Letters to the Editor
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A Few Economic Myths
Rising home prices are a benefit to consumers. Rising home prices do not contribute to personal wealth, they are inflationary, like every other price increase, they constitute a tax on wealth.
Stimulating consumer demand, is the same as stimulating corporate spending, and will add jobs to the economy. The downsizing in American corporations has been going on for twenty years. The reason this recession won't end, is that there is not enough (demand) money coming into American households to meet the supply of products available.
There is still demand for credit. There is a bear market in credit, which is why interest rates keep falling. People who sell credit are being continually required to lower the price. The market solution would be to allow demand and supply to level off, but the Federal Reserve intervenes on the behalf of buyers, with the equivalvent of credit price controls. Price controls don't work.
The Federal Reserve can print money and reflate this economy. Bernanke has by now wished he had never said that. How do you get cash money into the economy? The process by which credit is first created, out of thin air, come about through selling bonds and extending credit to the banks. That new debt is then monetisized. To circumvent the first steps, and skip to the last step, means you simply hand money to people without recording a debit on the other side of the balance sheet? That requires FISCAL policy, and is in the control of the COngress. Monetary policy may be the Fed's particular authority, but it requires a number of steps, and handing money to banks, much less individuals, violates all of them. The Fed can't simply give money away, it can only facilitate credit, and when no one wants that credit any longer, they are foolish to continue.
This won't end soon. Even those who believe we can behave as badly as the authorities in Argentina, haven't taken account of the fact that there was a global economic system to back up Argentina. Who's got our back?