The Money Supply Is Piling Up

[Ad Orientem]

St. Louis Adjusted Monetary Base


For a Short Term View of the Monetary Base go here...
http://research.stlouisfed.org/publicat ... /page3.pdf

Excess Reserves of Depository Institutions


HT: Libertarian Investments Blog
http://libertarianinvestments.blogspot. ... lodes.html

[Gumby]

Of course, when you understand the money supply this is all fairly inconsequential.

See: http://pragcap.com/richard-werner-explains-our-money

“There are different types of money. The first is legal tender paper money. This is mainly used by the public for petty transactions and amounts to only about 3 per cent of the total money supply. Another type of money also created by the central bank is solely for the use of its clients, the banks. This is reserve money. It stays in the banks’ accounts at the BoE to settle their claims against each other. If one bank reduces its reserves, this raises those of another bank, leaving the total amount of this closed-loop money unchanged. It normally also amounts to about 3 per cent of the money supply, but it never circulates in the economy and as such is not really money. So what about the money that is used for most transactions and accounts for the bulk of the actual money supply?

As Martin Wolf has pointed out, it is created by profit-oriented companies, the banks, when they do what is commonly referred to as “lending money”?. But they don’t lend existing money. Instead, they newly invent the money that they lend…”?

Source: http://pragcap.com/richard-werner-explains-our-money

I other words, keep your eye on private credit. That's the real bulk of our money supply — many, many, many times over.

[Pointedstick]

I agree with Gumby. Focusing only on the government-originated side of our money supply is only looking at half the puzzle.

I feel that this fundamental misunderstanding of the credit-based fiat monetary system we have is something that holds Libertarianism back. You don't have to approve of it, just understand it. There's still lots of room to oppose government once you understand how the monetary system works, and in fact, your opposition can be more informed and accurate.

[melveyr]

I feel that this fundamental misunderstanding of the credit-based fiat monetary system we have is something that holds Libertarianism back. You don't have to approve of it, just understand it. There's still lots of room to oppose government once you understand how the monetary system works, and in fact, your opposition can be more informed and accurate.

I agree. As a non-libertarian I see merit in libertarians desire to push for freedom and self responsibility, but the macro analysis that most of them publish is so backwards that it makes it hard for me take the movement seriously and I would never want to be associated with it.

[Pointedstick]

Their macro analysis is a lot more accurate when made about families, individual states, or the poor EU nations. They're mostly confused about the difference between currency users and currency issuers.

[moda0306]

I feel that this fundamental misunderstanding of the credit-based fiat monetary system we have is something that holds Libertarianism back. You don't have to approve of it, just understand it. There's still lots of room to oppose government once you understand how the monetary system works, and in fact, your opposition can be more informed and accurate.

I agree. As a non-libertarian I see merit in libertarians desire to push for freedom and self responsibility, but the macro analysis that most of them publish is so backwards that it makes it hard for me take the movement seriously and I would never want to be associated with it.

Hey melveyr,

I totally agree, with the small exception that I think we hold libertarianism to a higher standard.  Of course there are degrees of libertarianism (very few are actually anarchists), but a philosophy that starts with individual liberty and observes government as a coercive entity no matter what it's doing is pretty tough logic to crack.  If we spent 1/10 the time we do trying to dissect libertarianism poking holes in arguments of democrats and republicans we'd be bored because they have no fundamentals backing their visions of how this country should work and it's just a bunch of hyperbole

I'm sure if the Green Party would come into greater visibility I'd be equally critical of places where their logic breaks down simply because they have such an attractive/undeniable basic premise: Our entire economy is built on an ecology that we share and might be much, much more fragile than we realize, and government is the only entity that can reasonably account for the macro costs of environmental externalities.

But yes it's really hard to carry on with libertarianism/Austrianism when they project their moral assertions on the sustainability or cause/effect calculations of systems in our economy.  I think we've learned that tyranny and apparent productivity and/or happiness of some or even many are not mutually exclusive.  I still love debating them, though, because at least you know the 4 pillars to spin your arguments around... liberty, private property, contracts, and limited, divided, and local-as-can-be government.

[moda0306]

Their macro analysis is a lot more accurate when made about families, individual states, or the poor EU nations. They're mostly confused about the difference between currency users and currency issuers. 

