Borrowing from the playbook of John Fitzgerald Kennedy, the way that I would get the housing market and the economy back on track would be to work directly through the Treasury Department. In 1963, President Kennedy issued an executive order that gave the Treasury the right to issue “United States Notes.” This is in contrast to the Washingtons and Franklins that you carry in your wallet, which are “Federal Reserve Notes.” The benefit to “United States Notes” vs. “Federal Reserve Notes” is that they are issued as debt- and interest-free currency. That means that Kennedy’s administration issued the notes at no cost save for a minimal printing cost. In contrast, Federal Reserve Notes are essentially obligations to pay. The government goes into debt to get their hands on Federal Reserve Notes, and they carry interest. In other words, if a $100 Federal Reserve Note is placed into circulation, the government must go into debt $100 and pay interest on that debt. If the government issues “United States Notes,” they are essentially issued at no cost. Below is an example of an actual United States Note. They look almost alike except for the words “United States Note” at the top where our current notes say “Federal Reserve Note.” Also, the seal and serial number on the United States Notes were printed in red.
To get the housing market and the economy moving, I would suggest that the President utilize the executive order that is already in place and issue United States Notes into the economy. This would provide an injection of liquidity into our economy without any associated debt. These funds would be set aside for the sole purpose of stimulating the housing market.
I would use the money to offer mortgages to Americans in danger of foreclosure. The mortgages would be issued directly from the government to its people at zero interest. Yes, you heard me right — zero interest. The money would be brought into circulation by Americans and for Americans, so there would be no interest. There would be only an annual administration fee. The lack of interest would make payments suddenly affordable for those facing foreclosure. The foreclosure problem would instantly be solved.
Next, I would focus on new housing starts. In order to get construction going, I would use the money to offer zero-interest home loans for new construction. That would get the housing market going and turn the economy in a positive direction.
Before you start shaking your head that my plan would never work because it would cause “inflation,” let me address that issue. There are two types of inflation: price inflation and currency inflation. Yes, we have had lots of price inflation. It takes $2.58 today to buy what you could get for $1.00 in 1980. However, our currency itself is in a state of deflation — that means that we don’t have enough currency in circulation.
How do I know this? In a previous article, I divvied up the United States money supply. I took the total money in circulation and divided it by the number of American households. If you take the entire U.S. money supply and divide it equally between American households, each household only gets $92k. That includes money held by businesses and individuals. $92k isn’t even enough to get most households out of debt, let alone have any money left over for business and consumer commerce. We do not have enough money in our economy to effectively trade goods and services. How much money should we have in our economy? The amount of money in circulation should be equal to the value of the assets in the economy.
Under my plan, Americans at risk of foreclosure would be rescued, new construction would be stimulated, and the economy would get a much-needed injection of currency — and all without going into debt.
by Wade Young
You’re worse than Helicopter Bernanke. He’s only rumored to be dropping bags of money out of a helicopter. You, on the other hand, want to print new money and then throw out the bags. Oh, and if you end up as the President, remember to send me a truck full of those United States Notes.
Ling-
The article speaks for itself. If you have evidence to prove that we have too much currency in circulation, please bring it forward. From what I can tell, we are currency starved. We do indeed need more money in circulation, but we do not need it to be issued with corresponding debt. We need to issue it directly.
No, no evidence. I was just trying to be funny. But now that you mention it, the reason for this nice little mess we’re in is because there was too much easy money sloshing around and so it went to people who didn’t deserve it. The credit crunch is a swing of the pendulum in the opposite direction, and if you solve it with truckloads of paper, we’re right back where we started.
I agree with you that mortgages were extended to people who shouldn’t have received them. I saw a front page story today about a guy who made $12.60 and his wife $1k per month. They had a $345k mortgage. Of course, they are in foreclosure. However, mortgages extended to those who shouldn’t have had mortgages doesn’t mean that there is too much money in our economy. Bad use of money, yes. Too much money, no.
Wade -
This may help you a lot. Look into(to start):
1. Fiat Currency
2. Sound Money
3. Velocity of Money
Your right, your proposal won’t create inflation. It’ll create hyperinflation – a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. Which results in the currency being worthless.
You can’t crank up the printing press without consequence. Plenty have tried: Germany, Argentina, Brazil, Zimbabwe, Turkey, Hungary, and there’s many more. Even the US, twice, during the rev war and the civil war. Now we’re doing it a third time.
Your fiat currency idea won’t work. Please, please, please. Read about those three, it’ll help you to understand.
Mike–
I have read about the things you mentioned. If you want to critique the article, please bring some evidence to the table that we have too much currency in circulation. I have produced evidence which shows that we have insufficient currency in circulation. If you have facts to prove otherwise, I’d love to see them.
Your idea sounds fantastic, and really it would be worth trying out-I don’t see how it could hurt the real esate market more than it already is.
Thinking outside the box is good, but would our economy be better for it?
I did not realize there were different currencies out there-like the difference between a “Federal Reserve Note” and a “United States Note”-thanks for throwing that out there! It would be nice if you plan was tried out; it surely couldn’t hurt any!
On the surface your plan sounds like it would work well; though honestly I am not an expert on economics and would have to look into all the details of a “United States Note” and how that doesn’t create debt but still is of value in circulations before really jumping on board. I do have to say though, it sounds like a plan as good as some of the ones that are taking place right now and anything that DOESN’T increase our deficiet would be marvelous. I’d rather not take out any more loands against my grandchildren’s grandchildren’s money.
Wade,
I like anything that takes us back to our roots. They, the founding fathers had some pretty awesome ideas.
Doug
Sam Zell, hugely weathly property tycoon, cites the current climate as a “confidence crunch”. Behaviourial economics continues to play a significant role in how the property market is progressing.
There will be further news today from Mr. Geitner outling the purchase of toxic assets and therefore further increasing liquidity. This coupled with consumer trust and perception will asist in getting the market back on track.
Interesting concept. I saw another article on how to jump start the housing market. The suggestion was to open mortgages to immigrants, legal or otherwise. If they can prove their income, etc., can you imagine the increased demand for housing? Interesting
Paul–
I actually wrote an article about this issue. The article is about whether or not politicians looked the other way and allowed illegal immigration to take place knowing that it would create future demand for housing.
http://lenderama.com/2007/12/illegal-immigration-and-the-housing-market/
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Sarah
http://grillsblog.com
As long as the economy is growing, printing money won’t be bad, but if our economy keeps slowing down, we could really cause inflation. It is a tight rope walk to keep the balance, but as long as we don’t have deflation, we will be OK.
MaryAnn is right on track. Deflation is the enemy, yet we are far from it.
I don't agree, putting more money into the economy would only increase inflation and cause the haves to have more and the have nots to have less.
Just get back to basics, work hard long hours and work smart and spend time with your family at least one day per week and you will have balance and wealth.
All the best!
Mark