate of 20 percent during this crisis. “[W]e can finance the added deficits for covid-19 relief from our own domestic savings. Those savings end up funding investment in the economy.”

With $26.5 trillion in debt, we’re already beyond the point where we can even hope to raise taxes enough to ever pay it back. How much more would Kashkari and his comrades plan to borrow without our consent during this round, while telling us the borrowing means (only!) that prudent Americans’ savings will “end up” being consumed by those forced not to work?

Economists and central planners have been creating conditions of continually increasing monetary derangement since 1971. Perhaps, if Americans really appreciated the fiat-money storm that’s coming, we would muster the courage to demand a strict monetary lockdown: a plan to phase out The Fed—and the whole fiat money system with it.