A Modest Solution to the Financial Sector Crisis: Government Should Just Allow Us to Print Our Own Money
It is a melancholy object to those who read our nation’s newspapers or listen to our news broadcasts, when they see our nation’s political and finance leaders importuning every reader and listener for an alms. These leaders, instead of being able to work for their honest livelihood, feel compelled to employ all their time in begging sustenance for their suffering selves.
I think it is agreed by all parties that this prodigious number of powerful beggars in the arms, or on the backs, or at the heels of the American taxpayers, is in the present deplorable state of the republic a very great additional grievance; and, therefore, whoever could find out a fair, cheap, and easy method of making these persons sound, useful members of the commonwealth, would deserve so well of the public as to have his statue set up for a preserver of the nation.
Having turned my thoughts for several weeks upon this important subject, and maturely weighed the several schemes of other projectors, I have always found them grossly mistaken in the computation. I shall now therefore humbly propose my own thoughts, which I hope will not be liable to the least objection.
I propose, Gentle Reader, to let Americans print their own money.
The Federal Reserve this week announced it would set aside up to $540 billion of taxpayer money for the government to buy money market assets. This comes on top of the government spending $250 billion to force nine large U.S. banks to sell partial ownership stakes to the federal government, which came on top of $700 billion to buy mortgage-backed securities, which came on top of $150 billion of pork-barrel spending and political logrolling to buy the votes to approve the money to buy the securities, which came on top of $85 billion to buy insurance giant American International Group, which was soon followed by another $38 billion for AIG, which came on top of $100 billion to bail out the government-created mortgage giant Fannie Mae, which came at the same time as a $100 billion bailout of Fannie’s government-created mortgage brother, Freddie Mac, which came on top of a $29 billion bailout of investment bank Bear Stearns.
This totals $2 trillion of newly pledged spending, all to end a supposed credit crisis. This does not include an unspecified amount to possibly buy ownership stakes in hundreds of smaller banks, and another unspecified amount to buy short-term corporate debt (though government officials have said up to $1.3 trillion of debt could qualify).
The entire federal budget—Social Security, Medicare, Medicaid, national defense, transportation, agriculture, energy, etc.—totals $3.1 trillion. In just a few months, and most of it in just a few weeks, our government has pledged to flood the economy with enough new money to fund, at a minimum, two-thirds of the entire federal budget.
All because not enough people and businesses have easy access to credit, which is just another way of saying easy money—which is why we should be allowed to print our own money. What could be simpler?
I used to think such a policy would destroy the dollar. But surely our government would never do anything to harm the value of its official legal tender. If government throwing trillions of dollars into the economy will do no harm, then you and I throwing money into the economy would likewise do no harm.
How could it, when our official currency is already backed by nothing? Not by gold, or silver, or chickens, or goats, or anything. Our money used to be backed by gold, but we officially went off the gold standard in 1971, enabling government to print any amount of money whenever it wants without even a fig leaf of convertibility to something real.
Our money is thus called a “fiat” currency—fiat as in edict, as in the government demands that we pay taxes in dollars and then pledges to support the currency through its power to tax. All those foreigners who have loaned the U.S. government money by buying Treasury bonds know they will get dollars back because the government will tax us to make the payments.
Credit used to depend on savings: the more money deposited in banks and other financial institutions, the more that could be loaned. Interest rates depended on the balance between savings and the demand for credit. Low interest rates would encourage borrowing; high interest rates would encourage savings; and equilibrium would be achieved through this natural market process.
Modern government policies have abolished the link between savings and credit. Central banks routinely manipulate interest rates and money supplies, causing booms and busts and now a global credit crisis and a flood of new money in a desperate attempt to end the crisis.
In September 2003, Congressman Ron Paul (R-TX) wrote about the fundamental problem with our fiat currency, noting, “When the government can print money at will, it's morally identical to the counterfeiter who illegally prints currency.”
Paul is right. Printing our own money backed by nothing is no less reasonable than the government printing money backed by nothing. So let us print our own money! Then we wouldn’t have to wait for it to trickle to us from employers, government tax credits, mortgage companies, or any other source.
All each of us would need is one $20 bill and a stop at our local Kinko’s to end this credit crisis and send the country on another economic boom. All the government needs to do to make this possible is to declare our bogus bucks legal tender, same as they’ve declared their bogus bucks.
Steve Stanek is a research fellow of The Heartland Institute and managing editor of Budget and Tax News.