Posted by WARREN MOSLER on 11th October 2011
Falls under ‘even a fish wouldn’t get into trouble if he kept his mouth shut’ ???
October 7 (CNN) — How to fix the economy and create jobs
First, Congress and President Obama can adopt strategies designed to unleash the massive amount of capital that is accumulated but not being invested. There’s some $2.2 trillion in cash in American banks that is not committed to loans. A couple hundred billion has to be held back for bad mortgages, but there’s about $2 trillion that could be used in cash reserves for up to $20 trillion in loans. So, in theory, that would take the world out of recession. And U.S. corporations have about $2 trillion more that they have decided not to invest.
SORRY, MR. PRESIDENT, LENDING DOES NOT ‘USE’ OR ‘USE UP’ RESERVES WITH TODAY’S NON CONVERTIBLE CURRENCY/FLOATING EXCHANGE RATE REGIME. THE WAY YOU SAID IT APPLIES WITH A GOLD STANDARD OR OTHER FIXED EXCHANGE RATE POLICIES.
IN OUR BANKING SYSTEM, THE CAUSATION RUNS FROM LOANS TO DEPOSITS. IF THE BANKS MADE $2 TRILLION IN LOANS TODAY, $2 TRILLION IN NEW DEPOSITS WOULD BE CREATED IN THE BANKING SYSTEM, AND RESERVES WOULD REMAIN UNCHANGED.
The second thing is to accelerate the resolution of the home mortgage crisis, which would make businesses more eager to borrow, expand and consumers more willing to spend. These kinds of financial crises typically take about five years to get over. What we’re really trying to do is beat the historical trend by getting over it more quickly. We can’t do that unless we do on a larger scale what we did in the S&L crisis, which is to flush the debt quicker.
OK, BUT REMEMBER THE S AND L CRISIS LED TO THE CRASH OF 87, WITH THE HIGH LEVEL OF DEFICIT SPENDING SUPPORTING OUTPUT AND EMPLOYMENT.
The third category includes things that will strengthen our position today and tomorrow. We need to bring back manufacturing. We need to focus on exports. We need to focus on green technologies. There are dozens of things we could do that would create jobs.
MR. PRESIDENT, DON’T FORGET THAT EXPORTS ARE REAL COSTS, AND IMPORTS REAL BENEFITS. ECONOMICS IS THE OPPOSITE OF RELIGION. WITH ECONOMICS IT’S BETTER TO RECEIVE THAN TO GIVE. REAL TERMS OF TRADE AND STANDARDS OF LIVING ARE OPTIMIZED BY IMPORTING AS MUCH AS POSSIBLE IN EXCHANGE FOR AS FEW EXPORTS AS POSSIBLE. AND THE DOMESTIC ECONOMY CAN ALWAYS BE KEPT FULLY EMPLOYED BY APPROPRIATE FISCAL BALANCE.
AND DON’T FORGET THAT GLOBALLY, WITH INCREASING PRODUCTIVITY, MANUFACTURING EMPLOYMENT IS FALLING EVEN AS OUTPUT GROWS. MUCH LIKE AGRICULTURE, MANUFACTURING WILL CONTINUE TO DECLINE IN RELATIVE IMPORTANCE WITH REGARDS TO EMPLOYMENT WITH TIME.