A different way of creating money – a federal credit card

Here’s another proposal for stimulating the economy but this one is different in that it proposes a different way of creating money.  In fact it’s close to the LETS (Local Exchange Trading System) suggested in my essay LETS go to market;  Dealing with the economic crisis.

The proposal is for each adult to be given a $2,000 federal credit card at a very low interest rate and it comes from Miles Kimball, an economics professor at the University of Michigan,

Here is a link to an article about his proposal and here is a link to his blog posting.

This would allow each person to borrow $2,000 at a low interest rate to be repaid after the economy has fully recovered.

What makes this proposal interesting is that rather than the federal government borrowing money for the program it would be financed directly by the federal reserve and show up on its balance sheet.  This would be creating new money and new purchasing power but it would be different in that it would bypass the banking system.  Therefore the fractional reserve process would be avoided as would commercial interest rates.  I figure interest rates combined with fractional reserves are the cause of inflation and financial instability.

I also like this approach because it gives decision-making powers to individuals rather than politicians and bureaucrats.

But will it work?

The purpose of stimulus programs is to increase the quantity of goods and services produced and consumed and the hope is to jump-start the economy so that it would return to growth.

Certainly it would provide a one-shot stimulus the same as a government works program and it would do so without adding to government debt loads.

So far as returning to economic growth there have already been a number of attempts by increasing the amount of money available (quantitative easing) and there is no evidence they have worked.  It  may be that as well as a financial crisis we are also up against problems with the resource base.

Even though I am skeptical about the effectiveness of Professor Kimball’s proposal I like it because it introduces a new way of creating money.   The next step would be to make it a monthly thing and stop all other government handouts to either consumers or producers.


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One Response

  1. Printing money of any sort will NOT at the present time stimulate the economy. The US is now in a DEPRESSION, not a Recession, something technically differnt.

    Everybody seems to have forgotten what Keynes wrote in the last depression. He said when interests rates fall very low, to about one per cent as they do in Depressions, no amount of monetary stimulation will get the country out of a Depression. He called it a ‘liquidity trap’. So forget these half baked suggestions of monetary stimulus.

    Incidentially the Federal reserve is now entirely useless. One famous economist said to me “The Fed is a policy eunuch. It knows what it wants do but is unable to do it.”

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