johngonole

Let's Just Say It: Print More Money

I didn't have time to read all the comments so I hope I'm not repeating anyone here. First I'm pretty much in agreement with the Austrian school of economics when in comes to monetary policy. That said I think we are now teetering on a deflationary spiral. I have noticed that since Christmas the roads and malls seem to have lots more room to move around in. Once the hoarding of dollars begins we have an ever decreasing velocity of money that will create more and more deflation. Rising unemployment will continue to fuel the fire. The problem is that we are going from artificial demand to unreasonable hoarding.

At the same time the authors idea of flooding the market with dollars is just downright scary. This contraction is happening essentially because we over built in all kinds of ways to meet a temporary demand fueled by expanding debt. Yes we can expand government debt but isn't that really just more fuel on the fire. What happens when the taxpayers can no longer support the burden of the debt. This can't go on forever so this line of reasoning is false.

Now Austrians hear me out. I propose that instead of a Keynesian solution where government exchanges treasuries for dollars we just allow the Fed to exchange dollars for oil. The Fed could park the physical oil in those new caves they are creating for the Strategic Petroleum reserve. Thus the newly printed dollars are backed by oil. The strategic reserve is filled. The Austrians are correct that the new dollars placed into circulations WILL spark massive inflation once the velocity of money reverts back to the norm or mean. When this happens the Fed only needs to dump that stored oil back on to the market to destroy the dollars it just put into circulation. Thus the net result could be neutral increase in the supply of dollars but a short term solution to get us through the hoarding period. Also keep in mind that the new dollars while in circulation will help banks with their capital reserve crisis.

The problem with the Keynesians is that they use the newly printed dollars to create their empire of Fascism. Plus the tax payers are ever paying interest on the governments forever debt. Thus the Keynesians enslave us and the politicians and bankers become our rulers. The Keynesians NEVER remove the dollars from circulation and NEVER reduce government debt loads.

The problem with the Austrians is that their solution is to prevent these problems in the first place. That is if the Fed would stop manipulating the money supply and the banks would stop overleveraging then the economic cycles would shorten and be less volatile. In other words the ups and downs would be frequent and manageable through the natural mechanisms of capitalism. Free market capitalism like nature would direct economic activity for the benefit off all mankind.

I only propose the above solution as one to be implemented only when a deflationary spiral in imminent. Once the death spiral is terminated they must start listening to the Austrians. If they don’t then commodity markets as well as currencies could become even more volatile upsetting prices to the standpoint that capitol can no longer efficiently be deployed. I realize that the Fed is doing this somewhat when they buy securities off all kinds. Problem is that these securities could be worthless. Oil/Gold has value. The Fed should probably buy a basket of commodities (Not futures....real physical assets). We could even start a Moses project where we create stores of food in case of a national agricultural catastrophe.

Ultimately less face it the Fed is going to print money. Lets just hope they back it with something of value. NOT GOVT TREASURIES