A Sustainable National Monetary Policy – I Want to Invest in America

Faced with the dilemma of financing WWII President Franklin D. Roosevelt received adamant advice to raise taxes and introduce a forced savings program.  Instead, FDR wisely followed the advice of Secretary of the Treasury Henry Morgentthau, JR., who working with Peter Odegard, a political scientist specialized in motivating masses (read propaganda) created the War Advertising Council.

The result was a whopping $187.5 Billion ($2.5%2B Trillion dollars adjusted for inflation into 2009 dollars) to fund the war effort.  Just as important as the money, the War Bonds became a rallying cry for the public to express its patriotism, follow its iconic leaders’ calls for action, and allowed for 85 million Americans to actively participate in the War effort.

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Monetary Policy and Interest Rates

Among other things that influence interest rates, monetary policy is also one of them. Democratic governments use two policy tools to help their economies thrive. There is the fiscal policy and monetary policy.

First, let us discuss the difference of fiscal policy to monetary policy. Fiscal policy pertains to the power of the government with congresses or parliament’s consent to increase or decrease tax rates. To increase tax rates, would mean to take away the disposable income of civilians. Think of it this way, the economy is a wheel. The movement of money makes the wheel turn. When people spend less money, the economy turns slowly. So the government increases taxation. The extra money the government collects is then spent on projects that will pour money back into companies for government mandated projects. These companies in turn will give them back to the people by employing more employees or by paying their existing ones with more. Such spending is also known as “pump-priming” activities.

Another instrument of fiscal policy would be for the government to borrow money for its expenditures. They do this so as not to over tax their citizens and provoke protest actions against their management. However, borrowing is not always an option. Lenders do not easily part with their funds. The general economic environment is placed into consideration.

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Why Did the Chinese President Condemn US Monetary Policy at Davos and the BRIC Conference

When we start looking at the political posturing around the world, we see world leaders and their advisors making serious mistakes. The President of China made a huge mistake when he condemned the United States of America at the Davos World Economic Forum. Now, it is true that there were many people upset with the Credit Default Swaps, and to the Mortgage Bundles that helped bring down the global economy.

Still, the president of China owes the United States a great sense of gratitude. If it were not for the US middle class consumer, China could not have experienced the 10% GDP growth year-over-year that they have for the last two decades. In fact, China would not have the third of fourth largest GDP of any nation on this planet if it weren’t for the United States buying all of their exports.

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