In Goethe's Faust, Mephistopheles teaches Faust how to escape a funding shortfall of ducats, print paper money. Well and good but things don't get better and much pain is felt by the least responsible of people, aged innocent peasants end dying.
Well, such is my warning, still Ellen Brown [Ellen Hodgson Brown, J.D., author of The World of Debt: The Shocking Truth about Our Money System and How We Can Break Free] is advising turn on the printing presses and don't give it to the fed, give it to the people via the government.
Shockingly, the only thing she hasn't thought through is how inflationary this might become and how destabilizing such a maneuver might be to world credit markets, financial funds flows and balances.
Still it holds some credibility.
Let's consider how this crisis has developed. For years the money was lent at less and less of a risk premium. There had been no storm clouds in sight, indeed trouble was inconceivable. Howard, Blair and Bush had fueled asset price bubbles, as a soporific for society, indeed a vote winner. Everyone was getting richer, draw down on the assets and live it up. Or gear it up if so inclined.
"Why did it have to happen on my watch?" Well he nearly escaped it, Bush! Did his best to pass it on. Howard still claims he left the Australian economy in good hands, but it was high as a kite on fueled credit and the reason Australia is no basket case today is not due to the resilience of Australians as Swann and Co. would flatter us with, nor due to Howard's prided management. It is due to our having immense resource deposits which we can continue to sell off for many reckless years into the future.
Still, if we are to understand the dynamic, as asset prices approach their peaks, the shrewd soon to be richer sell off their assets and begin to reduce what they have lent out. Kerry Packer once quipped , "You only get one Alan Bond in a lifetime!" Yes, he sold high and bought back in after the bust, which no doubt he helped write into existence via the newspapers. He is a public operator, there are many outside of the public view but similar timing modus operandi.
So now, the executioners of this Global Financial Crisis (GFC) are ready to assume even more of the global wealth by moving back into assets and high income securities at the depth of this crisis.
They are the unheard voices that will not condone the world's governments printing their own moneys. The maths are if money is printed and enters circulation, that's money outside of their control meaning less power in the wealth these super rich already hold.
Another effect already noted of printing money is inflation, but in a deflationary environment this is not an immediate risk, rather where the deflation is destabilizing as in collapsing home prices, some extra currency might be therapeutic.
Printing money as mentioned could severely destabilize global finance, but now we come to a distinct consideration- were most governments to agree to inflate their currencies modestly by printing money then currency exchange rates would not be dangerously stressed and we might reduce the damage of this GFC albeit at the expense of the super rich.
Absolutely fundamental to the health of such a maneuvre would be the exclusion of personal gain, and company gain, and national gain as much as possible from the arrangements. It would have to be wholly done towards the best interests as much as possible of all the citizens of the globe. It would be like an infusion of saline solution to a severly haemorhaging patient to reduce the possibility of toxicity and organ shock through unsustainable blood loss.
No doubt the super rich will lobby that it's not fair, changing the rules mid stream, and possibly will threaten to collapse some necessary institutions or countries, or do damage in some other significant way? Paybacks.
Were the Paulson push instead of flooding wall street to have been to support house prices through purchasing some for the public, the fallout would have been moderated by delaying the revaluation to a sustainable pace, a pace the CDO writers could sustain.
I do not know of a full solution. Some have been living well beyond their means and some have appropriated far more than a sustainable share of global wealth. The only way forward is towards more fairness and a controlling or moderating influence from government that is not selfishly accumulative but instead comprehensively balancing. Spitzer has advised there is a contagion of tunnel vision on wall street and in the fed, a blinkering self-interest. A healthy solution will depend upon finding people whose hearts and minds are practical and astute but not similarly enthralled.