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Bruce Bartlett says today that plummeting housing prices are responsible for a big decrease in consumer spending, something that can be visualized by looking at the velocity of money — i.e., the speed at which money gets turned over from person to person instead of being stashed away. When velocity goes down, it’s roughly the same as the money supply going down. This presents us with a grim picture:

Since 2006, money supply has increased by about $2 trillion. But velocity fell faster than the money supply increased as households reduced spending and increased saving — the saving rate is now over 5 percent — and banks and businesses hoarded cash.

….Fiscal policy could raise velocity and growth by getting money moving throughout the economy. But since that is not feasible, the Fed is the only game in town. Joseph Gagnon, a former Fed economist, says that it should immediately increase the money supply by $2 trillion and promise to keep increasing it until the economy has turned around.

But the Fed is already under pressure to tighten monetary policy from its regional bank presidents, three of whom dissented from last week’s Fed decision to keep policy steady. They fear that inflation is right around the corner. But as the Harvard economist Kenneth Rogoff has argued, a short burst of inflation would do more to fix the economy’s problems than any other thing. One reason is that inflation raises spending by encouraging consumers and businesses to buy things they need immediately because prices will be higher in the future.

Contrary to current Republican dogma, the Fed should be printing gobs and gobs of money. There’s little reason to think this would have any long-term effect on inflation, and igniting the economy would have a much greater impact on reducing future deficits than whatever flimsy deal our congressional supercommittee comes up with later this year.

Of course, as Rick Perry accidentally pointed out yesterday, printing gobs of money would ignite the economy right now, which is about a year too early for Republican tastes. Sometime after the election would be their preference.

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We've never been very good at being conservative.

And usually, that serves us well in doing the ambitious, hard-hitting journalism that you turn to Mother Jones for. But it also means we can't afford to come up short when it comes to scratching together the funds it takes to keep our team firing on all cylinders, and the truth is, we finished our budgeting cycle on June 30 about $100,000 short of our online goal.

This is no time to come up short. It's time to fight like hell, as our namesake would tell us to do, for a democracy where minority rule cannot impose an extreme agenda, where facts matter, and where accountability has a chance at the polls and in the press. If you value our reporting and you can right now, please help us dig out of the $100,000 hole we're starting our new budgeting cycle in with an always-needed and always-appreciated donation today.

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