Unfortunately, the Federal Reserve doesn’t have complete data for securities held by banks prior to 2009, or I haven’t spent enough time looking for it, so I re-created the following graph on outstanding loans. It gives you an idea of what kind of assets banks are holding right now, although an imperfect one. This should be interpreted within the context of the private debt problem: much of it is unproductive and ultimately much of it will have to be reduced and/or replaced.

This exercise/question is geared towards all (inspired, in small part, by a recent post on Azizonomics) — I’d love a discussion on what people think the real consequences of different solutions would be. Here is a proposed solution:

Money injection directly to the consumer through fiscal returns. Not necessarily tax returns — i.e. I’m not suggesting a reduction in taxes —, rather an expansion of the monetary base by purchasing U.S. Treasuries that are used to finance liquidity provision to American consumers, especially targeting homeowners (the quantity of money received could be a function of different variables, such as mortgage debt owed, income, et cetera). The government could give incentives for “proper use” (to pay down debt) through tax deductions, based on information provided to the IRS.

Apart from the fact that this may not solve all the problems (loss of value on these debt assets?), what it would do is give banks space to extend loans to industry. By targeting consumers you might avoid a Mises–Hayek effect on the capital goods industry and the consequent inflation should also reduce the real burden of debt throughout the economy, which is a secondary consequence that reinforces the primary intentions. This kind of policy would also probably be popular, which means it might be easier to implement than the alternatives.

To all: what wouldn’t this solve that would still be a major hindrance to recover (i.e. what isn’t being considered)? To Austrians: what specific, real consequences would you predict to be the outcome (e.g. capital consumption), and are these worse than the realistic alternative of status quo or monetary growth through the loan market?