Comment to Inequality is Killing Capitalism by Robert Skidelsky on Project Syndicate on April 3, 2013



Bypassing the banks to create demand for credit and revive the economy...



March 19, 2013



Staving off the impending effects of unemployment through increased consumption



© Enrique Woll Battistini 2013



The Trillion Dollar Platinum Coin financial instrument promoted by Hellen Brown and others in order for the Federal Reserve to fund the Federal Government directly, in my opinion, would certainly not save the economy. The bottom line flaw in such thinking is that the availing of limitless credit or cash to Government, whether Federal or State, by the Federal Reserve, would place the economy -with all it entails- in the hands of Government to an unacceptable degree, and not nearly enough in the hands of the Private Sector, effectively impeding the role of the Federal Government as the main legitimate arbiter and protector of the entirety of society, and ending the key role of the Federal Reserve vis-à-vis the money supply and inflation. The nefarious effects of this paradigmatic shift would not be limited to the United States, but would be felt throughout the globe.



Indeed, given that money is power, the Federal Reserve would quickly loose its independence to the Federal Government, be absorbed, and disappear forever, and given that the Federal Government would be synonymous with money in this scenario, it would soon prove, if it has not done so convincingly enough already, the truth and wisdom of Lord Acton’s words, when he warned that "Power tends to corrupt, and absolute power corrupts absolutely." Moreover, the mere lack of the need to tax people or private enterprise to fund the Federal Government, and the consequent disappearance of the need for new issues of U.S. Government Bonds, together with the instant and worldwide distrust of the U.S. Dollar that would ensue, would simultaneously cause its terminal devaluation and create immense pressure by countries such as China for immediate redemption of the massive U.S. Government Bond debt that they hold, in kind, if not in gold, at historical values. In addition, of course, the currently conducted open market operations by the Federal Reserve for control of the money supply and inflation, and refunding operations by the U.S. Treasury to meet its bond redemption obligations, would immediately cease forever for lack of a market. Control of inflation would depend on the Federal Government alone, and its only tool would be the careful control of additions to the existing money supply. The immediate consequence of this horrific situation would prove to be a catastrophic dilemma, easy to envision, no matter what choice were made, as no middle ground imaginable would satisfy the parties involved.



Moreover, the accompanying notion that States should create State Banks that could pledge State assets such as bridges and roads, and maritime ports and airports, in lieu of Trillion Dollar Platinum Coins of their own, in order to obtain and back their own Federal Reserve loans, is magic thinking of the worst and most dangerous kind, as the Federal Reserve is currently a private institution and as such could end up owning massive and crucial State assets, outright, and under the Federal Trillion Dollar Platinum Coin doomsday scenario described above, as stated, it would be quickly folded into the Government, which, in time, would become the owner of the States, quite literally. Of course, again, this would be a doomsday scenario.



Nevertheless, and in any and every case, one immediate reason why placing the economy exceedingly in the hands of Government would be unacceptable is that, contrary to the teachings of Neo-Classical Economics, and Modern Monetary Theory, it does matter how money is spent, and whether it goes to produce shoes or guns always make a difference, but in the case of increases in the money supply, especially the large ones that would likely result from application of the Trillion Dollar Platinum Coin, how it is spent greatly matters, especially in the first go-around of its endless circulation throughout the economy. The question would be then, who should be doing the first spending and the primary spending? The Government or The People? And lastly, obviously, Central Banks should continue to exist, and to exercise their traditional control over the money supply and inflation, until a superior type of institution can take their place.



The foregoing would seemingly apply around the globe, but, on the other hand, if unconstrained, if nothing transcendentally efficacious is done, the impending effects of the growing unemployment in the Euro Zone –which threatens the world– would be widespread bankruptcy and, very soon after that, general social disorder, national disarticulation, hunger, and for many millions of people in the Fourth World, it would mean, quite literally, starvation. However, staving off these looming effects carries the obvious need to increase employment, and production, in all currently affected countries, and this in turn requires increased and sustained demand, and consumption, acting in perpetual circular virtuous motion. This much is evident, but empty pockets simply cannot result in increased demand. Thus, clearly, the way to end this conundrum is to find the fastest and surest way to jump-start this life-sustaining process, and it is the consumption of all currently available goods and services, period. And in my view, the only way to achieve this crucial change in attitude, on a world-wide scale, in the immediate horizon, is economic stimulus through an impulse-increase in the disposable income of people, and the assurance of continuity into the mid term horizon; that is, through the implementation of periodic economic –cash– stimuli for as long as necessary as dictated by the natural employment and inflation targets of each affected country.



This remedy could take the form of Limited-Life Personal Economic Stimulus Consumption Cards (ESC) issued to consumers across the board on a monthly basis by Governments, and financed by incurring new debt, or by Central Banks, through prescribed increases in the money supply, and implemented in every case through commercial banks in all affected countries. Simply stated, the solution to unacceptable or to widespread unemployment would be the issuance of 30-Day Government Debit Cards. Everyone in possession of this debit card would spend the –cash– purchasing power it granted them on whatever consumer goods and services they needed the most within its 30-day lifespan, given that after its expiration date any unspent amount would be irrevocably lost. In addition, these cards would not be redeemable for cash, and given that they would be personal, and issued to individuals, they could not be pooled, used as collateral, traded, or used in any way other than for personal consumption. And finally, their purchasing power would be subject to automatic renewal at a prescribed value, equal for all, for administrative simplicity, adjusted for attainment of inflation-unemployment equilibrium over time, on the first day of each month for as long as the program lasted.



The first effect of this program would be to reduce inventories and create demand for workers of all levels, rapidly reducing unemployment to its natural levels in these countries. Inflation would happen, as always, if unemployment were reduced below its natural level, and vice-versa, and, as always, prices would soon settle, as must be, at a higher level. However, resulting inflation, if any, could be compensated for the infirm, the poor, the unemployed, and the retired, through this very same program, funded, at the end of the day, by the increased production it seeks and would surely find. The second major effect of this program in all affected countries would be to increase personal incomes and savings, and to increase tax revenues, reduce fiscal deficits and national debts.



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https://www.academia.edu/37895442/PROJECT_SYNDICATE_Comment_to_Inequality_is_Killing_Capitalism_2013040301



http://www.project-syndicate.org/commentary/the-need-for-redistribution-of-wealth-and-income-in-order-to-save-capitalism-from-its-current-crisis-by-robert-skidelsky