by Asher B. Edelman
This is an adapted transcript of an interview of Asher Edelman with bigthink.com of July 28th, 2011.
If I were Chairman of the Fed right now, I would try to instruct the President, his advisors and Congress that monetary easing alone, or monetary policy alone, can never revive the economy. And that without fiscal intervention on the part of government, we will be a very long time before the consumer is able to revive his needs, and a very long time before our budget will, in any way, become balanced; that the foolishness of constricting a budget at this time, in the middle of a recession, is politically motivated, but absolute absurdity.
When you go to Reaganomics and you try to release money to the rich in the hope that it will trickle down to the others, we have proven time and time again that this is nonsense. It doesn’t trickle down anywhere! The man with a million-dollar income who makes another $100,000, is more likely to not to spend it. And if he invests, he generally invests it into a secondary investment, not a primary investment. He will create no jobs with it. He will create no consumption with it – normally! In contrast, the man who earns $30,000 a year, or right now nothing, and has some money added to that, will spend the additional money, because he needs to. And that will create velocity of money in the market place. And that will create the beginnings of a recovery.
Conceptually we don’t get it. If inflation is 2% but 60% of the inflation figure has to do with labor, which, of course, is shrinking (in terms of salaries and income), then inflation is actually 6%. If inflation is actually 6%, and I think, it is more than that, and at the same time growth is 2%, we are in an recession. We’re actually shrinking at 4% in terms of goods and services circulating in the country!
The idea of the political motivation, in terms of balancing a budget now, will absolutely kick back at the economy, regardless of whether the debt limits are extended or increased; and it will drive the economy into the kind of recession, or depression, that we had in the 1930’s. You should watch very carefully for the possibilities of social unrest in this country – unless Washington wakes up.
That’s what I would say if you asked me to become head of the Fed or any other financial job in Washington.
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