CHAPTER - QE AS IT SHOULD BE

Where QE failures might turn into success

This article discusses the helicopter idea and suggests that printing money does not help. You need to read it. It is very informative. Then come back and read this:

Did you read it? If so move on:

The article suggests that in a depression throwing money at banks will not help them to lend it. With falling asset prices and all the credit that they can cope with people will just repay their loans.

What I suggested in 2008, if we really want to stimulate the economy by printing money, was to use the money that was printed to reduce VAT on a temporary basis.

This overcomes the slow velocity of circulation problem by creating a temporary 'everything is for sale' effect, and so can prompt inflation to start, which is a great incentive to people to start spending. 

By reducing VAT the money printed is used to balance the VAT revenue books, the printed money ends up with everyone who spends. It shows as a surplus in their bank balance or in the accounts unless they spend more than usual in which case the additional money gets spent / sent to the suppliers who  supplied extra goods and services.

In this way government is telling people to spend each other back into their old, permanent jobs that have been lost as spending has fallen. And it tells them to spend now before money loses value or prices rise.

But there also has to be an end to falling asset prices if any new lending is going to take place and  if confidence is to be strong. My ILS Mortgage model is one way to do that as discussed in the APPENDIX 2 of Chapter 5 of my draft book. And elsewhere on my Blogs.

THE FAKE PROBLEM
Now the problem comes when inflation does start to push upwards - not prices inflation but wages inflation, because then interest rates need to start rising at some point, albeit maybe not right away. See my earlier chapters.

We have time to put some things in place to protect people from those usual inflation costs. That is why I call it the fake problem - or if not dealt with it may become the real problem. That is the real problem - to put in place the debt and investment / lending structures that are needed to avoid the Low Inflation Trap when interest rates rise.


THE REAL PROBLEM
Our debt structures are not geared to keeping everything in balance when average incomes start to rise, causing further price rises and inflation. THIS is the real problem.

But we can use the interval to change that and we MUST change that.

Read my Blogs to find out how.

http://macro-economic-design.blogspot.com

By the way
It is claimed that the total credit in the USA is circa $50tr whereas the total base money is around $3 tr.

So how much base money would the Fed need to create to make that an issue regarding the inflationary push?

Something to think about - especially if they:

1. restructure the debts as per my book.

2. Give the money away when they print it as above.

Item 1 keeps all adjustments in balance and preserves wealth and safegaurds budgets.
Item 2 stimulates the economy and it recovers.

Too simple?

Not simple - very hard work. But it has to be done anyway.

I have created TWO Blogs to give PRACTICAL guidance on IMPLEMENTATION to financial institutions, regulators and governments. At the end of the day the steering committee will have to start with lessons on my book and all of my blog pages. That is what we did in 2003/4 with my Zimbabwean Committee made up of the best from Zimbabwe - and remember - Many of the top 500 companies have far more than a proportionate sample of Zimbabweans in key positions so I have been told. They are among the best educated and most capable in the world. They survived the Hyper-inflation back home as well.

These are:
http://ingram-committee.blogspot.com/
and
The various early pages of this Blog:
http://dreammortgages.blogspot.com/

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