Scottsdale, AZ -- (ReleaseWire) -- 02/01/2013 --Conventional wisdom says that when there is a recession the FED should lower the cost of money and increase liquidity in the monetary markets. Since the start of the current recession and the financial markets collapse in 2008 and 9, that is what the FED has done. Rates were lowered continuously to the point that short-term rates are effectively 0 today. The markets are awash with liquidity. There has not been the recovery that you would expect.
The economic rules have stopped working. Some economists have named this situation a “Liquidity Trap”, when increasing liquidity massively, along with reducing the cost of money, does not stimulate the economy much. This has happened only two times in well documented economic history. The first time was the great depression of the 1930s. The second was the economy of Japan in the 1990s. We are not in a recession. We are in a depression. Yes, it is not as bad as the 1930s. The small recovery that we have had is just too anemic. Not enough to give the economy the boost that it needs to bring the rate of unemployment down and to stimulate economic growth.
The depression of the 1930s was cured by a massive government jobs program. You know it as World War II. Not only was the depression cured within a year with full employment, but that government spending laid the foundation for the strongest growth period in our history. I am not suggesting anything on the scale of the WWII spending. What I am suggesting are programs that put people to work immediately. Programs concentrating on infrastructure, education and everything that can put people back to work. We can not depend on FED monetary policy alone. It can not do the job alone. What we need is a one shot program of $500 billion now. Then we can look at the result and if it does the job that is what we need. If it doesn’t, then we need to follow with a repeat until the economy is back on a growth path.
There are a lot of people and politicians who will cry out about the federal deficit and the national debt. The reality is that without the program that I am suggesting, the deficit will grow worse and the debt will increase anyway. A program of austerity, cutting spending, will only make the situation worse and we will never end the current depression.
What I am suggesting is to spend to stimulate the economy. Only a growing economy can generate sufficient revenue to bring the budget eventually into balance. To do the opposite will not work. There is not enough spending to cut to create a balance. As spending is cut the economy will worsen and the deficit will increase.
It is a very simple set of alternatives. We can spend to create jobs and to stimulate the economy. Grow our way out of the depression. Or, we can cut spending and slow the economy. That will deepen the depression. It will linger on a long time. The problem facing the United States is economic. It is not political. It can only be solved by economic means.
There has been some criticism of FED policy. We should all recognize that if the Fed had not acted as it did, the chances are that we would be in a depression more closely resembling the 1930s. That is not a pretty picture.
About Victor Weintraub
Victor Weintraub is a noted economist and author. He is also an entrepreneur. He is the President of First Charter Financial Corporation, a commercial mortgage finance and investment company conducting business on a national scale. He writes an economic a financing news letter for First Charter. It is widely distributed to clients and news media and services. He is also the Publisher of First Capitol Books, an independent publisher of E books and print books distributed throughout the English-speaking world. He writes on economic and political topics and is also the author of the Robert Hazard spy action thriller series.
Victor Weintraub holds a Bachelor's Degree in engineering from New York University. He received his MBA from Columbia University Graduate School of Business. An advocate for progressive political and social programs, he is the author of Occupy We The People Decision Time For America. This book deals with the social and economic history of the United States from the 1930s to today. It discusses economic problems facing the country and makes suggestions for change.
Victor Weintraub is available for media interviews, discussions and speaking engagements. He may be reached by Email victor@victorweintraub.com
Please note that this press release has been revised from its original content.