Suppose the government sent everyone in the US a check for a billion dollars, or more picturesquely, a billon-dollar coin with Paul Volker’s head on it. Prices would rise to compensate. You couldn’t really use your billion dollars to buy any tangible product, like oil or wheat or cars. There are only so many Cadillacs; their prices would be bid up. The only thing a man could do with the money would be pay off existing debts.
They don’t have to send everyone a shiny new copper-nickel Volker, but to get inflation going the supply of money in circulation must somehow increase. It’s not enough to start the printing press or do another quantitative easing. The money does nothing if it’s printed up and then locked in the vault; it has to appear in people’s wallets, or in their bank accounts, or maybe in their investment portfolios as higher prices.
“Whose is this image and superscription?”
With a few strokes of the pen and a little postage, the Treasury could eliminate the burden of all mortgages, college loans, and credit card balances, along with the value of all existing bank balances, bonds, and most investments. You’d think lots of banks would collapse, as their outstanding loans were paid off in worthless dollars. In theory the stock market would soar, as would the price of gold and commodities. The price of bonds would collapse, in theory. I say “in theory” because who knows? The stock market might collapse; bonds might soar. That wouldn’t make any sense to me, but then lots of things don’t.
John Maynard Keynes says:
“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez faire to dig up the notes again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.” — The General Theory of Employment, Interest, and Money, by John Maynard Keynes, 1936
That’s clear and logical, and totally contradicted by recent experience. We even tried the more sensible approach of building houses. It was a catastrophe. So who knows? If sensible doesn’t work, maybe crazy is the way to go.
But I’m still not voting for Ron Paul.