Tuesday, December 2, 2008

Fixing the Current Financial Problems

The theory runs that you can boost global demand by offering more credit - or increasing debt. And economists argue that the world needs the growth in total demand to absorb the productivity gains in Asia.

So let us look at schemes by which domestic demand can be boosted - offering increasing levels of credit/debt or alternatively - boosting social spending via domestic government programs; direct financing of government deficits by domestic central banks; and increasing the minimum wage and increasing other family incomes.

These last three increase inflation, but inflation is a debt reducing factor and in the current climate may be healthy.

The other side of the coin though is that the debt bubble has been politically encouraged because it boosts investment profits, and the political power assumed by this profit flow has meant that real wages have stagnated, more low and middle class wage earners owe more money to asset holders, and more small asset holders owe more money to big asset holders and their intermediaries.

A real and democratic solution would be to raise real family incomes and real wages, even creating jobs in stressed areas - but that requires an elected government facing off criticism from big business and economic think tanks, who actually know this action will solve the problem but are loath to admit it, preferring to offer the bail out of big business as the only solution.

Its a pity, but the political power lies with those who a) profited by the debt bubble, and b) look like profiting from the "solution"

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