That's like saying that my partical physics is a lot more accurate when you take trillions of those particals together to form an object and ask me to tell you how that object will behave given stimuli.  In fact, that's not partical physics anymore, that's Newtonian physics.

Those are micro issues .

[Pointedstick]

Their macro analysis is a lot more accurate when made about families, individual states, or the poor EU nations. They're mostly confused about the difference between currency users and currency issuers.

That's like saying that my partical physics is a lot more accurate when you take trillions of those particals together to form an object and ask me to tell you how that object will behave given stimuli.

Those are micro issues .

I can't say I agree. You and I are individually Micro, to be sure, but how many of us make a Macro? Does it take a village? A state? Why is a currency-issuing nation the smallest unit of Macro? Why shouldn't we say that the entire world economy is the smallest unit of Macro?

[moda0306]

Their macro analysis is a lot more accurate when made about families, individual states, or the poor EU nations. They're mostly confused about the difference between currency users and currency issuers.

That's like saying that my partical physics is a lot more accurate when you take trillions of those particals together to form an object and ask me to tell you how that object will behave given stimuli.

Those are micro issues .

I can't say I agree. You and I are individually Micro, to be sure, but how many of us make a Macro? Does it take a village? A state? Why is a currency-issuing nation the smallest unit of Macro? Why shouldn't we say that the entire world economy is the smallest unit of Macro?

Their macro analysis is a lot more accurate when made about families, individual states, or the poor EU nations. They're mostly confused about the difference between currency users and currency issuers.

Yeah I guess it's a matter of degree.  I think it may often be individual countries, but if they are so small they don't control their currency and buy a ton of their stuff from other countries I don't know how well macro holds up.

And in the end, micro is a tool to decide what we as individuals, families, or states should do (I don't have much of an argument against the cuts many state government's have made... though I think much of it is still counter-productive in a recession).  Melveyr and I probably wouldn't argue that California or especially Sally Spender need to cut their spending and save more.  The problem is that we have Austrian's trying to control our federal government, and that's where econ is much, much more on macro-grounds.

I think what another huge breakdown is their lack of knowledge, ironically, of the nature of aggregate supply and aggregate demand.  Investment depends on demand, and often steady, consistent projected demand, to be viable.  Demand also depends on investment.  Due to a monetized economy, we are much more prone to mal-investments and financial shocks being solved not by some people just working harder to make up for their mistake, but demand slumps and unemployment.  I don't need to tell you all this, but libertarians often don't understand this, or they simply say it's necessary to "cleanse" ourselves of malinvestment.  Problem is, since it's a monetary problem as well as a mal-investment problem, we see slumps all over, even from perfectly sound businesses whose products people are now instantly not buying because of crisis elsewhere.  They can't swap services/products with each other in any way that could be feasible in a modern economy, so they just both sit their unemployed.

So they say there either won't be a slump if we just encouraged investment more (nevermind the fundamentals surrounding the lack of demand), or their liquidationists and say that the slump is necessary and it'll all work out (though it seems to me that only works out for people holding lots of super-safe bonds... not the super-productive job-creators nor the workers).  Somehow, though, liquidationists think that there will be some future explosive moment where all bad investments (and all the really good ones that got flushed out, too) have been washed away, and all of a sudden we'll just somehow have massive growth and there won't be a bubble because now everyone knows they won't get bailed out.

That stuff all just rubs me really wrong.  I really think a more fundamental study of the 1800's is in order... this is a period where counter-cyclical spending was probably somewhat non-existant, and interest rates couldn't be "set artificially low."  There were some awful financial crises and plenty of misery, but I don't know much about them... overall a pretty prosperous time... but it's easy in some ways when all you have to do is just keep pushing west into states full of oil and gold .

But now we're back to monetary expansion again!!! 

[craigr]

I think the main point about Libertarian critiques of the money system isn't about dollars piling up in Fed balance sheets that aren't circulating. Clearly this is not inflationary and yes I do cringe when I see people post these charts and claim inflation is rampant.

The main critique for me is that the people running the Central Banks are just incompetent to manage a large and complex economy. Nobody can really do it. So the Fed goes from crisis to crisis (after having a large hand in causing each) and are always trying to fight the last war. Then when the next crisis comes about they step in to do something totally new and cause another problem later.

For me the crux of a gold standard system is it takes a big piece of uncertainty away. You get less politics involved in the decisions and it also has a side effect of severely curtailing government spending on things that are a threat to liberty over the long term.

