Wednesday, November 26, 2008

Why the US Economy is sunk

We have no real money.

This actually worked for the last 80 years:  Every dollar the FED creates, it loans.  It prints money, then loans it either to banks or the federal government.  This changes classical M1 into M3; money created by loans rather than physical money.

The reason we have deflation today is because as a culture, we're overleveraged- way too much M3, no M1, very little physical product to back up all of that M3.  All of the "stimulus" packages put forth so far have been funded with M3, not M1.  No wonder hyperinflation hasn't shown up and deflation is increasing rapidly; there's a major solvency problem, not just with the banks but with the FED itself as it is now overleveraged 100:1.

Here's my solution:  Kill the FED.  Let every governmental body print whatever dollars they need to survive.  End taxation entirely- your local neighborhood need a new park?  Just print the money to buy the land.  Decentralize money creation as long as all money creation is M1.  Then we'll have hyperinflation instead of deflation.

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Oustside The Asylum by Ted Seeber is licensed under a Creative Commons Attribution-ShareAlike 3.0 United States License.
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