COMMENT: Bill Gross says you are wrong and helicopter money is coming and the Fed should print trillions to buy government bonds. Any comments?

REPLY:Gross is not making a forecast without self-interest. Gross’ “helicopter money” calls for the Federal Reserve and U.S. Treasury to engage in another round of quantitative easing (QE) by printing trillions of dollars to buy government bonds. This is his Hail Mary play intended to boost the economy. How will that stimulate the economy? He runs Janus’ bond fund. It will only bail him out of losses on bonds.

Printing money to create “stimulation” is a fallacy. It has never worked. The theory of the quantity of money increasing or decreasing is pure nonsense. This typical one-dimensional thought process is incapable of understanding complexity.

The missing element is the velocity of money. If people hoard money without spending, then increasing the quantity of money will fail to produce inflation. Creating inflation, such as what Japan saw one month before raising the sales tax, demands that people see the price of goods rising so they spend the money faster because they fear it will cost them more tomorrow. Why did Roosevelt confiscate gold and devalue the dollar? People were hoarding money. There was such a shortage of money, more than 200 cities began to issue their own money known today as Depression Scrip.

This idea of “helicopter money” is rather pathetic and fails to dive deep into how the economy functions. Irrespective of the quantity of money, the velocity of money is what always distinguishes deflation from inflation. You could increase the money supply and nothing would happen. Alternatively, you could leave the money supply unchanged and people would suddenly lose confidence in government, causing the velocity to increase thereby producing inflation. This is not an opinion. This is the simple evidence that emerges from correlating everything. Above is the Fed’s latest chart on the Velocity of Money. It peaked with the Economic Confidence Model high in 1998. Despite the increase in money supply, the velocity has been declining. First, we have see pervasive tax increases reducing the disposable income so people have less to spend as government consumes everything. Then, you have price deflation thanks to the internet. Countless stores have closed because they cannot compete with the internet. That reduces jobs and we have over 60% of the people graduating college cannot find jobs in the field they obtained a degree. Bernie’s idea that education should be free will be a disaster for it will will only subsidize a system which is failing to begin with. What the Clinton’s did to students should be reversed that they should be allowed to declare bankruptcy on student loans. We have to undo this mess created by subsidizing education that is pointless.

Clearly, you are trapped in your one-dimensional world within this theory of the quantity of money. There is more to everything than this simplistic reduction of how the world functions to a single cause and effect. You have good days and bad days, but are they always due to the same exact cause? All this talk about “helicopter money” means nothing. Inflation only emerges when people DO NOT HOARD cash and spent it faster because they fear it will buy less tomorrow. There is ZERO evidence that has emerged with QE at any stage. It is pure sophistry.

Welcome to the world of complexity. It takes just a bit more thought and unbiased investigation to see how things really work.

We became the largest global advisory firm for one reason. A Swiss banker explained it to me. He said everyone used us because we did not care if the dollar went up or down. I am a trader. I can make money in either direction. I refused money management roles of equities funds when I would be barred from flipping everything into a short. Long-only positions were stupid and dangerous to me. So stop trying to prove me wrong and take a fresh look at the evidence. If you do, you might learn something that saves your family’s future. It’s your choice. There is just more to this game than one cause and effect. It’s called complexity.

Houston police call the police and accuse little girl trying to buy her lunch with a $2 bill. The government teacher assumed it was counterfeit because she never heard of a $2 bill. The police big an investigation going to her mother who then said she was given it in chance at a store. The police then go to the store to investigate who gave them a $2 bill. All this wasted time because the government employees involved never heard of a $2 bill.

It turns out, the police routinely are called in an prosecute children who may be passing a counterfeit as if they were the person counterfeiting the note. If the police can charge a children with a fake note as being a forger, they face 10 years in prison. A seventh grade student was arrested for merely possessing a counterfeit $10 bill.  He was put in handcuffs, thrown into a squad-car, the hole 9 yards. He was charged with a felony and then sent to an alternative school before he was given a fair hearing and found guilty of anything.

From 1697 until 1832, the act of forgery or even the use of forged notes was punishable by DEATH. This satirical note was designed by 17th century cartoonist George Cruikshank in protest to the rising number of pretend forgers who were sentenced to death and hanged. Standard features of the Bank of England notes are replaced by gruesome ornaments such as skulls, a hangman’s noose, with ships for transportation to British colonial prisons in Australia.This surrounds the image of Britannia feeding on infants.

The crime was mere possession. If you accepted a note and did not know it was counterfeit, it was a death sentence. In Texas, police are charging children with felonies for the same mere possession of a counterfeit note.

The practice of hanging so many people finally led the Bank of England to offer the convicted the option of a “plea bargain” in the form of a guilty plea by a prisoner. So to avoid death, people would plead to a crime they did not commit, the same practice as today with 98% of cases involving plea deals. In this case, you took the deal and received a sentence to 14 years “transportation,” meaning the prisoner would be exiled to British colony prisons in America or later Australia. These were the first “slaves” bought by American plantation owners. It was forbidden in the US constitution as indentured servitude. Therefore, history repeats because the abuse of government never changes. Today, even the possession of a wad of cash is presumed to be guilty and subject to confiscation.