Friday, June 25, 2010


As the two previous posts show:

  • Over the past 6 decades, corporate interest costs increased by more than 7% of corporate costs. Corporate employee compensation fell by almost as much.
  • Corporate interest costs are now 60% as much as wage and salary costs.
  • If corporate interest costs could be cut in half, enough money would be freed up to increase all corporate wages and salaries, and compensation of officers, by 30%

All we'd have to do is cut corporate interest costs in half. And the easy way to do that would be to cut the use of credit by half.


But we need credit for growth, you say.

Well, yeah we do. I agree absolutely. We need credit for growth. But we should not be using credit to maintain the existing level of economic activity. There should be money enough in circulation to support the existing economy. Credit is for growth.

But that is not how we do things today. And that is the problem.

For years and years, the Federal Reserve restricted the growth of money to fight inflation. But to encourage growth, Congress encouraged the use of credit if money wasn't available. Congress and the Fed together created a shortage of money and an excess of credit use. They created an imbalance in our monetary system.

Today we use credit even for normal day-to-day expenses, like buying food and gasoline, because of this monetary imbalance. Because of this monetary imbalance.

As things stand now, money is in short supply and we use credit for everything. But credit is also in short supply, because the source of credit -- money -- is restricted, and because we continue to rely excessively on credit.

Congress therefore finds it necessary to coerce source-fund availability by establishing savings systems with punishment for early withdrawal: Bizarre policy, on the face of it.

And because we rely excessively on credit, our economy is vulnerable to credit crunch and financial crisis.

And because we rely excessively on credit, we have a phenomenal, inexplicable, insurmountable, unbelievable, dangerous, troublesome debt.

And because we rely excessively on credit, there are excessive interest expenses all through the economy.

The shortage of available credit, the pro-credit policies of Congress, the vulnerability to credit crises, excessive debt, and the inflation associated with rising costs all stand as evidence of our excessive reliance on credit.

Our excessive interest expenses are "extra" in the sense that there is no need for them. Excessive interest costs are the result of relying too much on credit, and too little on interest-free money. They are are the result of monetary imbalance. And monetary imbalance is the result of bad policy.

The increase in corporate interest costs and the commensurate decline in corporate employee compensation are results of a very bad policy.

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