Law professor Timothy Canova plans to reintroduce this funding model if elected to represent Florida's 23rd Congressional district, where he is now running against the controversial Debbie Wasserman Schultz, current chair of the Democratic National Convention. Prof. Canova wrote in a December 2012 article:
. . . Wall Street bankers and mainstream economists will argue that greenbacks and other such proposals would be inflationary, depreciate the dollar, tank the bond market, and bring an end to Western civilization. Yet, we've seen four years of the Federal Reserve--now on its third quantitative-easing program--experimenting with its own type of greenback program, creating new money out of thin air in the form of credits in Federal Reserve Notes to purchase trillions of dollars of bonds from big banks and hedge funds. While the value of the dollar has not collapsed and the bond market remains strong, neither have those newly created trillions trickled down to Main Street and the struggling middle classes. The most significant effect of the Fed's programs has been to prop up banks, bond prices, and the stock market, with hardly any benefit to Main Street.
In a January 2015 op-ed in the UK Guardian titled "European Central Bank's QE Is a Missed Opportunity," Tony Pugh concurred, stating of the US and European QE programs:
Quantitative easing, as practised by the Bank of England and the US Federal Reserve, merely flooded the financial sector with money to the benefit of bondholders. This did not create a so-called wealth affect, with a trickle-down to the real producing economy.
. . . If the EU were bold enough, it could fund infrastructure or renewables projects directly through the electronic creation of money, without having to borrow. Our government has that authority, but lacks the political will. The [Confederation of British Industry] has calculated that every 1 of such expenditure would increase GDP by 2.80 through the money multiplier. The Bank of England's QE programme of 375bn was a wasted opportunity.
According to IMF director Christine Lagarde, writing in The Economist in November 2015:
IMF research shows that, in advanced economies, an increase in investment spending worth one percentage point of GDP raises the overall level of output by about 0.4% in the same year and by 1.5% four years after the spending increase.
In a December 2015 paper titled "Recovery in the Eurozone: Using Money Creation to Stimulate the Real Economy", Frank van Lerven expanded on this research, writing:
For the Eurozone, statistical analysis of income and consumption patterns suggests that 100 billion of newly created money distributed to citizens would lead to an increase in GDP of around 232 billion. Using IMF fiscal multipliers, our empirical analysis further suggests that using the money to fund a 100 billion increase in public investment would reduce unemployment by approximately one million, and could be between 2.5 to 12 times more effective at stimulating GDP than current QE.
The Hyperinflation Myth
The invariable objection to exercising the government's sovereign money-creating power is that it would lead to hyperinflation, but these figures belie that assumption. If adding 100 billion for infrastructure increases GDP by 232 billion, prices should actually go down rather than up, since the supply of goods and services (GDP) would have increased more than twice as fast as demand (money). Conventional theory says that prices go up when too much money is chasing too few goods, and in this case the reverse would be true.
In a November 2015 editorial, the Washington Post admonished Congress for blurring the line between fiscal and monetary policy, warning, "Many a banana republic . . . has come to grief using its central bank to facilitate government deficit spending." But according to Prof. Michael Hudson, who has studied hyperinflations extensively, that is not why banana republics have gotten into trouble for "printing money." He observes:
The reality is that nearly all hyperinflations stem from a collapse of foreign exchange as a result of having to pay debt service. That was what caused Germany's hyperinflation in the 1920s, not domestic German spending. It is what caused the Argentinean and other Latin American hyperinflations in the 1980s, and Chile's hyperinflation earlier.
Promising Possibilities
Any encroachment on the Fed's turf is viewed by Wall Street and the mainstream media with alarm. But to people struggling with mounting bills and crumbling infrastructure, the development has promising potential. The portal to the central bank's stream of riches has been forced open, if just a crack. The trickle could one day become a flow, a mighty river of liquidity powering the engines of productivity of a vibrant economy.
For that to happen, however, we need an enlightened citizenry and congressional leaders willing to take up the charge; and that is what makes Prof. Tim Canova's run for Congress an exciting development.
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