George Rebane
[This is the submitted copy of my November column in the 13nov10 Union. The online version is available here.]
You no doubt agree that these are interesting times. The economy is swimming in molasses, the declared unemployment rate is cemented at about 10% (the actual is closer to one in six, or about 17%), and public debt at all levels of government is soaring beyond amounts that anyone knows how to pay off. And we just got another ‘surprise’ announcement that California will be running uncontrollable deficits exceeding $20B annually – that on top of half a trillion dollars of unfunded liabilities already cooked into the state’s books.
To add insult to injury, the feds will not let us print the money we need, and are being more than obtuse about letting the folks in Ohio and China fund our rightful and well-deserved spending programs. This is clearly unfair since the feds can print all the dollars they need as they need them.
The recent election may not have done anything but highlight the deep divisions between our two halves – one saying ‘government get off our backs and let us create the needed jobs’, and the other responding ‘oh no you don’t, you already have too much of our money and have to be watched like a hawk.’ As a solution to our debt problems, print and plunder are the accepted alternatives to growing the economy.
The nebbish sector of the country remains convinced that if they can define and plunder the ‘rich’, then happy days are here again. After all, haven’t the rich taken what is rightfully ours and caused all this mess? Meanwhile, as they are attempting to work it out in Washington and the state capitols, Fed chairman Bernanke and the President have in mind a little more ‘quantitative easing’ or QE2 for short. Actually Ben is thinking about $600B worth of fresh greenbacks to compete with the ones you already have in your pocket.
But part of these interesting times is that no one is quite sure what all this new money will do in the economy. The Fed has already made interest rates so low that too little lending is going on. Banks just stash new cash into their reserves and give it back to the Fed for safekeeping – much more secure than actually lending it to some poor yahoo who might not pay it back. So all this new QE2 stimulus could just wind up back on the Fed’s books, instead of circulating in the economy and creating new businesses, jobs, and/or simply inflation. This is called the ‘liquidity trap’ identified by John Maynard Keynes back in the 1930s when another government admitted that it didn’t know what it was doing trying to end the Depression.
The only real alternative to printing and plundering is producing, and, as the Europeans are discovering, that requires more free market capitalism. However, promoting capitalism and new private sector jobs will inevitably make more people rich, and that’s a no-no in these trying times. For the sake of ‘fairness’ it is better that workers remain honorably unemployed than working dishonorably to create more such unequal accumulations of wealth. There is a better way, and if we could only communicate it to the great unwashed out there, then they would understand and not screw things up within the Beltway where real progress was being made before November. (As one of the unwashed, I confess that I have no idea why Californians voted as they did.)
In 1923 the Weimar government of Germany became the historical poster child of hyper-inflation. It printed the reichsmark into oblivion in the attempt to keep an economy going while having to pay WW1 reparations in real money backed by gold. Things got so bad that people welcomed the arrival of a man on a white horse who promised to solve the country’s problems through a collective governance he called national socialism. Germany’s big corporations welcomed such fundamental transformation, and supported the enlightened government that would guarantee their markets.
But that was only one of many possible roads to Weimar. Today our ‘reparations’ are the debts we must pay to our foreign lenders, entitled citizens, and retired public service employees. These greatly exceed Germany’s burden in the 1920s. But with ingenuity and persistence, we may be able to find entirely new and more equitable ways to get productive growth going again. Meanwhile, we always have plunder and printing to tide us over until that glorious day arrives.
George Rebane is a retired systems scientist and entrepreneur in Nevada County who regularly expands these and other themes on KVMR, NCTV, and Rebane’s Ruminations (www.georgerebane.com).
[addendum] This little YouTube video clears up the QE2 situation.
rebanesruminations.com 
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