Obama likes to say "no quick fix" for economy... but there is one.

[paulkienitz]

There is a "quick fix" for what's wrong with our economy, despite all that our President has said to the contrary. What is it? Print more money.

One point two trillion dollars of leveraged pseudo-cash disappeared from our money supply. This is why nobody's hiring -- lack of capital. It isn't just about lack of lending -- it's lack of actual funds to lend.

Economist Dean Baker, of the Center for Economic and Policy Research, points out that if you print an amount up to the amount that disappeared, it won't cause inflation. It can't, because it's only restoring the money supply we were already running on, while we "deleverage". He says Japan has printed a lot of new money and still has deflation, and we can stay within similar parameters. If we do, we can get the economy restimulated without starting any inflationary spiral.

In a quite real sense, inflation has already happened. The price of food, the price of anything imported -- they've already shot up, and the value of the dollar has lurched downward. It doesn't show in the price indexes because of the plummeting prices of housing, and the lack of demand for domestic goods.

He's not alone. Even in the UK, where there was no housing bubble, there are economists agitating for printing more money.

So why aren't we doing it? Two reasons, I think. First is that the idea of risking inflation scares people. But given a choice between nine percent inflation and nine percent unemployment, I think most of us know which of the two we'd rather have. Of course, many conservatives take the minority view on that choice, as shown by the recession of the early eighties, which in large part was directly caused by a drive to shut off inflation.

This brings us to the second reason why we're not doing it. Because people with wealth and power don't want it. In particular, anyone who's holding fixed-rate debt, and especially anyone holding federal debt. The owners.

In part this means Wall Street, but increasingly nowadays it doesn't mean our domestic owning class, it means the owning class in China. Most of Uncle Sam's debt is held over there now. They've already taken a bath on the drop in value of the dollar we've already had (and we can thank our lucky stars they didn't get pissed enough to start calling that debt in, or we'd really be boned)... printing money would devalue their holdings even more. On a one-upmanship level, it kind of makes sense to saddle them with our debt and then devalue it, but I guess relations between the business classes in America and China are a little too cozy and friendly for that. Both want both to keep thriving and keep sending money westward and goods eastward.

I guess the long and the short of it is that business lobbyists don't want it to happen. It is my understanding that the government is, by normal standard, printing money at a fairly aggressive rate right now... but not at a rate that will offend those with the greatest influence.

If Obama wants to really show he's a man of the people's interests instead of the business community's, one thing he could do to show that right away would be to turn up the speed on the big green printing press.

Of course, the decision is really up to the nominally independent Federal Reserve. But the example of Reagan shows clearly that its degree of independence is not unlimited.

[YOY]

1. Can't...stop...laughing....

n.t.

[marmar]

2. Es serioso?

nt

[stray cat]

3. Worked so well for Nazi Germany.....$10,000 for a loaf of bread

[paulkienitz]

6. that happens when you indiscrimately expand your money supply

This plan DOES NOT expand the total money supply over what we were already using in 2007, and therefore does not create a price spiral.

[Taitertots]

19. Inflationary Chicken Little: We could print trillions more without having to worry about that

[DCBob]

4. That's like saying a quick fix to being broke is to rob a bank..

dumb.. very dumb.

[Moondog]

5. Thanks

for the giggle.

[TreasonousBastard]

7. This makes no sense at all. When did this vast amount of money disappear...

and why does it look like M2 is increasing all by itself through normal acceleration mechanisms?

"Printing money" to increase the money supply by 15% doesn't sound like it's even possible, much less desirable. Normally, M2 is increased through bank lending, and while lending isn't as wild as it has been, it's not stopped completely and nobody's saying we have a liquidity crisis.

If someone really, really wants to stimulate the economy through some fiscal trickery-- just keep mailing checks out, preferably to the poorer people. That will increase demand and cause investment. That could be called "printing money" because it would have debt backing the checks, but it would have better results than just playing with loosening money.

There is one big-ass problem that has to be dealt with, and really only one-- personal credit through cards and home equity loans was behind a huge spending spree. Now, we have to find a way to maintain demand without all this cheap credit.

[kenfrequed]

10. Credit is a problem

This has been a major tool for the upward redistribution of wealth and we have to figure out a way to get away from increasingly plastic and unreal economies.

[paulkienitz]

11. thank you

...for making the first reply with any actual thought or consideration of the ideas in it.

[kenfrequed]

8. I would like to know a bit more.

What about this money that has disappeared? Where has it disappeared to? Are you referring to the federal bailout money that the banks are holding onto to increase their apparent liquid value? Would more money suddenly mean that that value would drop again?

I actually do realize that this kind of money creation is not the same as the hyperinflation that occurred during the Weimar republic but there are some serious questions that need to be considered.

Greenspan absolutely obsessed about the prospect of inflation, particularly the inflationary price of labor and his aversion to a bit of inflation didn't help the economy one iota (particularly the 'main street' economy). While I wonder if there might be something to your idea

Personally I think soaking the rich would be far more effective. The fact is they will not give up permanent wealth without the promise that they will receive more wealth later. Minus the creation of new money the economy is a zero sum game with those on the very top demanding a greater and greater share of the wealth. (See also Citigroup's Plutonomy papers) This necessitates taking money from them. There is a real and inevitable argument in favor of the legal redistribution of wealth.

