Sunday, April 1, 2012

Conditions are Perfect

Everybody else on the friggin planet expects horrendous inflation when the economy recovers, because of all the money the Fed dumped into the system to prevent utter collapse.

I don't.

Well... I do, because they don't know how to run the economy. Every day provides more evidence of it. But I'm optimistic, because I think I know what must be done.

The inflation isn't the problem. The inflation is just a bad solution to the problem. The problem is excessive private debt. Excessive, relative to the quantity of money.

Ironic, isn't it?

So the Fed -- what their thinking was, I do not know -- the Fed did the right thing more or less by expanding the quantity of money. (It corrects the imbalance arising from excessive debt relative to the quantity of money.) But maybe it was dumb luck.

What we need to do now, what the Fed and Congress must come to understand, is the need to limit the growth of credit use.

Now maybe that sounds like a punishing policy. But it's not. For the correct policy will provide money in place of credit, and we will have money instead of debt as a result.

And we don't get inflation from this, because we only expand credit a little bit under the new policy. Basically, the policy is that we stop thinking these things:

1. printing money causes inflation, and
2. we need credit for growth.

and we start thinking these things:

1. the use of credit causes inflation and creates debt; and
2. we need money to have a healthy economy.

So, conditions are perfect. The Fed has already provided tons of money. All we have to do now is get Congress and the Fed to stop thinking we should expand private credit use excessively. But, unfortunately, that is what they always want to do.

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