Acute Policy

Serious Students might want to pursue the full article found here. The key element to be searched for is the Proof that only two of the Recessions since 1955 have proven to be deflationary. The basic traditional theory would suggest that less Output would reduce the resource Costs of the Output; hence there will be a deflationary cycle. How realistic is this Assumption? Capitalization of both Production and Resource Recovery venues occurred within the previous Production cycle, with Repayment schedules conditioned by the previous Production levels. Individual businesses in both the Production and Resource Recovery sectors must raise Prices, or cut Operating Budgets, in order to maintain the Repayment schedules. I have several Guess-estimates on the general run of Business under Recession conditions: 1) Business will raise Prices to make up the difference, until such time at Sales volume has dropped over 11%; 2) Business will start a Layoff program if sustained Sales reduce over 3%, Layoffs producing 150% reduction of Sales in comparison to Operational Savings; 3) Central Bank provision of liquidity only allows the Price increases in Output and Resources to be maintained, without any spur to Consumption at all.

The optimum policy of Central Banks is to provide assistance to Businesses, not to Pricing. I would substitute a policy of replacing the Service Costs of Capitalization for Businesses with Sales losses in excess of 4%, to be repaid by a 1% Interest Charge on their total Sales volume after a initial delay of 24 months. Every Business would have to be approved through their Credit-holding institution, with the financial institution bound to meet the Loan commitment upon Business forfeiture; the desirable rate charged to the financial institutions would be 4% of the total Charges per year. The whole effort desired remains attacking the virus in the system, not the system itself. lgl