And if you’re not a bank, then…no unicorns, only trolls.
But really, it’s amazing the extent to which human society continues to run on myth, as one can see during the extended interview of Timothy Geithner by Jon Stewart, and around 31:20, Geithner accuses Stewart of “assuming a unicorn.” He’s saying that for Stewart’s idea of rescuing homeowners–by giving money directly to them instead of indirectly through tax cuts and new programs–to work, he would’ve had to go to Congress and get Congress to appropriate billions for homeowners. In other words, the “unicorn” Geithner says Stewart is assuming is free money to be given to homeowners.
Luckily, Stewart calls BS on that and counters with the fact that the banks DID get a unicorn in the form of billions–if not trillions–of dollars, money conjured up as if out of thin air. Which is indeed what money always is.
That is the fundamental problem with the assumptions made by Geithner in this interview and Neel Kashkari as the bailout was happening back in 2008. That fundamental problem is the false idea that money is a finite resource. Indeed, at least once in the Stewart interview, Geithner asks Stewart to assume that he has a finite amount of money to work with as he tries to guide Stewart through a hypothetical alternative approach to the bailout.
Kashkari said it this way in 2008:
“If we went out to each of the people and businesses and communities and helped them directly the $700 billion wouldn’t go far enough. So we’re trying to take the $700 billion and stabilize the system as a whole so that credit can then flow out to everybody around the country who needs it. So it’s very hard–we’re trying to think of every day–if we have finite resources, how do we use those resources to the best possible benefit to the system as a whole, because that will help every American.”
You catch that? We can’t help people individually because there’s just not enough money. There’s only a finite supply of money, according to these people. That is what they want you to assume. However, that is a completely incorrect assumption, and they know it. Geithner knows it. Bernanke knew it. Greenspan knew it. They all knew it. They just think we don’t.
QE puts the lie to their “money is finite” canard
Where was this argument when it came to QE–quantitative easing? How can we possibly give $55 billion (down from $85 billion) a month to the banks if money is a finite resource? Where is that money coming from? The Economist magazine tells us–from out of thin air, from out of a storybook with unicorns and trolls:
“To carry out QE central banks create money by buying securities, such as government bonds, from banks, with electronic cash that did not exist before. The new money swells the size of bank reserves in the economy by the quantity of assets purchased—hence “quantitative” easing.”
If that doesn’t convince you that money is but a figment of the imagination, then nothing will. Except maybe how I explained it here, based on a recent press release from the Bank of England:
So here is a choice quote from the press release regarding point 1) above, which is that while most people believe that banks lend out deposits, they are wrong:
“One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them. In this view deposits are typically ‘created’ by the saving decisions of households, and banks then ‘lend out’ those existing deposits to borrowers, for example to companies looking to finance investment or individuals wanting to purchase houses.”
So it is both “common” and a “misconception” that banks lend out “the deposits that savers place with them.” I’ll say it again—the central bank itself says that banks do not lend out deposits. That’s not my opinion, it’s not conjecture, it’s not made up. Banks do not lend money that existed prior to your asking to “borrow” it. The press release explains:
“Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money.”
So Geithner’s fundamental assumption–that there wasn’t enough money to rescue both the financial system and the homeowners–is completely incorrect and he jolly well knows it.
One last proof that money is not a finite resource for the government, despite Geithner repeatedly referring (in the Daily Show interview) to the supposed fact the government just didn’t have the money to help out both the banks and homeowners (and therefore choose to help banks, natch)–a quote from an article by an economist, L. Randall Wray. Note what the article says that Alan Greenspan told Paul Ryan:
“I began by noting that ‘money’ and ‘funding’ cannot be an issue for our federal government, which is the issuer of our sovereign currency. It spends through ‘keystrokes’ — by crediting bank accounts — and hence could never ‘run out of money’.
I am not alone in this argument. In March 2005, in response to a question by Rep. Paul Ryan (‘Do you believe that personal retirement accounts can help us achieve solvency for the system [Social Security] and make those future retiree benefits more secure?’), Chairman Greenspan said: ‘Well I wouldn’t say that the pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.‘“
Nothing to prevent it, indeed, except for the apparent fact that the government only has the will to do that for banks, not for you and me–even though it could be done, according to the second-longest-serving Chairman of the Federal Reserve. Put that in your pipe and…weep…