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The primary obstacle to economic recovery is widespread insolvency among
households and banks (meaning liabilities exceed assets). A consumer who is broke cannot spend, and a bank that is broke cannot lend. Devaluing the dollar would reduce the real value of the debt (increase the nominal value of the assets), rendering millions of households and most banks instantly solvent. [Let me explain.] Words: 590
So said W.C. Varones (www.wcvarones.com) in edited excerpts from his original article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Varones went on to say, in part:
Two Benefits of Devaluation
- If a family has a $200,000 mortgage on a house now worth just $150,000, and they also carry some credit card debt and are underwater on an auto loan a 50% devaluation of the dollar would mean a doubling of general price levels, making the house worth $300,000 and [enable] the family to sell or refinance the house and/or car, pay off the credit card debts, and go from a negative net worth to a substantial positive net worth.
- If the U.S. devalues the dollar faster than other countries devalue their currencies, American manufacturing and exporting will become more viable. Currently labor costs are too high in the U.S. relative to the rest of the world, leading to both automation and overseas outsourcing.
The Best Way to Achieve Inflation
Bernanke’s current mechanisms are not working as zero interest rates and buying assets from the banks serves only to bail out Wall Street and create asset bubbles that benefit asset owners – but this doesn’t get money to the broad mass of consumers. The misguided theory seems to be that if the banks are made healthy, they’ll eventually start lending to the little people – but people don’t need more debt. Too much debt is what got them here in the first place, and more debt will only make things worse. What people need is cash to pay down the debt.
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If Ben Bernanke really wanted to solve the problem, he’d stop giving money to the banks and follow through on his “helicopter drop” threat to get the money where it’s needed, to the people [and below is just one way he could accomplish just that:].
- give a printing-financed tax refund…of all the federal income taxes they’ve paid for the last three years. Cap the amount for the rich and give some to the non-taxpaying poor to get the money where it will help.
- [Read 2012: Is This How U.S. Financial Crisis Will Unfold Later This Year? for another way to bring major inflation in the U.S. about].
It gives me no pleasure to call for debasing the currency. I hate what the Dirty Fed has done to our dollar and our country but by blowing bigger and bigger bubbles to try to prevent normal, healthy recessions from occurring, the Fed has painted itself into a corner.
Conclusion
Obviously there are great risks to devaluation/inflation, with Weimar Germany and Zimbabwe being cautionary examples. [Read: 21 Countries Have Experienced Hyperinflation In Last 25 Years – Is the U.S. Next!]
Is it possible to pull off a one-time devaluation followed by a sound money regime? I don’t know, but I don’t see any option but to try.
*http://www.wcvarones.com/2010/07/devaluation-is-only-way-out.html
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