The Missing Debate Over Monetary Policy

Fiscal CliffThe dramatically named “fiscal cliff” debate has been the focus of the media and the Washington establishment. In the ridiculous metaphor we are using to describe this debate, driving off the fiscal cliff involves cutting defense spending and Medicare by $50 Billion a year and increasing taxes on everyone for another 100 billion dollars or so annually. If 200 billion dollars a year constitutes a disaster worthy of the terror of driving a car over a cliff, what are we supposed to call what the Federal Reserve is doing with monetary policy? Between QE3 and QE4 we are propping up wildly inflated Wall Street markets to the tune of at least $85 billion dollars every month and I can’t figure out why no one gives a shit.
While we are propping up the banks, credit remains scarce and both unemployment and foreclosures seem stuck on miserable.

Think about what that means and some other things we could do with that money.

85 billion dollars could be used to loan 850,000 $100,000 near 0% interest loans to people with a dream and a business plan. I know a ton of people who would launch incredible projects if they could get funding like that. We would certainly lose on many of these loans but what the hell do they think is going to happen to the money being used to prop up the banks, auto companies, and unions? The one-time multi-trillion dollar bailouts have turned into trillion dollar annual payments.

While some of those businesses and projects would ultimately fail, it wouldn’t be too difficult to develop a mentoring/selection process that would include submitting business plans and budgets to a committee of local business owners/leaders.

For the cost of one month of QE3 and QE4 we could fund this project.

For the total K Street-Wall Street-Union bailout, we could have paid off our wars and most of our debt and created millions of new start-ups.

This is a nation of dreamers. I hear a lot of great ideas that go unexplored because lack of funding and know that there is an entire generation of reasonably seasoned entrepreneurs ready to launch the next half century of prosperity.

All the policies being debated as part of the “fiscal cliff” are bad policy. Let’s pinch a couple bucks off the social security increases (Establishment Republicans) and jack rates up on a handful of people (Establishment Democrats).

I want to invade their bubble and scream at them that if the following things are accomplished, things will get better and they can go back to their irrelevant academic debates.

1) Reduce the complexity of regulations and the tax code. Make it so you don’t have to hire a tax attorney and/or compliance officer to start a company.

2) Open up the credit markets (banking reform). This is a country of terrific second, third, and twentieth chances; but years after the housing/banking collapse, credit markets remain dry unless you are one of the handful of entities who has access to the “discount window.” We’ve been loaning Goldman Sachs money billions at a time. If we’re going to spend the money, and I’m not sure it’s a good idea that we do, let’s spend it a better way than giving it to a bunch of degenerate gamblers.

3) Protect our pensions and retirement funds. This is not money to be gambled and when we let people gamble with it, it allows them to hold the entire economy hostage. We are propping up markets because if we don’t, many bubbles are going to burst. However, the money we are spending to prevent the collapse is only encouraging an even more painful collapse. Prudence laws should be reinstated in all 50 states.

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