I’ve been wondering.
First off, I sense that there’s been a bubble in American thinking in the past as to the amount of money circulating in the economy. With the collapse of housing prices, stocks etc, suddenly there doesn’t appear to be enough money to keep the economy rolling . If the banks don’t have the assets any more then they can’t borrow from the treasury and lend back to business and the consumer. The consumer and thus business is freaked out, curtailing spending, causing job loss and further national reduction in economic activity.
It seems to me that the basis for the amount of money pumped into circulation is tied to the assets that banks can show.
The solution so far seems to be adding money to the banks and printing out a national debt.
1.Why not just print the money?
- Why not give every adult in the US $1000 per month, about 2.5 trillion dollars per year to spend and phase down after several years till the economy is automatically rolling again?
It would seem to me that the inflationary pressure would cancel the deflationary pressure that so many are worried about.
It would also probably devalue the American dollar, which might piss of foreign holders, but make American goods cheaper on the global market.
So, what is the downside of this scenario.
Inflation and interest rates would spiral out of control.
The “deflationary pressure” at the moment is only in people’s heads. Prices are currently plunging on two things: oil and houses. Prices on other things are holding on just fine. A move like the one you propose would send prices through the roof. Flooding the country with money always has that effect. It has been tried many times in many countries.
Moreover, if the government did such a thing, no foreigner would want to be holding U. S. Treasury debt when it happened. They would dump the trillions of dollars in debt that they currently hold. The only possible response would be to raise interest rates through the roof.
Basically it would be the late 70’s on steroids.
Actually, the Fed just did pretty much that a couple of days ago. Buried in the econo-speak of this press release, is the fact that the Fed does not actually have the money that it is loaning out. They are going to “guarantee” loans to a certain value based on a presumption that they have that authority even though there is not really any money to lend.
The hope is that it will stop the downward spiral and pump up the economy without increasing the inflationary pressurs on the economy. (I have no idea how they intend to put “more money” into circulation without increasing inflation, but that is the intent.)