Wednesday, September 29, 2010

A Simpler Game Plan

Last I looked, Bernanke had about doubled the monetary base. Now I see he has about tripled it. This is not good. It must not continue. Why? Because it is not working. They are laying the groundwork for an inflation that, when it does come, will be devastating.

The Fed dramatically increases the monetary base by its actions. Those actions are being repeated, indicating that deflation continues to be a threat. The deflation comes from people paying down debt, which takes money out of circulation. Paying down debt reduces M1 money, regardless of the tripling of the monetary base.

So I had a thought. The Fed already bought all this debt, instead of paying it off. And the debt still exists and is still a drag on the economy. So the solution, the simpler game plan, is for the Fed to run that debt through the shredder.

That's probably even legal. The Fed may not be permitted by law to pay off debt for people. But if it is debt they already own, debt they already bought up, they can shred the documents and make the debt go away.

A dumb idea? Maybe so. But it would be the smartest dumb thing the Fed ever did.

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