Daily Archives: October 14, 2012

Why Congress Will Not Prevent the Crash

As economists go, Robert Reich is one of the more rational and humane, but he suffers under the same delusion as the others.  In a recent blog post, he describes why he thinks that “January’s Fiscal Cliff Turns into a Gentle Hill by February (or March).

What Robert Reich, and most economists fail to understand is that the federal budget cannot possibly be balanced so long as we have a debt-money system in which banks create money based on interest-bearing debt. This system contains a debt-growth imperative. As time goes on total debt must continually increase to keep the money supply pumped up. When the private sector is all “loaned-up,” government becomes the “borrower of last resort.” Failing in that role, we have a contraction of the money supply, defaults, unemployment and recession. If government assumes that role, we have inflation. So take your choice: recession or inflation, or some of each.

No amount of “Quantitative easing,” or tax cutting, or spending reductions will get us out of this dilemma. Politicians may be able to delay it a bit longer, but no amount of policy tweaking can prevent the inevitable crisis. The problem is systemic and only a complete restructuring of money and banking will solve it. -t.h.g.