And for the record, yes I do think that the MMR guys are completely wrong about the possibility of bad inflation happening to a large currency issuer like the U.S. There is nothing in the historical record of paper money systems to support the idea that it will work for extended periods. So it may in fact be very much true that the hyper-inflation situation comes about. In fact, I think in most people's lifetimes they will probably experience it at least once if you simply look back at the number of currencies that have come and gone even over the last 100 years. The odds of a paper currency surviving as a stable source of value are very low. In fact, it has never happened at all ever. So the odds really not just "very low" they are basically zero.

[moda0306]

craigr,

Having fiat money isn't about managing an entire economy, it's about managing a floor price level on debt to maintain a stable real economy.  Obviously, that's no small task and I can't even argue that it's not a red herring in a big scheme to control more, but it certainly isn't managing an entire economy.  It's not even really managing the money supply, as much of that is done by banks by putting a price on your loan at some distance above the floor that the fed effectively sets... for the most part they can pick the rate they want... so the price floor only has modest "control" effects.  The banks would have similar control if able to lend out, on a "fractional reserve" basis, gold that they hold physically.

Also, we've looked at these hyperinflations, and they're almost always caused by some underlying non-monetary problem... problems that it's hard to imagine the US having if dozens of other countries aren't having them first.  I'm definitely a little weary of the possibility, but I think we'd disagree on what would cause it.  You might think some kind of Galt withdrawal and quantitative easing might cause it.  I tend to think it might be an alien invasion or something I can't even think of yet that threatens the very foundation of our productive capacity or political stabiliy (though I think it would be inherantly non-monetary in nature... hyperinflation would be the effect, not the cause).

[Pointedstick]

The main critique for me is that the people running the Central Banks are just incompetent to manage a large and complex economy. Nobody can really do it. So the Fed goes from crisis to crisis (after having a large hand in causing each) and are always trying to fight the last war. Then when the next crisis comes about they step in to do something totally new and cause another problem later.

I'm not afraid of the Fed, I'm afraid of Congress. The Fed is just tasked with the semi-impossible job of making Congress's illiterate-level decisions work monetarily, which is why they end up looking to stupid and reactionary. When it comes down to it, I think Congress is the driver and the Fed is the ass. 

[craigr]

Having fiat money isn't about managing an entire economy, it's about managing a floor price level on debt to maintain a stable real economy. 

No, it's really about managing the economy and allowing government spending to greatly expand. The arguments for the creation of the Fed centered around stabilizing the economy, ending market panics, etc. It was sold on management.

But they are horrible managers. At least, no better than a piece of yellow metal would have been. And perhaps a lot worse because the paper system enables a lot of troubles in terms debt financing for funding wars, domestic spending expansion, etc.

Also, we've looked at these hyperinflations, and they're almost always caused by some underlying non-monetary problem... problems that it's hard to imagine the US having if dozens of other countries aren't having them first. 

As for non-monetary problems, well that's not really accurate because a lot of domestic problems are caused from monetary problems as the kernel. Look at the countries in the EU having problems with "austerity" and the issues of riots and instability. The kernel there was the government entitlement spending propped up by central bank management enabled the entire situation. Or there are other issues surrounding government largesse enabled with debt financing that kick off civil wars, armed conflicts, etc. These events can all lead to hyper-inflations or at the minimum, severe instability in the currency.

A problem in the U.S. dollar would affect many countries for certain, but at the same time there is no reason to believe those countries would lead first and take the dollar with them. It is far more likely the opposite would happen. In fact, it could even be those dependent countries leaving the dollar that could instigate the whole mess. There are simply too many factors to consider.

I'm definitely a little weary of the possibility, but I think we'd disagree on what would cause it.  You might think some kind of Galt withdrawal and quantitative easing might cause it.  I tend to think it might be an alien invasion or something I can't even think of yet that threatens the very foundation of our productive capacity or political stabiliy (though I think it would be inherantly non-monetary in nature... hyperinflation would be the effect, not the cause).

Plenty of front-running currencies went into the toilet and no aliens landed. It all happened due to normal human mis-management, loss of market confidence, foreign and civil wars, etc. So if I'm placing my bets for the long term, it's that the U.S. dollar will have a problem one day, and it will happen for reasons that nobody thought were possible, and finally it will happen so quickly that nobody will be able to really stop it.

