The Federal Reserve has been trying to boost the official inflation rate for eight long years, and apparently patience with current policies is finally wearing thin.Rumor has it that the Fed is readying a new “nuclear option”: distributing $1 million to each household in the U.S.
The Fed can create any sum of dollars it chooses with a few digital keystrokes.An unidentified source at the Fed reported, “The handheld calculators at the Fed only have 12 digits, so there’s a bit of confusion about how much money we’ll have to create to give $1 million to all 100 million U.S. households. The consensus answer is $100 trillion, but they’re putting the numbers into the current econometric models to verify this.”
The basic idea is that giving each household, regardless of wealth or income, $1 million each will spur consumption so mightily that inflation will skyrocket. “What the Fed has wanted for eight long years is to generate an expectation of inflation,” our source explained, “so that consumers will spend whatever cash or credit they have now, knowing that it will buy less in the future.”
Once people expect substantial inflation, they realize the best course of action is to borrow as much money as possible now before interest rates rise–an inevitable consequence of inflationary expectations.
They also realize it’s best to buy whatever you can now before the price rises next month.
“The advocates of this program see asset prices leaping higher,” the source said. “Why would a seller of a house asking $500,000 before ther giveaway maintain an asking price of $500,000? of course the price will immediately jump to $999,000.”
Debt repayment becomes much easier with $1 million in cash. The source iside the Fed noted, “Imagine how much money the federal government is about to lose in student loan defaults. With $1 million in cash to each household, naturally the government will deduct any student loans, overdue taxes, penalties and so on up front. The banks will love this and so will the federal, state and local governments.”
Skeptics are uncertain that households will feel any motivation to pay off private debt such as home mortgages. If interest rates are set to jump higher, it makes sense to hold onto your 4% mortgage rather than pay it off.
The Fed insider noted that advocates expect a tremendous surge in big-ticket consumer durables such as RVs, muscle cars and vacation getaways. “It will be a bonanza for every company selling whatever the middle class aspires to,” the source said.
Skeptics believe the money would be better spent on rebuilding America’s crumbling infrastructure, but the Fed source said that’s already been factored in. “Every level of government can reap a fortune with consumption taxes, user fees, transfer taxes, sales taxes, you name it. With a million bucks to blow, how many people are going to complain about higher sales taxes, transfer taxes, registration fees, higher property taxes and all the other new revenue streams? Very few.”
When asked about the potential of triggering Venezuela-like hyper-inflation that ends up destroying the currency and the economy, the source demurred. “The Fed is very confident it has the tools to manage inflation as well as it managed the 2008 Global Financial Meltdown: whatever the problem may be, the solution is to create more liquidity and credit.”
So how are you going to spend/invest your $1 million?
DISCLAIMER: this essay was written in the spirit of April Fool’s Day.
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