Thursday, July 1, 2010

May We Suggest . . .?

The stock market decline over the past couple of days has been blamed on "fears that the economic recovery is fizzling." This startling revelation, reported in an Associated Press report displayed on "Yahoo News," caused a panic that "grew Thursday after the government and private sector issued weak reports on a number of fronts." ("Weak economic data suggest recovery is fizzling," Associated Press.) As the report goes on to explain,
Unemployment claims are up, home sales are plunging without government incentives and manufacturing growth is slowing.

Meanwhile, 1.3 million people are without federal jobless benefits now that Congress adjourned for a weeklong Independence Day recess without passing an extension. That number could grow to 3.3 million by the end of the month if lawmakers can't resolve the issue when they return.
The report then goes on and declares that this situation has the economists worried. Why? "As jobless claims grow and benefits shrink, Americans have less money to spend and the economy can't grow fast enough to create new jobs." In other words, only government deficit spending provides the effective demand necessary to stimulate new capital formation, and thus create jobs.

Here's a crazy idea. Why not use the Federal Reserve as it was designed and intended to be used: to create money as needed backed by the present value of existing and future marketable goods and services. By rediscounting eligible loans for industrial, commercial, and agricultural investment, all feasible capital projects can be financed without recourse to existing accumulations of savings. By collateralizing the loans with capital credit insurance and reinsurance instead of retained earnings, accumulated cash can be paid out as dividends, stimulating demand.

One thing more. To make the increase in demand sustainable, all new capital financed by rediscounting eligible paper at the Federal Reserve should be directly owned by as many people as possible. Once the capital has been paid for, the continued distribution of earnings as dividends for consumption, instead of retaining them in the corporations for reinvestment, will ensure that effective demand remains at optimal levels. This will keep demand for labor high, and create more new jobs than any artificial stimulus by government deficits.

That, in broad outline, is what Capital Homesteading proposes to do. For more details, download the free e-book available from CESJ.

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