Sunday, August 29, 2010

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I caught a bit of Richard Florida on Fareed Zakaria GPS today. A very animated fellow. He seemed to be selling the notion that we're a creative people and we'll soon recover from this terrible economic meltdown.

Well, that's all very nice.

He also said it's going to take 20 to 30 years to recover. In other words, Richard Florida has no plan for recovery.

There are specific problems, specific imbalances that must be corrected. Everybody knows the main one: debt. We have to reduce debt. Everybody knows it. Clarity is not at issue.

If we know what the problem is, then why can we not solve the problem quickly?

We can solve it quickly, if we take the right approach. Otherwise we can make it worse, just as we have been making the problem worse since the 1970s.

Our economic problem is not just "debt." Our problem is an imbalance in the money, an imbalance between credit-money and fiat-money. An excessive reliance on credit.

The problem is not just debt. Debt is nothing but evidence of credit use. The problem is an imbalance between credit money and fiat money. To solve the problem, we must correct this imbalance.

People say we had inflation because they printed too much money. That would be fiat money, the printed money. But that is not the problem. We had inflation because they loaned and we borrowed too much money. Too much credit money, the borrowed money, is what caused inflation. It's also why we have so much debt, of course.

Do not miss this subtle point: They did not print too much money. Rather, the opposite. They restricted the quantity of fiat money to fight inflation. That plan did not work, because we did not have an excess of fiat money. We had an excess of credit money, an excess of debt.

If one wishes to reduce debt, one needs money to do it. But our anti-inflation policy removed money from the economy. So we did not have the money we needed to reduce our debt.

What we should have been doing for 30 years now is not restricting the quantity of fiat money, but accelerating the repayment of debt to fight inflation. Imagine: a plan that fights inflation by reducing debt, and leaves us with enough interest-free money to have a healthy, growing economy!

The problem is not debt. The problem is imbalance. If we take the trouble to figure this out, we can solve the problem quickly. If not, it will be a long, rough ride downhill.

It is not a complex problem. It is just a really really really stupid mistake.

29 August 2010, Arthur Shipman

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