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The credit bubble, which exploded in September 2008, exposed the fact that the U.S. economy has been devastated by globalism.  Unemployment numbers—effectively close to 20 percent, about 25 million out of a workforce of 120 million—are near Depression levels.  The figures have not moved despite the Bush and Obama administrations’ policy of borrowing and printing money to defeat deflation.

The Federal Reserve, led by Ben Bernanke, views the economy in abstract terms.  Bernanke entitled his 2002 speech to the National Economists Club “Deflation: Making Sure ‘It’ Doesn’t Happen Here.”  Deflation, or falling prices, Bernanke found, “can be highly destructive to a modern economy and should be strongly resisted.”  The cause of deflation, he continued, is not a mystery—it is a collapse of aggregate demand, a drop in spending so severe that producers must cut prices to find buyers.  The U.S. price level fell ten percent each year from 1930 to 1933.  The two main troubles with deflation, according to Bernanke, are that it discourages borrowing, since the borrower must repay in more valuable dollars than those he borrowed, raising the real interest rate by the amount of deflation; and that existing debtors have to repay their debts in more valuable dollars.

Should the government encourage borrowing and debtor relief?  An alternative approach...

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