[ZombieHorde]

9. End the war on drugs. nt

[Scuba]

12. Lack of capital is NOT causing a lull in hiring....

...the wealthy have never had so much wealth, ever. They have plenty of capital if they want to use it.

[paulkienitz]

15. but it's not as much as they THOUGHT they had

The wealthy may have more than ever, after debt, nowadays... but it's still a sharp drop from the amount they acted as if they had, not long ago.

[notesdev]

18. All that capital is offset by debt

If you take a look at net positions (assets minus liabilities) you'll see that there is an enormous amount of hurt going around.

[alanquatermass]

27. Never thought I'd see intelligent economic insights here on DU...

-- but I've certainly found a few on this page. Thank you!!!

Printing "boatloads" of money is economic suicide.

It is yet another example of "Stage One Thinking," something we Progressives indulge in too much of sometimes (and boy do I include myself in this!) That is, we will do what feels good to us at the moment and to hell with the long-term consequences.

[antigone382]

29. I wouldn't say progressives are the only ones guilty of that, there...

When you consider increasing social stratification, the pillaging of the environment on which our lives depend, the wanton disregard for the preponderance of evidence pointing towards man-made global warming, peak oil, the collapse of global fisheries, the erosion of labor rights, the "Great Pacific Garbage Heap," etc. etc. ad infinitum, I'd say those on the right are pretty guilty of throwing the long term consequences out the window as well. Granted, right wing ideology isn't wholly responsible for a lot of those problems, but it sure as hell refuses to acknowledge or take responsibility for them.

[alanquatermass]

31. Hard to argue with that

nt

[antigone382]

34. The trouble I have with common understandings of economics is that it doesn't consider these things.

The health of your environment and its long term viability are a factor in the "economy," however you define that. When increasing social stratification is accepted as an unavoidable component of a healthy economy (as it has been presented to me in previous economics courses), there's a problem in your definition of "healthy." I admit that I'm not really qualified at this point to articulate a precise alternative, but I have found some thought-provoking sources whose information I'm still synthesizing. I'm very interested in the concept of the "diverse" or "community" economy as an alternative to capitalist vs. socialist ideology. I don't have the link offhand, but I recommend googling an organization called the community economies collective (it isn't exactly as radical as it sounds, just almost :)).

Anyway, this post has started and ended more or less entirely off-topic of the original OP.

[alanquatermass]

35. It just occurs to me that it is basically Common Sense...

-- that when any group of humans gets together and strives to acquire something, anything... be it grades in school... or points on a soccer field... or the attention and affection of the opposite sex... there will always emerge a rare few humans who are preternaturally gifted at the endeavor (or maybe just lucky), a larger segment that is reasonably proficient, a dominant and median group that is mediocre, and then the rest that are varying degrees of Awful.

That's just life.

So why should it be different with the acquiring of wealth? Some people will be brilliant at it (or just lucky -- eg, trust fund kids), some will be good, many more will be just okay, and some will be Awful (and need a certain amount of taking care of)

Equality of opportunity is a wonderful thing, but this idea of equality of OUTCOME just seems... unrealistic to me. Like it runs contrary to Human Nature.

[girl gone mad]

25. Notesdev is correct.

Corporations are sitting on piles of debt, not cash.

[bemildred]

13. Good point. nt

[jtuck004]

14. You are describing the way money is created, so there is nothing

wrong with that, nor in the quantitative easing this puts forth as a solution. But would the result be that the banks have more money to lend? They already have that - the big ones can borrow for essentially nothing. But unless the proposal is gold-plated, no risk, high retrn, they can just buy treasuries and keep the interest, so why put money out there? And why loan money to factories when all they are going to do is fill up their warehouse, 'cause no one has the money to buy their stuff?

But the problem is not one of no money, it is one of debt. HUGE debt, and no demand. A housing market worth less than $9 trillion but with $14 trillion in debt on top of it.

Homes that are worth so (comparatively) little that the FASB has them marked-to-a-mythical-level on bank asset sheets.

Lots and lots of credit card debt still to be paid off, as well as second mortgages.

and...well, there is a lot of debt. And no demand (to speak of) (btw, have you seen the commodity prices - they are headed up anyway).

So lets send checks to everyone who makes under $250,000 a year. Maybe they will spend it retiring the debt, which would be good, but it wouldn't create demand, which is bad. And you still have 30 million people unemployed or underemployed, more than that next year.

Maybe they will spend it buying "stuff"? That not only leaves the debt intact, still a drag, but much of the money is loaded on pallets and shipped to China to pay for the things we don't make here anymore. (Well, only figuratively ;) )

So you still have debt, China adds to their $2 trillion stash, and everyone has a new car. Can't afford to buy gas or food. Whoopee. And soon we are back where we started, but with a larger number of zeros at the Fed (I could argue there are already enough "zeroes" at the Fed, but that might be too subtle).

