The Potential Long-Term Effect of Quantitative Easing (QE)

• Our recent economic experience could be driven by a con game, a hustle.
• The TV series “Hustle” follows a template that can explain money printing in the US over the past.
• I identify the characters in a hustle: The Mark, the Grifters and the Shills.

Recently, we watched a news report about $1.9 trillion in additional COVID relief and how wonderful that is. Then we watched another episode of a TV series that we love called Hustle that portrays a likeable team of con artists who trick their “Marks” into parting with money or valuables. Each episode shows a different clever con where an unlikeable person gets tricked, many times without recognizing it as such. Then it struck me that all this money we’re printing, like $1.9 trillion in COVID relief, might be a hustle. Let me explain.

Mechanics of a hustle

Although every episode of Hustle is a different con, there is an established pattern, or template, throughout:

• They always play what’s called a “long con” which means it takes a long time to come together, like months, but they frequently finance the venture with some “short cons” that raise a little money quickly.
• There are always three main characters: (1) a “Mark” (the target) who is usually not a nice person, (2) the “Grifters” (the likeable team of con artists) and (3) “Shills” (accomplices who help along the way, sometimes unwittingly).
• The stages of the con progress as follows:
• Foundation: Research the Mark to identify interests and vulnerabilities.
• Approach: Set the objective and pick the con. In the TV series they usually identify the con by name, suggesting that there’s some sort of con manual. The Mark is approached or contacted.
• Build-up: The victim is given an opportunity to profit from participating in a scheme. The victim's greed is encouraged, such that their rational judgment of the situation might be impaired.
• Pay-off or convincer: The victim receives a small payout as a demonstration of the scheme's purported effectiveness.
• The "hurrah": A sudden manufactured crisis or change of events forces the victim to act or decide immediately. This is the point at which the con succeeds or fails.
• The in-and-in: A conspirator puts an amount of money into the same scheme as the victim, to add an appearance of legitimacy, and the Mark buys in. The con is completed.

Have we been hustled?

Our recent economic history fits this template in the following ways:

• Our current economic journey began in 2008 with the financial crisis, so this long con has lasted 13 years so far, and it will likely take another 4 or 5 years to complete. The “long” in this long con is about 18 years.
• The “Mark” in this con is the United States, specifically members of Congress. The “Grifter” is China, caught in the Thucydides’ Trap, and seeks to be number one. And the “Shills” are U.S citizens.
• The stages of the con progress as follows:
• Foundation: Congressional members are greedy and mostly focused on getting re-elected. Voters want quality healthcare and education
• Approach: Create a “theory” that liberates spending from a budget. Money printing is justified by “Modern Monetary Theory” (MMT) – print all you need.
• Build-up: Following Japan’s lead, the U.S. launches Quantitative Easing (QE) in 2008 to head off a recession, printing about $4 trillion.
• Pay-off or convincer: QE works!! The recession ends quickly, the stock market enjoys its longest recovery and inflation is subdued.
• The "hurrah": A sudden manufactured crisis or change of events forces the victim to act or decide immediately. The COVID pandemic breaks out, originating in China.
• The in-and-in: Congress approves another $5 trillion in COVID relief, plus President Biden plans to spend at least another $2 trillion on infrastructure and other projects. So, $11 trillion in new money (counting QE), which may be enough to bring hyperinflation.

The scenario so far has set an inflationary spiral in motion that could bankrupt the U.S. and bring China into world dominance. Stay tuned. This will take many years to play out, and a lot can happen in the meantime. MMT encourages money printing until it causes inflation, at which time taxes are supposed to be increased to take that money out of the economy. Will Congress act?

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.