Kelso's Fed proposal and Inflation

["David Spitzley" <dspitzle@gw.wash.k12.mi.us>]

Alan Zundel <IPGmail@aol.com> wrote:
> It seems they
[they being economists - David]
>  are arguing that Kelso's plans either try to make something out of nothing 
> (both consumption and investment go  up at the same time) or is 
> expanding credit in an inflationary way.  I think they are wrong, but don't 
> know how to refute them.  (Not even sure I fully understand the 
> arguments.)

Most of the objections seem to stem from an assumption that Kelso's proposals 
would just open up the Fed like a fire hydrant and spray money in all 
directions.  This is vehemently denied by his supporters, and it does not seem 
to me to be a necessary consequence of the proposal.  

Basically, Kelso suggested that rather than purchase T-bills or loan funds to 
banks to inject previously non-existent dollars into the economy, the Fed 
should purchase previously approved loans made by commercial banks to capital 
democratization vehicles (such as ESOPs, CSOPs, etc.).  Such a plan could allow 
lower interest rates on loans to said vehicles, and thus it could help 
accelerate the process of "capital diffusion" (my personal term for the process 
of spreading capital ownership to the general population).  There is no 
requirement that the Fed create mint new money simply for this purpose; it 
simply suggests that there might be better ways for any planned new money to be 
introduced into the economy.

There are lots of other details one could consider in addressing the inflation 
argument (100% reserve requirements, etc.) , but I need to get back to building 
databases, so I'll stop here...