With so many dollars around the planet it wouldn't take much to cause a major catastrophe in the currency. In a way, the wide distribution of dollars in the market does not make the currency more stable. It acts as a form of leverage because you now have so many people that can panic sell that aren't connected to the country directly. The risks of problems in the dollar is actually very much magnified, not diminished, because your exposure to billions of market participants is extremely large and uncontrollable.

Finally, to kind of bring this home, the idea of paper money and debt is as old as the hills. There is really nothing "Modern" about Modern Monetary Theory. And yet we can look at these past events and find that even if the theory sounded fine, in practical application it has always blown up in virtually every case. So why should a rational observer think it would work out for the U.S. long-term when it has never worked anywhere else in all of human history? I certainly don't believe it will.

[craigr]

When it comes down to it, I think Congress is the driver and the Fed is the ass. 

Honestly, they're all asses.

The Fed has this really big knob on a control panel of a nuclear reactor. They don't really know how the reactor works because it's far too complicated. They can just turn a big knob that says "More" and "Less."

So you get these guys fighting over which way to turn the knob. Some want it on "more" all the time, and some want it on "less".

When the reactor alarms start going off because it's too hot, they crank the knob down so far that they stir up even more problems. Then they slam the knob the other way to try to "fix" things.

This process goes on constantly and every now and then they cause minor meltdowns and irradiate a bunch of people. Eventually, they'll just cause Chernobyl. When people look at the root cause of the accident they will see people that thought they knew what they were doing were really overconfident incompetent eggheads.

Not that I'm cynical or anything...

[moda0306]

Having fiat money isn't about managing an entire economy, it's about managing a floor price level on debt to maintain a stable real economy. 

No, it's really about managing the economy and allowing government spending to greatly expand. The arguments for the creation of the Fed centered around stabilizing the economy, ending market panics, etc. It was sold on management.

But they are horrible managers. At least, no better than a piece of yellow metal would have been. And perhaps a lot worse because the paper system enables a lot of troubles in terms debt financing for funding wars, domestic spending expansion, etc.

Also, we've looked at these hyperinflations, and they're almost always caused by some underlying non-monetary problem... problems that it's hard to imagine the US having if dozens of other countries aren't having them first. 

As for non-monetary problems, well that's not really accurate because a lot of domestic problems are caused from monetary problems as the kernel. Look at the countries in the EU having problems with "austerity" and the issues of riots and instability. The kernel there was the government entitlement spending propped up by central bank management enabled the entire situation. Or there are other issues surrounding government largesse enabled with debt financing that kick off civil wars, armed conflicts, etc. These events can all lead to hyper-inflations or at the minimum, severe instability in the currency.

A problem in the U.S. dollar would affect many countries for certain, but at the same time there is no reason to believe those countries would lead first and take the dollar with them. It is far more likely the opposite would happen. In fact, it could even be those dependent countries leaving the dollar that could instigate the whole mess. There are simply too many factors to consider.

I'm definitely a little weary of the possibility, but I think we'd disagree on what would cause it.  You might think some kind of Galt withdrawal and quantitative easing might cause it.  I tend to think it might be an alien invasion or something I can't even think of yet that threatens the very foundation of our productive capacity or political stabiliy (though I think it would be inherantly non-monetary in nature... hyperinflation would be the effect, not the cause).

Plenty of front-running currencies went into the toilet and no aliens landed. It all happened due to normal human mis-management, loss of market confidence, foreign and civil wars, etc. So if I'm placing my bets for the long term, it's that the U.S. dollar will have a problem one day, and it will happen for reasons that nobody thought were possible, and finally it will happen so quickly that nobody will be able to really stop it.

With so many dollars around the planet it wouldn't take much to cause a major catastrophe in the currency. In a way, the wide distribution of dollars in the market does not make the currency more stable. It acts as a form of leverage because you now have so many people that can panic sell that aren't connected to the country directly. The risks of problems in the dollar is actually very much magnified, not diminished, because your exposure to billions of market participants is extremely large and uncontrollable.

Finally, to kind of bring this home, the idea of paper money and debt is as old as the hills. There is really nothing "Modern" about Modern Monetary Theory. And yet we can look at these past events and find that even if the theory sounded fine, in practical application it has always blown up in virtually every case. So why should a rational observer think it would work out for the U.S. long-term when it has never worked anywhere else in all of human history? I certainly don't believe it will.

