Forgiveness

The Lender of Last Resort

So the Fed is printing dollars by the trillion now. A trillion dollars is a lot of money. How much? It's a thousand billion -- a thousand dollars apiece for a billion people. We don't even have that many people in the USA. Our population is less than a third of that. A trillion dollars is three grand apiece for us, with something left over. It is a lot of money. Twelve thousand dollars for a family of four. For every family of four.

And what is the Federal Reserve doing with all that money? Typically, they do one of two things: Either they lend it to the banks, or they lend it to the government.

So we have a "credit crisis" brought on by excessive debt, and the Fed's solution is to print more money and use it to create even more debt! Is that reasonable? There seems no way to make sense of it. One could say the Fed is too intently focused on its role as "the lender of last resort."

So we need to come up with a different strategy, something different than the Fed does now. A different solution. And I have one. I wouldn't be here otherwise. It will sound like a really bizarre idea. But what's bizarre, really, is the level of our existing debt. And the Fed's strategy of increasing debt further as a solution to the problem. That is what's bizarre.

The obvious solution is to reduce the level of existing debt. Not to increase it. Well, ok... New increases in debt are associated with economic activity and economic growth. That's why the Fed wants to boost lending. But it doesn't take long for new debt to get old. And we have way too much old, existing debt.

Catch-22: We need to increase our use of credit to make the economy grow. But the resulting debt is a burden that inhibits growth.

We need to reduce the level of existing debt. If we do that, people can start borrowing again, and get the economy going. Of course, that will only lead to another credit crisis....

...We could set up tax incentives to accelerate the repayment of debt. So that when the economy starts growing and people start borrowing again, debt doesn't accumulate. But this is a fix for after we're out of the slump. It'll work. It will help prevent the excessive accumulation of debt. It will help prevent the next credit crisis. And you might agree it is remarkable that we have no such policy at present. But it doesn't get us out of the slump.

We need to get out of the slump. To do it, we need to reduce the level of existing debt. The slump was caused by excessive accumulation of debt. We couldn't run fast enough to stay out in front of it anymore. It caught up with us. And now, we're in a hole.

We need to fill that hole. That's my solution. That's how we get out of the slump.

I say, let the Fed print one more trillion dollars. And use it this time to pay down debt for people. Something in the neighborhood of twelve thousand dollars for a family of four.

If this doesn't work, I'm out. No more printing more and trying again. None of that. But it will work. We reduce the debt of American families by 12 grand apiece. And people can worry a little less. And they can spend a little more. Even without borrowing more, we can spend more because our debt service is less. Significantly less.

This massive debt-forgiveness operation can be run by the same bureaucracy that gave us money for nothin' in the summer of 2008. $600 I got. Did it stimulate the economy? I don't know. The pundits argued. Some said it didn't stimulate the economy because people used it to pay off debt. And I thought: and what's wrong with that?

If you file your taxes "Married Filing Jointly" you'd get your debt reduced $10,000 to $12,000. If you file singly you'd get a debt reduction of $5000 or $6000. Maybe your bank would have a one-page form where you identify the debts you want reduced and whether you want the lump-sum or monthly-payment method. It would be kinda like a national lottery where everybody wins. Once, and for all.