Rule #3: QT is Fleeting, but QE is Forever

• Quantitative tightening is a game of chicken. It cannot and will not continue forever. 

• At some point the US government’s growing debt pile will absorb so much liquidity, the banking system will cease to function properly.

• Unless one day the government deficits turn to surpluses, the Fed will have to keep monetizing government debt ad infinitum. 

• Thus, in the Dollar Standard, QT is Fleeting, but QE is forever.

Is it possible or even desirable for the government to balance its budget?

Possible, but not probable. In any political system, even in a liberal democracy like the United States, the government exists primarily to perpetuate itself and gain more power. Spending gets you votes. Lower taxes get you votes. Why balance the budget? Deficits have no consequences, all upside. 

Moreover, the majority of constituents for both parties don’t even want a balanced budget. Spending cuts, depending on where they fall, can lose votes for both sides. Everybody hates paying taxes. Thus how can the budget ever balance when an unbalanced budget benefits the majority of voters and law-makers alike?

What would be the impact of a balanced budget? Probably some kind of economic depression. As we saw in the Life-Cycle of a US Dollar the genesis of a Dollar is a US government budget deficit. Fiscal stimulus now leads to monetary stimulus later…

Therefore, if there’s less of a budget deficit, then there’s less dollars being created in the future. Less money creation leads to lower liquidity, lower asset prices, and more frequent panics. 

Does that mean all the money in your bank account has sprung forth, ultimately, from the government not balancing its books? Yes.

Does that mean anyone really earned their money? Absolutely, but in order to get money by definition you have to play a very specific game: 

• If you have money now, buy assets and wait for more money to be created and push up the price of your asset. 

• Sell as liquid money is needed. Or borrow against the inflated collateral value. 

• If you have no money now, sell your labor until you have enough money to buy assets and participate in the inflation. 

Thus, in a way we already have a form of UBI, just not the one that anybody usually imagines. “Payments” in our current deficit-generated system, i.e. newly created money, are weighted towards those who already have lots of assets, and not divided up equally. 

The game for the smart and the talented who lack capital is to find a way to jump-start your way into the possessing classes as quickly as possible. 

The game for people who already have lots of assets is to not become so profligate that you outspend your assets’ collective ability to earn newly created money. 

Since the people with lots of assets can also write checks to political campaigns, the people in charge will always have a bias towards keeping the money printer going. 

And quite frankly none of us who live in a nation that has developed its own money printer should really want this to stop unless you have some stake in wanting to see the world burn…