Well MR certainly acknowledges the possibility of inflation and hyperinflation... I just think it has a very well-rounded look at what brings it about... but I'll agree that your point about government-run money making war-financing easier and leading to more currency collapses is a chicken/egg combo I hadn't thought of.

I guess here's my question for you, since you're predicting this as a far off event unlike some libertarians...

- What spending would you have the federal government cease right now if you could have them do so?

- What would you set tax rates at and on what base (income, purchases, wealth)?

- What do you think the economic effects in the US of these actions would be?  Unemployment?  GDP?  Poverty?

[AgAuMoney]

Eventually, they'll just cause Chernobyl. When people look at the root cause of the accident they will see people that thought they knew what they were doing were really overconfident incompetent eggheads.

I expect in the future as in the past, the eggheads will come up with a somewhat plausible excuse to shift the blame to something/someone else.  Most people won't see thru it.

[craigr]

I guess here's my question for you, since you're predicting this as a far off event unlike some libertarians...

- What spending would you have the federal government cease right now if you could have them do so?

The question really isn't what I'd do because I don't have a say in the matter. The real question is that it's going to happen eventually anyway (voluntarily or not), so how can we as investors protect ourselves if it happens on our timeline? For me, that is the gold part I hold and then assess the situation as it unfolds if it does happen.

But the core issue is that these ideas that debt doesn't matter I feel are just are an ex-post smokescreen for the bad habits that have developed. Just because it sounds logical on the surface doesn't mean unexpected repercussions can't show up in the future. And if you look at the history of these things, unexpected repercussions always happen eventually.

[Gumby]

Well, that's why I hold gold too. Understanding MR doesn't prevent me from seeing that outcome.

But, I think the future is generally unknowable. For all we know, our currency could survive another few decades and then we enter a post-capitalist or post-scarcity era that makes currency into something very different from what it is today. Who knows what gold or currency would be worth to an individual in such an environment. I just don't see the point in predicting eventual fiat hyperinflation beyond having a bullet-proof investment plan for it. I mean we can't predict the future, right? We can only prepare for it as a possible outcome. In the meantime, it's useful to understand how our money supply works so we don't get distracted by silly charts that don't tell us very much.

[MachineGhost]

With so many dollars around the planet it wouldn't take much to cause a major catastrophe in the currency. In a way, the wide distribution of dollars in the market does not make the currency more stable. It acts as a form of leverage because you now have so many people that can panic sell that aren't connected to the country directly. The risks of problems in the dollar is actually very much magnified, not diminished, because your exposure to billions of market participants is extremely large and uncontrollable.

It sounds like you are describing the exact Achilles' heel of the PP, the Minksy Moment: https://en.wikipedia.org/wiki/Minsky_moment

[craigr]

It sounds like you are describing the exact Achilles' heel of the PP, the Minksy Moment: https://en.wikipedia.org/wiki/Minsky_moment

It's more of that moment in time when market confidence slides so much that the mass of people heading for the exits simply cannot be contained, controlled or predicted.

Paper currencies rely on confidence of the markets to remain valuable and if that confidence vanishes, or is abused too long, the markets will extract a heavy penalty. It's not something that can be easily managed except to make people continue to believe you're good for your promises. Fundamentally, free markets work on trust and if investors don't trust a stock, bond, etc. then it goes away. If they don't trust a currency, same thing.

[moda0306]

It sounds like you are describing the exact Achilles' heel of the PP, the Minksy Moment: https://en.wikipedia.org/wiki/Minsky_moment

It's more of that moment in time when market confidence slides so much that the mass of people heading for the exits simply cannot be contained, controlled or predicted.

Paper currencies rely on confidence of the markets to remain valuable and if that confidence vanishes, or is abused too long, the markets will extract a heavy penalty. It's not something that can be easily managed except to make people continue to believe you're good for your promises. Fundamentally, free markets work on trust and if investors don't trust a stock, bond, etc. then it goes away. If they don't trust a currency, same thing.

What promises does the government need to be good for to keep our currency in tact?  It sounds like you basically are saying that if our debt gets too high and we "print money" that will cause this lack of confidence.

[AgAuMoney]

What promises does the government need to be good for to keep our currency in tact?  It sounds like you basically are saying that if our debt gets too high and we "print money" that will cause this lack of confidence.

