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Source link: http://archive.mises.org/8971/slash-and-burn/

Slash and Burn

November 18, 2008 by

There is more talk about another stimulus package to help save the economy. Word from Washington predicts that a package that includes extended unemployment benefits, food stamps, and another tax rebate check will pass in a forthcoming lame duck session of Congress. All of these remedies actually make the patient sicker, but there is a way for Washington to really stimulate the economy. FULL ARTICLE

{ 10 comments }

DD November 18, 2008 at 9:13 am

Here is a questions I wonder if someone can answer. I understand he wants to burn the money the Government makes so it doens’t spend it, but wouldn’t just paying off the debt be wiser? Wouldn’t that have the same effect as Mark is describing, but at least we’ll pay off some of that debt?

Som November 18, 2008 at 9:17 am

I knew it! The Joker from The Dark Knight was the real hero! If he keeps burning stacks of fiat money like that, Obama should forcefully usher him in to replace Bernanke, a “necessary and proper” executive order!

Alas, if there was any true justice in this world, the FED’s board of directors would wear white makeup, dye their hair green, wear tacky purple and plaid, and put on exaggerated lipstick to be exposed as the true clowns they really are!

Nick Bradley November 18, 2008 at 11:05 am

DD, I think you’re right. My understanding is that under fractional reserve banking, money is created as it is lent out and destroyed as it is paid off. Correct?

A good idea I’ve always heard thrown around (Ross Perot used to talk about it) is to swap government assets for assumption of debt. For example, if you wanted a million dollars in vehicles from the US fleet, you would assume $1 million in US government debt and would be responsible for paying it off.

Anonymous Coward November 18, 2008 at 12:10 pm

Where do you get the 90% figure?

theblob November 18, 2008 at 12:20 pm

I love the money fires.

fizikteoretik November 18, 2008 at 9:01 pm

“Simply allowing midwifes to go into business creates jobs and cuts the cost of giving birth by up to 90%.” It’s not just money – morbidity and mortality would improve also. Planned home births with midwives have better outcomes than hospital births, even with high-risk pregnancies – it is a well-known statistic.

Mark Anderson November 18, 2008 at 10:10 pm

Dr. Thornton is right about we would do better to have the government burn the money. When you understand what inflation truly is, it is easy to arrive at that position.

If all the government did was confiscate dollars from producers, but never spent one red cent of the proceeds, then the government is transferring resources from one producer to another. But when the government actually spends the money as they do, this then transfers wealth to non-producers – i.e., government agents, employees, and so forth – disconnecting consumption from production.

Mark Thornton November 20, 2008 at 11:38 am

I had a graduate student who gave me that figure. He wrote about midwives in his dissertation.

Prakash November 21, 2008 at 2:35 pm

DD,

Paying off government debt is “burning money” in a fiat system. Paying off government debt (buying back bonds) reduces the total amount of money in circulation, correct me Mark, if I’m wrong.

regards,Prakash

Mark Thornton November 21, 2008 at 3:22 pm

Dear Prakash:

If the Fed buys bonds it actually increases the money supply.

If the Treasury pays off bonds it does not decrease the money supply. The money simply goes from taxpayer to Treasury to another taxpayer.

However, if there was no government debt and the Fed was limited to purchasing government debt then the Fed could not influence the money supply.

It is true that governments that want to spend beyond their means would like paper money to “back” the debt and to serve as an underhanded way of paying the debt off with depreciated currency, however it does not necessary hold that reducing the debt would reduce the money supply.

Mark

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