Tuesday, January 5, 2016

Reverse the Decline: Just Do It

Perhaps the good news, is that economic decline is not inevitable. However, few monetary or structural means (to reverse decline) have been actively considered, and NIMBYs of all stripes are still "winning the day". The Fed has not addressed its own mistakes which greatly contributed to the Great Recession, nor have central bankers in the U.S. proposed the option of a level nominal target. And in spite of ongoing contractionary effects, the Fed is doubling down on the harsh tool that is interest on reserves. These monetary policy actions - alongside the premature process of rising interest rates - could lower economic output for the foreseeable future.

Why have policy makers been so determined to continue monetary tightening in a sluggish economy? One way to address this unfortunate circumstance, would be to make loan origination unnecessary for the economic activities of local corporations. Monetary origination in these instances would begin with mutually backed services endeavor, which in turn would also be utilized for local investment in infrastructure and asset generation.

Since banks have seemingly grown "weary" of making loans, it is time to consider new forms of wealth creation which do not require loan formation. While loan processes will always be needed for high volume activity and major economic players, the participants who reside in areas which lack sufficient economic complexity, are ready for new sets of monetary and economic options.

This is one reason I've suggested time backed money, in order to create a broader, more stable foundation for wealth through knowledge based services. Time backed money would provide long term mutual coordination for services needs, which consequently would not need to rely on other forms of existing wealth. Since this approach would also generate further services growth on monetary terms, knowledge use systems would prove capable of assisting governments with long term budgetary issues.

Supply side conditions are such that many market participants have painted themselves into a corner. How many recognize the fact that since central bankers have chosen to limit monetary formation, someone is being shorted? One reason Fed language has become so obscured, is that straight answers re what is occurring, would not be pretty. Indeed, an honest assessment might be deciphered as such: "We can no longer back all of your existing obligations to one another, even if we can't tell you so, directly."

As a result, everyone's existing output and total resource capacity are at stake. Indeed, how could central bankers, who are themselves accountable to supply side interests, have been expected to explain to various interests that they needed to reconstruct their own organizational capacity on more productive terms? Since too few individuals had the professional audacity to promote innovative reform, central bankers are now instead refusing to honor the manner in which non tradable sector costs are routinely presented to the public - even while populations are reassured regarding benefits from widespread good deflation!

Had good deflation occurred to the degree suggested, no central banker would now feel the need to "draw the line" on actual compensation for spending and expenditures, in private. Because of the way this situation is playing out, there's a chance that bad deflation will generate further losses which cannot be regained. It was not my intention to come across as inflammatory with this post. Still, I needed to search for some form of rationale, in order to make sense of what has become broken logic in the political sphere, all around. As Scott Sumner recently noted,
After 2003 the GOP took some increasingly silly positions on a wide range of issues. They became widely viewed as the "stupid party".
If Republicans unexpectedly refused to focus on growth and economic concerns, Democrats would have done so in their stead, were it possible. That's just the problem. As services continue to remain dependent on traditional production, both services and traditional production are held back, since services wealth thus far has not gained the organizational capacity to strike out on its own. Perhaps in the years ahead, knowledge use can remain a stable factor not just for fiscal goals, but monetary goals as well. Let's reverse the decline, and begin the process of envisioning new services formation on monetary terms.

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