I don't think you can ever pin a monetary crisis onto a single cause.  Probably you won't be able to prevent one by likewise elimination of a single cause.

In most monetary crisis you can look at several causes, and find that almost if not all of them have been present for some time to a greater or lesser extent.  The tipping is almost always sentiment changing.  Suddenly what was acceptable is no longer.  Maybe if one cause had not been present the change of sentiment would not have occurred.  Or maybe it would have simply been delayed.

This is one of the problems with macro economics.  In the end it comes down to people.  And people are not data driven formula evaluation machines.  The attempts to make economics a hard science will always fail because of the lack of data, lack of reproducible experiments, and lack of 100% certainty in the reaction of people to a given set of circumstances and events.

[craigr]

What promises does the government need to be good for to keep our currency in tact?  It sounds like you basically are saying that if our debt gets too high and we "print money" that will cause this lack of confidence.

Of course it can happen that way. If the markets don't think the issuing government is good for the debt or there are fundamental problems in whether the currency obligations will be honored in other ways (e.g. civil war), then the whole thing can collapse. AgAuMoney points out correctly that people and their reactions cannot be inserted into a formula. Their behaviors are unpredictable and each new crisis, even if it looks like a former one, will result in new outcomes. People learn from their mistakes and collectively they will make decisions for their own interests and that may not be what the economic planners think will happen.

[Libertarian666]

With so many dollars around the planet it wouldn't take much to cause a major catastrophe in the currency. In a way, the wide distribution of dollars in the market does not make the currency more stable. It acts as a form of leverage because you now have so many people that can panic sell that aren't connected to the country directly. The risks of problems in the dollar is actually very much magnified, not diminished, because your exposure to billions of market participants is extremely large and uncontrollable.

It sounds like you are describing the exact Achilles' heel of the PP, the Minksy Moment: https://en.wikipedia.org/wiki/Minsky_moment

Maybe I'm just dense, but I don't see how that is the Achilles' heel of the PP. It seems much more like the Achilles' heel of any paper-based investment scheme. If any asset is resistant to such an event, it would be physical gold, which aside from its lack of counterparty risk, accounts for approximately 0% of most investors' assets, and is therefore less vulnerable to mass selling than other, more widely held, assets such as stocks and bonds.

[moda0306]

I guess here's my question for you, since you're predicting this as a far off event unlike some libertarians...

- What spending would you have the federal government cease right now if you could have them do so?

The question really isn't what I'd do because I don't have a say in the matter. The real question is that it's going to happen eventually anyway (voluntarily or not), so how can we as investors protect ourselves if it happens on our timeline? For me, that is the gold part I hold and then assess the situation as it unfolds if it does happen.

But the core issue is that these ideas that debt doesn't matter I feel are just are an ex-post smokescreen for the bad habits that have developed. Just because it sounds logical on the surface doesn't mean unexpected repercussions can't show up in the future. And if you look at the history of these things, unexpected repercussions always happen eventually.

Nobody is saying debt doesn't matter.  It's simply that it has to be looked at in context of what it really is.  Monetary Realism is mainly a description of our monetary system.  It's just that many people that see these mechanics for what they are agree that QE is pretty useless in a balance sheet recession because it doesn't improve balance sheets. 

Yes, peoples' behavior can be irratic in groups.  However, it's peoples' irratic behavior in large groups that macroeconomics seeks to understand, and micro-pundits just extrapolate micro behaviors to that of the whole.  Do they get it right all the time?  Hell no.  But the government, especially at the federal level, has to operate strategically knowing what they say or do is working mostly in a closed system.  For instance, if I know someone in a city that's going to get wiped out by a hurricane, but nobody else knows, the best way for me to solve my problem is to call that person and tell them to get out of the city as fast as they can.  When government warns citizens of a hurricane, though, they have to work within a system that will behave much differently than one guy driving 90 mph to get out of the city.

For the any government to make public policy decisions based on open-system behavioral predictions is just plain stupid.  Can closed-system behaviors be difficult to predict with 100% accuracy?  Definitely.  But it's no excuse to just be dumb about it for the sake of being dumb.  During recessions, taxes should be cut, spending (at least on stuff government was going to do anyway (build roads, bridges, rail, buildings, park improvements, etc)) should increase, and interest rates on loans to businesses and individuals should naturally drop even if just a natural result of the supply/demand effects on a loanable funds model.