The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history
I am no economist but Friedman always said the Great Depression was prolonged and exacerbated because the Fed. contracted the money supply so quickly after the Boom and Crash, and that had the Fed. printed more money (as opposed to FDR’s fiscal stimuli) the Depression would have ended sooner.
I have no idea about the relationship between fiscal and monetary policies in the current environment. What is to stop the Fed. from printing more money now (inflation worries?) and how would such a move affect the fiscal alternatives? Anybody?
I wonder if that would work, it would be hilarious, just print off all that we needed with no backing, pay off all of our neighbors that we owe abroad with the worthless pile of bills, in one fail sweep, and toss a ton into the economy. It might throw off the whole system if it was done in one quick leap. “Yet do so with the local economy, small businesses especially, telling them the stipulation being, they MUST use American labor, materials, and supplies, or they get no money…”
It sounds too simple to me, surely there is a reason it’s not being done…
The money supply is greatly affected by borrowing. Borrowing increases it, because more than one person “has the money at the same time”. Paying off debt contracts the supply.
I don’t know about all businesses everywhere, but all businesses I know are paying off debt as fast as they can, out of a fear of increased taxes, increased interest rates, increased energy cost, increased regulation and just a general concern about what this administration and congress are going to do next. Nobody is borrowing, and for the same reasons.
Individuals are paying down debt, for all the reasons people do that. The government alone is a net borrower.
Simply increasing the money supply will do no good if people are not willing to borrow that money and invest it productively.
Roosevelt had it right in a way in saying “The only thing we have to fear is fear itself”. The thing is, this time around, the fear is business fear of the government. Short of mass resignations from the president on down, or at least gridlock in Congress after November, I see no real possibility of that fear receding.
It might well with the big companies like BP and GE that this administration and congress are willing to hand money to. But with small and medium sized? Until they’re no longer afraid of the government, I don’t see much change on the horizon except more government borrowing. Those who can’t “pay to play” aren’t going to budge.
But government borrowing and spending is, in my view, “pushing on a string” because it does nothing to improve productivity of the economy, which is the source of “real” money, real income and real wealth.
That’s what Germany did after WWI to pay off their debts from the Treaty of Versailles. It led to sever hyper-inflation where the money was worth more as fire starter rather than currency. But, wouldn’t it be great to have the government stamp all of your money with a few extra zeros tacked on the end – just think that 30 year mortgage paid off with your next paycheck or you could get rid of those pesky student loans without a second thought. Of course it completely wrecked the economy and the money wasn’t even worth the paper it was printed on.
So, the wise way of doing it, print off more money and just buy gold with it, once the money is worthless, print different designs altogether of new bills with the gold standard backing them.