The politicians campaigning for office talk about Washington turning on the printing presses and running a deficit, as if it were as simple as that to spend money you don't have.

In fact, money doesn't come from the federal government. Dollar bills are not an obligation of the federal government but of the federal reserve system - and the government doesn't own the federal reserve system. It's a series of banks owned by other banks.

The Secret Life Of Money

In order to spend money, we have to borrow money. We print t-bills, and t-notes, t- standing for "treasury", and we print savings bonds, all of which are interest-bearing instruments. The federal reserve, on the other hand, prints money, and they don't pay any interest at all.

During the last decade, when interest rates were low, there were economists who, like me, argued that we ought to be issuing long term bonds in order to lock in those low interest rates. Instead, we kept on issuing short-term t-bills and t-notes.

No Mortgage Money? No Sweat!

According to an article in the New York Times, an incredible large number of people have mortages that are "under water" - that is, the owner owes more on the house than it's worth. What's more, many of these people are making no attempt to catch up on their mortgages. Instead of making a $1500 payment on their mortgage which calls for a $2500 payment, they are making no payment at all, instead choosing to put that money into keeping their business afloat or expanding it. The bank, meanwhile, is making no effort to foreclose on the mortgage.

I don't know anybody in quite that position, but then, if I did, would I know it? Seems to me that I wouldn't be advertising that fact to my friends and family.

Imagine, Mr. Lennon Says

On the other hand, I can imagine myself being under water. I'd feel poor. If I didn't have the money to pay for my housing, I sure wouldn't be taking any vacations in Vegas or Orlando. Nor, I suppose, would I qualify to buy a new car. We could use a new car. We don't qualify for the loan to buy one, nor would we have the money to service the loan. That's not because we're underwater on our mortgage. That's because we're poor.

What this economy needs if is for people to feel wealthier, so they go out and buy steak dinners. If they buy steak, there's less demand for hamburger, and the price of hamburger drops, and it makes it easier for me to buy hamburger. And if they aren't having trouble getting loans to buy cars, business is better, employment goes up, and people invest in expanding their business.

Right?

A Man, A Plan, A Canal: Panama

So here's what I would do. I'd pull out some old printing plates. They'd say "silver certificates" or "gold certificates" at the top instead of "federal reserve notes", and I'd modify them so that they'd say "united states dollars". I'd print $575 billion dollars, no more, no less. They'd all be $100 or $500 or $1000 bills. We've not printed anything larger than $1000 for a while, because we want to make it hard for drug dealers, but frankly, that seems like a dumb idea to me. Nothing like a wad of greenbacks in your pocket to make you feel wealthy.

Why $575 billion? Because that would double the amount of currency in circulation. That doesn't mean the value of the currency would drop in half, because most money isn't currency. Mostly, I spend plastic, and a little paper. Currency, I mostly use for vending machines, parking meters, buying a pack of bubble gum, etc. We may need two or ten times as much extra currency in circulation, but $575 is a good start.

Let People Continue To Invest In America

And when Savings Bonds come due, I'd let people buy new savings bonds. And when T-bonds and T-notes come due, I'd pay them off, and issue half as many new ones as I was redeeming old ones. You don't want to inject a trillion dollars into the economy in three days time. But you inject this new currency into the market, none the less.

Now, this will accomplish several things. One is that interest rates will drop for t-bills and t-notes, because the supply will drop faster than the demand will drop. That will cause the interest rate to drop. That reduces the deficit. We won't be issuing as many t-bills and t-notes as we currently have issued. That reduces the national debt.

Gas-X Isn't Necessarily Good For You

And we get inflation. Inflation occurs when too many dollars go chasing too few goods and services. Prices rise, incomes rise, and fixed dollar investments such as mortgages become worth less. Instead of owing $325,000 on a $250,000 house, Joe will owe $325,000 on a $400,000 house. Think Joe will fix the roof on that $400,000 house? You better believe it. Thank Joe can qualify for a car loan? He sure can. Thank Joe can afford to expand his business? He will qualify for a business loan. Think Jim can get a job working for Joe? Joe has to hire someone.

We need some good old-fashioned inflation. All of the economists know it, and nobody wants to say it. And if it can do it at the same time that we are reducing the deficit and reducing the national debt, so much the better.

If I'm So Smart

So why isn't anyone doing it? Because it sounds like we're doing something wrong. The GOP would scream if the democrats tried to do it. The Democrats would scream if the GOP tried to do it. But it needs to be done, none the less.

Of course, I could do my patriotic duty and expand the money supply by doing the counterfeiting, all by myself, but I'd have trouble spending all that much money, by myself. I'd need about 20,000 wives to spend that much money - and even Wilt Chamberlain didn't marry that many women. He just made friends with them. Close friends, admittedly, but not wives.

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counterfeiting - deficit - inflation - mortgage - national debt - under water