Over the past few years, artificial wealth was created in enormous amounts – this was expressed as paper profits or paper values – which could only be accessed by equivalent debt creation. Consider one who had $50K in home equity due to price rises of houses – the only way to access those “profits” was to create new debt – either by a second mortgage for the existing owner or a new mortgage for a new owner.

Access to debt is not the same thing as wealth. It is this un-wealth that is disappearing.

Excess, non-serviceable debt (un-wealth) should disappear. It has no value to production. It encourages price instability. Yet, the Keynesian approach is to sustain this non-wealth by government intervention. The bottom line of this approach is to guarantee a new misallocation, rather than allowing markets to determine outcomes.

be cautious, see:

“”If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace. We ask not your counsels or arms. Crouch down and lick the hands which feed you. May your chains set lightly upon you, and may posterity forget that ye were our countrymen.” – Speech at the Philadelphia State House, August 1, 1776

and:
“When designs are form’d to raze the very foundation of a free government, whose few who are to erect their grandeur and fortunes upon the general ruin, will employ every art to sooth the devoted people into a state of indolence, inattention and security, which is forever the fore-runner of slavery.” – Article signed “Candidus,” in Boston Gazette, December 9, 1771

http://www.revolutionary-war-and-beyond.com/samuel-adams-quotes-1.html

Oh, an argument to “tax rebates” (or reduced withholding) is “consumers won’t spend it”. But, to that, let me say this:
(a) True, because we’re never given *enough* to have any left over after paying off the debt. We need more. (And if you think “oh, but that will be too much!”, then consider the next point.)
(b) Banks won’t lend it either! They won’t lend until they expect inflation again.

I understand all this printing risks high inflation down the road. Yes, it’s difficult to “get it just right”. But, that should not mean “don’t try”, IMHO, because the consequences of “not trying” are too dire. If inflationary expectations grow too high, we’ll raise rates again. (It’s been done before. And we turned out alright…better than in the early 30′s.)

It might seem like we’re simply shuffling money around. But, it still reduces real debt. Individual balance sheets will look better.

Okay, foreign creditors won’t be happy with giving it only to Americans. So, give them some, too. What will they do with it? Since they know better than to buy bogus financial IOU’s from us, they’ll instead buy goods, services, or assets from us. What’s wrong with that?

The bottom line is that an industry of cheats (bankers, brokers, appraisers, realtors, flippers) created a massive amount of liquidity that permeated the economy. The sudden writeoffs are killing the real economy. To stop the bleeding, we should replace that liquidity. But, we shouldn’t give it to the jerks (and their bankrupt institutions) who created the problem in the first place. Ergo, give the money to everyone else but them.

It’s ironic. But, I really think this: we should turn Bernanke’s helicopter metaphor into more of a reality than most of us ever thought, as long as the helicopter travels around Main Street everywhere and never hovers over Wall Street.

In the present circumstance their abolition would help both businesses and employees, either of which would help sustain the economy.

«the RFC then and the Treasury today must borrow the money needed to buy financial assets. Thus there is no net increase in liquidity; it is just an exchange–swapping Treasury securities for private securities.»

Of the several disagreeable contentions about the Great Depression and today in Bartlett’s arguments, this is the worst.

The Fed and Treasury are taking non-negotiable paper and exchanging it with quasi-money treasuries at near par. That creates a lot of new spending power…

“I don’t know about you, but to me it sounds like there simply HAS to be a loser in the deal somewhere…..”

In fact, there are a lot of losers in this deal… they’re called taxpayers.

This saves jobs right away, especially in the public sector in states and local governments.

This re-capitalizes business, especially manufacturing, but also any business currently employing many people.

Strings could be attached such as a no layoff rule whereby companies would run 32 hour workweeks paying for 40 supplemented by the paid health insurance. States would be mandated to take any extra money and use it for unemployment benefits and\ or pension fund replenishment.

Medicare for All would also make our businesses more competitive at home and abroad. All the other G7 nations have government sponsored health insurance giving their businesses a subsidy.

We need Medicare for All ASAP …

There are very few people who remember what free-market capitalism actually is in this country

Bruce Bartlet

A (gasp) Keynesian

Jack