Since the beginning of all this crumbling economy I have been saying that none of this is working and that it is the wrong approach.  The only way to stop this slide into darkness is to replace the lost money from the write downs of the banks.  That is the only way for the TARP to work.  Once money becomes a premium, prices decline, people stop spending, unemployment will rise, burrowing will slow, and economic growth will grind to to a halt…a recession.  I know…all this is just sounding familiar.

All the TARP is accomplishing is moving cash around the economy and not accomplishing a whole lot in the interim.  It is not helping in the creation of any new money to replace that which was lost during the massive write downs in September.  The TARP is NOT helping to replace the money that has been lost, for that reason it will do little to return confidence in the economy.  Banks are told to be capital strong and to do that they will horde their TARP money to make their balance sheet strong…no loans….

In order for the TARP program to work it would have to have create new money to replace the lost. If the lost money is replaced then all money in existence stops gaining in value and consumers will go back to spending money, prices will stop falling, asset prices will stop declining, unemployment will stop rising, demand for borrowed money will return and economic growth will once again turn positive.

I know after all that you want to ask, then how does the government create new money, professor?  Good question, Irene.  Sorry to say that it will mean higher taxes.  But in reality, somewhere down the line everybody’s taxes will go up….it will hurt the low and middle class more than the wealthy, but they will go up.  All the programs and packages will need to be paid for eventually or the economy will suffer the consequences.