Someone Explain the Mechanics

If dollars are created, where will it go? If we are suffering from low demand largely due to an indebted public, how would that money find its way into the hands of those who need that debt relief? Higher incomes? More jobs? Where will these jobs come from?

Why would incomes grow all of a sudden when they have been stagnant for the past several decades? If anything, real incomes have gone down. Why would businesses do some good will and simply pay people more? I don’t see how.

More jobs? Well, if businesses have no reason to grow right now due to lack of demand, why would they suddenly grow because of an increase in money? If people are not going to be buying more products tomorrow, why would businesses hire more today?

What I’m getting at is that I simply do not see the mechanism by which that demand will actually arise. If people remain indebted, they have no income growth and no jobs, where will any new jobs come from? Our manufacturing base is pretty much almost gone, and what’s left have replaced many jobs with automation. No point in hiring actual people who expect a decent wage.

From WSJ:

For generations, Procter & Gamble Co.’s growth strategy was focused on developing household staples for the vast American middle class. Now, P&G executives say many of its former middle-market shoppers are trading down to lower-priced goods—widening the pools of have and have-not consumers at the expense of the middle.

That’s forced P&G, which estimates it has at least one product in 98% of American households, to fundamentally change the way it develops and sells its goods. For the first time in 38 years, for example, the company launched a new dish soap in the U.S. at a bargain price….The world’s largest maker of consumer products is now betting that the squeeze on middle America will be long lasting.

“It’s required us to think differently about our product portfolio and how to please the high-end and lower-end markets,” says Melanie Healey, group president of P&G’s North America business. “That’s frankly where a lot of the growth is happening.

Mike Konczal:

Instead of developing new, innovative products, P&G, the major trendsetter for a large part of what Americans buy, is going to focus on taking its existing base of products and make shoddier, cheaper versions of them.  Versions better suited to fit an hourglass distribution of income.

Mike and others are blaming both income inequality and income stagnation among the masses. All I’m seeing so far is that the Federal Reserve’s further loosening will lead to more of this. Not more jobs. Cheaper products. And it’s even cheaper to manufacture cheaper products in low cost regions – China, India, elsewhere. That may be great in a sense, but it doesn’t mean jobs will eventually find their way back here any time soon.

Leigh Caldwell says “the dollars have to find their way back (probably in Treasuries)”, but with a government unwilling to spend much in the US, what good are those dollars coming back in Treasuries? So far we’ve seen it’s much safer to put your money in Treasury bonds than investing it in anything that would lead to more jobs.

It seems to me more like whatever actions the Fed takes will feed money to entities which are already awash with money and it’ll stay within the finance circles, get invested in nothing job (in the US) producing, and never trickle down to where it needs to go.

I don’t see how any of this will work without fiscal policy forcing the money downward through infrastructure spending, which will never ever happen in this political climate.

I understand the concepts behind targeting higher NGDP, but there’s a dearth of explanation as to the mechanics of how it will actually work instead of simply be a waste of effort.


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