Wilhelm Lautenbach

The world economy is now harvesting the bitter fruits of the neoliberals’ killer austerity. The main central banks are now falling back on the discredited Quantitative Easing, meaning massive purchase of bankrupt and toxic derivatives, with the hope of saving the zombie banks from another round of bankruptcy. But six years of Quantitative Easing have already failed to produce a recovery in the US, where stagnation continues.

Instead of pouring more central bank credit down the derivatives rat-hole, we should now implement the anti-deflation, anti-depression ideas proposed in 1931 by Wilhelm Lautenbach of the German Finance Ministry and Wladimir S. Woytinsky of the German trade unions. In today’s US terms, their call would translate into a credit stimulus of $5 trillion in Fed credit used to buy 0% coupon, 100-year infrastructure bonds to be issued by states, counties, cities, and regional authorities.

Large-scale shovel-ready projects would begin at once. No tax increases, and no borrowing from China, would be involved. The short-term goal would be the creation of 30 million new productive jobs, giving the US full employment for the first time since 1945. Further credit stimulus would be used to refinance the Exim Bank for a campaign of high-technology exports, and to freeze the burden of $1.3 trillion in student loans by refinancing these loans at 0%. (These measures can be easily adapted to other economies worldwide.) Monetary stimulus has been tried and has failed (QE), fiscal stimulus has been tried and has failed (the Pelosi stimulus and supplemental laws of 2009), and is threatening. Credit stimulus for tangible physical commodity production — not bailouts — is the only way out, and it should start immediately.

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