Open letter to the Chicago Tribune regarding recession, inflation, stagflation, depression, Medicare, Social Security and the economy.
The measure of an economy is money. A large
economy needs a larger supply of money than does a small
economy. Therefore, a growing economy needs a growing supply of money. All money is a form of debt. Therefore, a growing
economy requires a growing supply of debt.
U. S. Federal Debt is the safest, most controllable form of debt. The federal government, alone among borrowers, never will default. Thus, there is no
federal debt or deficit problem, and a
balanced federal budget leads to a
recession or a depression.
Open Letter to the Chicago Tribune
The recession has begun. If interest rates continue to be cut stagflation will follow. The formal recession announcement awaits only the requisite two consecutive quarters of declining GNP (or whatever definition of " recession" suits the politicians).
According to the January 21, 2008 Chicago Tribune, “Federal Reserve Board Chairman Ben Bernanke said, ‘fiscal action could be helpful’ (to ending the recession) if it is done right.”
The Tribune goes on to say, “The chief reason a fiscal stimulus will probably fail is that it’s so hard to time it properly. Bernanke pointed out, ‘Stimulus that comes too late will not help support economic activity in the short term, and it could be actively destabilizing.’” The Tribune concludes its editorial with, “Even a well-designed fiscal stimulus has no more than an even chance of being worth the cost. A poorly designed one would surely be a waste.”
The Tribune believes adding money to the economy must be done in a certain way. They say it would be wasteful to “aid state governments” and “finance alternative energy.” Sadly, while the politicians and the media waffle, the recession is upon us. Stagflation waits in the wings.
The Tribune and Bernanke act as though money stops with its first use. Wrong, Tribune. Wrong, Bernanke. To end the recession, there are but two questions that need to be answered: How soon? And how much? How soon will we add money to the economy and how much will we add?
It doesn’t matter to the economy where the money initially goes. All money added to the economy, no matter where it begins, ends in the same places.
Visualize the government, in an attempt to end the recession, giving $500 billion to just one person(!). Let’s call him "Mr. Lucky."
Mr. Lucky can spend the money, save the money or invest the money. If he spends the money, it will go to retailers, manufacturers and service providers, who in turn will spend the money, save the money or invest the money. The endless cycle will continue, spreading the money through the economy, ending the recession and preventing stagflation.
If Mr. Lucky saves the money, he will put it in a bank, which will lend, spend, save or invest. Each of these actions will cause the money to go to retailers, manufacturers and service providers, who will initiate the endless cycle, circulate the money through the economy, ending the recession and preventing stagflation.
If Mr. Lucky invests the money, it will go to investment instrument holders, who will (you guessed it) spend, save or invest the money, thereby circulating it through the economy, ending the recession and preventing stagflation.
No matter what Mr. Lucky does with the money, short of burying it in his backyard, the money will circulate through the economy, which will end the recession and prevent stagflation.
After its first use, all money added to the economy spreads throughout the economy. To worry about the first use, when trying to end a recession, is to have your priorities backwards. The key questions are: “How soon and how much?” The best answers are “Now” and “At least $500 billion to $1 trillion, and optimally more.” The government can use the money in specific, detailed ways, or it can spend lavishly on so-called "wasteful" projects. The result will be the same. The faster the money is injected, and the more money injected, the sooner and more robustly will the recession end and the economy recover.
Pour water into a bathtub. No matter where you pour it, the tub fills. It's the same with money. No matter where you add it, the economy grows. So ladies and gentlemen, please stop dithering about where the money should go first. It doesn't matter to the recession or the economy. You have only two questions to answer: How soon and how much? The rest is just posturing and indecision.
And oh, are you worried that adding money causes inflation? Raise interest rates. This always ends inflation, and no, high interest rates never have slowed business – but that’s the subject of another letter.
Rodger Malcolm Mitchell