The real question is how to 1)Get rid of the debt and 2)Get some wealth creation (manufacturing?) built back up here (that will take trillions 'cause most of our factories are way out of date) 3)Get everyone a stake in the companies so that they have some power over whether the company can just pick up and move overseas for short-term gain - whether that means stock ownership, or worker participation, or whatever - something has to take the place of what will happen all over again if we don't.

And none of that will happen without a leader (and a few supporters) who will stand up and motivate the country to acocmplish the goal of moving into the 22nd century.

'Course, it aint gonna happen, 'casue Americans would rather argue with each other while the country burns. So brush up on one of the 17 Chinese languages.

Thank you for the post.

[dixiegrrrrl]

20. You presented a more reasoned counterpoint than I could have

at the moment, jtuck.

TY.:hi:

Slowly it will sink in to some people that printing more money devalues the dollar,
and is already causing foreign debtors to avoid our currency.

Yet, Bernanke is now on his 2nd pitcher of Fool-aid, after he PROMISED Congress he would NOT monetize the debt.

[upi402]

26. The country that makes stuff, and sells to other countries...

WINS!

I'm looking at getting out again now. Too sad, soooo unnecessary.

[paulkienitz]

16. well well, it looks like someone agreed with me.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/11/03/BU871G6G5P.DTL#ixzz14KHWiZvN

[westerebus]

17. Some body call security!

Ben's gotten to the inter tubes again.

Take deep calming breaths. Slowly.

That's it.

Give the meds a chance.

Breath.

It's all going to be OK.

Yes, Ben you can print as long and as fast as you like.

That's right. Breath, Ben. Slowly.

Yes, Ben, we know you need to print.

It's OK.

Yes, Ben, faster, print faster.

No problem. Just breath.

You're looking better already.

It was just a panic attack, Ben.

Yes. The elections. Yes, we know.

Burn you at the stake?

No. Ben, they can't do that.

Breath. Nice deep breath.

Hank said it was a good idea.

Yes, Ben, we know.

He said he would burn you at the stake.

Well that's different.

He used to work for god.

Breath, Ben!

Breath!

Nurse, double dose of Damita-al isn't working.

That was the F-Ital!

SECURITY!!

[Hawkowl]

21. Hello Mcfly?

What the fuck do you think the Fed has been doing since Lehman Brothers melted down? NON STOP QUANTITATIVE EASING, i.e; printing money by the fucking boatload, giving it to banks which then hoard it or throw it in the stock and commodity markets. In addition it's not just the quantity of money its the velocity, i.e; the turn over of an actual dollar.

You really have no clue what you are talking about.

[whosinpower]

22. Max Gailbraith's testimony is very interesting

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x569194

It explains some things from an economists point of view, in terms of deficits, worry or concern about deficits, etc.

His solution - and I agree that it really is THE only solution - is first of all to recognize how America and the world got into the financial crisis in the first place - and it was NEVER because of overspending, or deficit spending. It was because American banks and financial institutions ran amuck. We all know this. Until that muck is fixed - until the toxic debt that invaded the banks balance sheet is either written off, cleaned up or fixed - the banks will not lend to each other, credit will remain frozen, businesses will not have adequate credit to draw from, unemployment will continue to be high. QE2 funds will not fix this. They do not lend to each other because there is an lack of confidence in what each other holds in terms of toxicity on their balance sheets.

What did they do with the first round of Tarp funding? Did they loan it to main street? Hell no - they threw it into treasury bonds instead. Because THAT is safe. What is to say that this round of 600 BILLION dollars won't find itself sitting in treasury bonds as well? AND, on top of that, your dollar is devalued, confidence is further eroded, and China downgrades its ratings.

I fell into a rant - if you have a chance read his testimony. It is very good.

[Xenotime]

23. Don't listen to them, Paul....I right there with you.

[pokercat999]

24. As a multi-billionaire I say this guy is spot on....as a soon to

be retired wannbe of the former middle-class I'd say this guy hasn't a fucking clue.

[ixion]

28. LOL... that is not a solution

that is a recipe for disaster.

[Taitertots]

30. Expansionary monetary policy, Expansionary fiscal policy

Anything else is certain to make the problem worse.

[eridani]

32. There's plenty of capital. There just isn't any demand.

And there won't be without some income redistribution.

[westerebus]

33. Which is the big disconnect.

People understood that the bank bail out was exactly that, wealth redistribution.

Time after time, we've called for job creation. Not tax cuts.

Write downs on mortgages to reflect the current values and re-fi the loan if the borrower can afford it. No home owner is getting a free be. Like the interest being paid to the banks by the FED.

People are worried over federal debt. Worry about the banks betting your government will default.

The reason for the default? They owe the banks too much. It's called interest on the debt.

Biggest driver of that debt? Two wars.

Next biggest driver? Imports.

Number one import? Oil.

Two wars funded by corrupt banks over oil that compound the debt.

The anger at the White House over the current policy was reflected at the polls. IMHO.

Either the rule of law will take precedence over the corrupt banks or the Republic is finished.