Saturday, December 11, 2010
The only way to fix the economy is to get rid of some debt -- a lot of debt, actually. But remember, it is private-sector debt that holds our economy down. Not public debt. So it is private-sector debt that must be reduced.
When at last we do that, if ever we do, the economy will grow like gangbusters again. With 30 years' of growth incentives in place? There'll be no way to stop the growth!
But when we finally get the economy growing again, we have to do things differently. We have to fight inflation differently. We can no longer expect the Fed to restrict the quantity of money, and curse them when they don't, and curse them when they do.
We must demand from the Fed a quantity of money adequate to support the existing level of economic activity. This will be a much greater quantity than we had, at least greater than we had before the Quantitative Easings.
We must demand from policy that it encourage credit-use for growth, but not for everything. We must expect the Fed to provide sufficient money to support the existing economy, and Congress must understand that credit is only for growth.
And we must invent a policy that uses accelerated repayment of debt to draw money out of circulation when we need to fight inflation, which is always.
The point of these changes is to get monetary stumbling-blocks out of the economy's way, so the economy will perform as we know it can.