To the Fed: Fill Our Stockings With Cash, and Checks

The worst kept secret in the financial markets is that the Fed in November will begin a program of purchasing debt in an effort to revive the faltering economy. This measure, called quantitative easing, is a renewal of an earlier bond purchase program that puffed up the Fed's balance sheet by more than a trillion dollars to a total of $2 trillion. But the Fed's easy money policies haven't resulted in a whole of lending. Member banks of the Federal Reserve system have something like a trillion dollars on deposit with the Fed, earning interest at a very modest rate but on a risk free basis. What good will drenching the system with more liquidity do? The trillion already deposited by banks at the Fed tells us that more liquidity will simply be parked in similarly low risk, non-stimulative places. Giving the economy a boost requires either lending the money to a productive economic activity, or having it spent on consumption. Money from the Fed redeposited with the Fed doesn't do squat.

Why not have the government issue checks to every American? Say $1,000 each. That would cost about $300 billion, which is well within the range of potential bond purchases of the renewed Fed program. Money sent in this way to citizens will mostly be spent, providing a direct stimulus to the economy. No need to borrow and add to the federal deficit. We could have the Fed print the money, as it would for a bond purchase program. Just create an account at the Fed in the name of the U.S. Treasury and credit it with $300 billion. Voila! Then mail checks to each American. If the Fed feels the need later on to withdraw this liquidity in order to discourage inflation, it can sell some of its current $2 trillion balance sheet. That would pull liquidity out of the financial system.

With the holiday season approaching, a check for each American would set the right tone. We could even put the Fed program to music, with the following lyrics sung to the tune of "Santa Baby," torch singer Eartha Kitt's signature song:

Mr. Chairman, just slip a check under the tree, for me
Been awfully good this year, Mr. Chairman.
So hurry down the chimney tonight.

Mr. Chairman, a bond that is convertible too, brand new
We look up to you, Mr. Chairman
So hurry down the chimney tonight.

Think of all the folks dismissed.
They could use a little lift.
Next year things could be just as bad,
Take a look at the unemployment lists.

Mr. Chairman, come fill our stockings with cash, and checks.
Sign your X on the line, Mr. Chairman.
So hurry down the chimney tonight.

Mr. Chairman we don't want a limo or a yacht.
Not a lot.
Just a thousand will do, Mr. Chairman.
So hurry down the chimney tonight.

Mr. Chairman, we forgot to mention one thing, a ring.
The one we pawned is gone, Mr. Chairman.
So hurry down the chimney tonight.

Come and light our Christmas tree
We're using decorations covered with rust.
We really do believe in you.
Let's see if you believe in us.

Mr. Chairman, one more thing we really do need, a deed
To a home of our own, Mr. Chairman.
So hurry down the chimney tonight.
Hurry down the chimney tonight.