Tuesday, March 15, 2011

(reprise)


"Money creation," says G. Thomas Woodward,

"does not drive the creation of debt; the debt is already there regardless of how money is created. It is always there."

Debt is always there. But there isn't always $35 of debt, for every dollar of money.

The problem is really not difficult to understand. Five dollars of debt for every dollar of money, ten dollars, maybe twelve, okay. But thirty-five?

The solution isn't difficult to understand, either: We need tax incentives to accelerate the repayment of debt. We need to use those incentives as our primary weapon against inflation. And then the Fed can stop taking money out of circulation to fight inflation. And that will leave enough money in the economy so that the economy can grow.

Mostly, we need to get out of our head the notion that printing money causes inflation and using credit doesn't. And we need to get out of our head the notion that we always need to use more credit, even when there is already too much debt.

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