What's the solution considering the following?
The IMF 2013 has recently demonstrated that fiscal multipliers are higher than previously estimated and, with austerity policies in place, this means, ceteris paribus, that the current contraction will be deeper than previously anticipated. De Grauwe and Ji 2013 have also fairly convincingly shown with simple cross-country comparisons that the stronger the austerity policies are, the greater is the related economic contraction. They also demonstrate that the stronger the austerity policies, the greater is the related increase in public debt burdens. These are important and compelling results.
Well, the solution Richard Wood, an Australian macroeconomist, and other suggest is to monetize the deficit. What does that mean? It means in the US for instance that rather than borrow money to create money, the government would not borrow anything but would rather simply create money and spend it directly to pay for as much in the way of governmental expenses (providing governmental services, etc.) as is now being covered via deficit spending and governmental borrowing. The government would not issue bonds to match money creation but would simply create the money debt-free. This would not add to the national debt. The interest on bonds for that money would not later need to be paid via taxes from taxpayers.
Would it be inflationary? Right now, inflation is running at historically low levels. If the economy were to pick up (and we're confident it would) such that goods and services on supply would be purchased enough to match the increase in the money supply, it would balance out.
We can credit the brilliant Frederick Soddy with much previously unheralded forerunning on this. Irving Fisher is the most recent economist before the most recent interest in this issue post-Great Depression to have somewhat popularized the concept. However, even Thomas Edison (1847-1931) was quite familiar with it.
"Then you see no difference between currency and Government bonds?" Mr. Edison was asked.
"Yes, there is a difference, but it is neither the likeness nor the difference that will determine the matter; the attack will be directed against thinking of bonds and currency together and comparing them. If people ever get to thinking of bonds and bills at the same time, the game is up."
"But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good also." — Thomas Edison Article, Public Banking Institute
If you are an investor in 1-4 unit properties in Arizona, California, Nevada, Oregon, Utah, or Washington, please do the financially responsible thing and make sure you have proper Landlord Insurance with PropertyPak™. We love focusing on real estate and the economy in general, but we are also here to serve your insurance needs.
Hill & Usher (PropertyPak™ is a division) has many insurance offerings. See our menu above for more info and links.
Did this post help you? Let us know by leaving your comment below.
Note: This blog does not provide legal, financial, or accounting advice. Seek professional counsel.
Furthermore, we, as insurance producers, are prohibited by law from disparaging the insurance industry, carriers, other producers, etc. With that in mind, we provide links without staking out positions that violate the law. We provide them solely from a public-policy standpoint wherein we encourage our industry to be sure our profits, etc., are fair and balanced.
We do not necessarily fact checked the contents of every linked article or page, etc.
If we were to conclude any part or parts of our industry are in violation of fundamental fairness and the legal standards of a state or states, we'd address the issue through proper, legal channels. We trust you understand.
The laws that tie our tongues, so to speak, are designed to keep the public from losing confidence in the industry and the regulatory system overseeing it. Insurance commissioners around the country work very hard to analyze rates and to not allow the industry to be damaged by bad rate-settings and changes in coverages. The proper way for people in the industry to deal with such matters is by adhering to the laws, rules, and regulations of the applicable states and within industry associations where such matters may be discussed in private without giving the industry unnecessary black eyes. Ethics is very high on the list in the insurance industry, and we don't want to lose the people's trust. That said, the industry is not perfect; but what industry is?
For our part, we believe in strong regulations and strong regulators.
We welcome your comments and ask you to keep in mind that we cannot and will not reply in any way or ways where any insurance commissioner could rightly say we've violated the law of the given state.
We are allowed to share rating-bureau data/reports and industry-consultant opinions but make clear here that those opinions are theirs and do not necessarily reflect our position.