Thursday, November 13, 2014

Cotton Balls Vaseline and Fed Liquidity

Cotton Balls, Vaseline, and Fed Liquidity

I'm from the Jack Daniel's school of economics. That is, give me a couple shots of Jack and I'll tell you my thoughts about the economy. The key to my thought process is obtuse linking of examples (stay with me here).

Cotton Balls as Tinder

We hosted a cub scout meeting a couple weekends ago, and as host I decided to have a show and tell session to demonstrate the use of flint and steel and cotton balls as tinder to start a fire.

Adding Vaseline (a petroleum product) to the cotton ball creates a long lasting tinder. It is cheap, light-weight, water-resistant and lasts a long time. The cotton acts like a wick for the Vaseline, holding the flame while allowing the Vaseline to change from solid, to liquid to vapor, then burn. (Hey, that's all you get -- I'm an Jack Daniel's Economist. If you what physics, come back at closing time).

Here are links to the starters and to a couple videos showing how this all works.

Conducting basic research in the internet is always a unique journey of discovery. While watching video number 4300 or so, an interesting question came up:

What is the optimum about of Vaseline to add to a cotton ball?  

The test:
  1. Take a plain 100% cotton ball and light it (record the burn time).
  2. Add increasing amounts of Vaseline to the cotton ball and record the burn time.
    (Change the ratio of tinder/fuel from 0% to ~99%).
  3. Determine optimum amount of Vaseline to add to get the longest burn time.
Internet video #4300 - Revelation

Can you light 100% pure Vaseline?  No, not with a flint and steel, not with a match, not with a cigarette lighter... it just melts.

Economic Link - Cotton Balls, Vaseline, and Fed Liquidity

Where is all of the Fed Liquidity?

Quantitative Easing, billions and billions and trillions of dollars, has only generated a couple percent GDP growth. The entire point of QE was to provide liquidity - to support the balance sheets of the banks and stimulate economic growth. So what happened?

Super-saturated cotton balls (economic capability) and Vaseline (pent up liquidity).

In our previous experiment we showed that a cotton ball loaded with Vaseline will burn longer than a clean cotton ball. Too much Vaseline and it will not burn at all. It has to be a lot too much, but you can try it yourself.

Maybe the Fed has created a situation where they have provided so much liquidity (Vaseline) that the economy (cotton ball) simply can't function.

PhD, Jack Daniel's School of Economic Stuff.   

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