One of the better arguments that the GOP has these days against the Obama programs is that businessmen, especially small businessmen, hesitate to make new investments when they don't know what their overhead is going to be like.

It's not true that the only thing we have to fear is fear itself - but fear is a great motivator. Ask any good money manager about investing, and he'll tell you the first rule of any sane investment portfolio is capital preservation. Want that in plain English? Jim, an old high school buddy, told me recently that, "I'm not taking any chances. If I were to get wiped out, I'm too old to start over."

They're Both Wrong

House majority leader Nancy Pelosi says that unemployment compensation is the best kind of stimulus spending. It's hard to make that case. You're taking money from guyOne's pocket and putting it in guyTwo's pocket. That's a zero-sum game. GuyTwo will spend the money whereas guyOne would not. That's conceivably stimulative, but the problem is that guyTwo won't be spending it all in the American market. A lot of the things guyTwo buys are imports, such as food.

Senate minority leader Mitch McConnell, on the other hand, suggests that we don't want to let the temporary Bush tax cuts lapse because rich people invest their money. (Democrats suggest that they might stick it in the bank, but there, it could be loaned to someone else who would invest it, which tends to amounts to the same thing.) If that someone else buys a house, it stimulates our economy. If he buys a computerized milling machine, that stimulates our economy, and creates a job for the guy who operates it. But there's also a good possibility that it will finance the purchase of a Lexus or BMW, and we're back to stimulating the entire world.

A better argument for unemployment insurance would be that we're feeding unemployed workers with a lot less administrative overhead than food stamps and welfare payments require. It would be cheaper to not feed them at all, but then, we'd have to hire a bunch more police and a bunch more prison guards as parents decide that their kids need to be fed, no matter what. I think the parents are right, and I'd rather handle this the cheap way, with unemployment insurance.

So How Do You Stimulate The Economy?

It really comes down to fear. We know that when interest rates are high, compared to inflation, investors put their money into bonds, and when inflation is high, compared to inflation, investors put their money into stocks. We're back to that capital preservation idea. If inflation is running 8% and interest rates are running 4%, you lose by sticking money in the bank because the dollars you get back are worth less than the dollars you deposited.

At the same time, if you borrow money when inflation is high, you're borrowing dollars that are worth a lot, and paying back inflated dollars that are worth less. The big problem in the housing market is that people are under-water - they owe more than the property is worth. A good dose of inflation would both shrink their mortgage and make it easier to make those mortgage payments, since the dollars are cheaper.

In theory, that's what the government stimulus was intended to do. The problem is that we have a leaky economic boat because we now have a world economy, not a national one. Most of the stimulus headed overseas leaving the national economy under-stimulated. The Democrats are right that the Obama stimulus didn't work because it was too small - but we cannot afford to stimulate the entire world that way, all by ourselves.

Strike Fear Into Their Hearts

So how do we create inflation without putting the US Treasury into hock up to our ears? "Counterfeiting" does it - but the beneficiary of that counterfeiting ought to be the government, not teenagers with color laser printers.

Since the 1960s, dollar bills have said "Federal Reserve Note" on them, not "Silver Certificate". Our currency isn't backed by metal amassed at Fort Knox, but by the Federal Reserve. Politicians railing against big government have complained about deficit spending, because the government simply runs the presses and prints more money. In fact, that doesn't happen any more. We don't simply print the money we need. The Federal Reserve can do that - but they aren't owned by the government. When the US Government needs money it doesn't have, it borrows.

Uh, except there's an exception. While dollar bills are IOUs from the Federal Reserve, ones that interest isn't paid on, coins are real money, not IOUs - and that's where we need to take action.

Pennies Are Obsolete

You can't buy anything with a penny these days. Penny candy costs a nickel. Parking meters don't take pennies, either. And it costs more to manufacture a penny than it's worth. We could use the stamping mills that currently manufacture pennies and use them to make a $1,000 coin. We call $100 bills "Franklins," because they depict Ben on the bill, so I suggest nicknaming the $1000 coins "Cleveland cartwheels," since Grover Cleveland is the president depicted on the face of the $1,000 bill. Silver dollars used to be called cartwheels because they were larger in size, being of a cheaper metal, than were other coins such as the $20 "double-eagle" gold coin.

We pulled $500 and $1,000 bills from circulation because we wanted to make life harder for drug dealers. Lugging bags of coins wouldn't make life easier for drug dealers. In fact, the coins would be detected by standard screening equipment that is blind to paper money.

De-Fusing The "Interest" Bomb As Well

By paying off treasury notes as they mature with these new coins, we stop paying interest on that part of the national debt, and we flood the market with more liquidity. Interest rates drop, which encourages people to put their money into equity investments - think factories, inventory, research - instead of sitting on it and collecting interest.

Inflation is what happens when you have too many dollars chasing too few goods. It stimulates the economy into producing more goods, and it makes the dollar less valuable.

And we paid $700 billion last year in interest on the national debt - interest that we could eliminate by paying off the money we borrow with money we coin.

But the big advantage of introducing a healthy dose of inflation is that we strike fear into the heart of the well-to-do, encouraging them to invest their money in productive enterprise as a means of preserving their wealth, instead of sitting on it. "For lack of a better term, greed is good," Gordon Gecko said - but fear beats the heck out of greed when it comes to motivation.

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bonds - capital preservation - Federal Reserve - food stamps - Fort Knox - Gordon Gecko - groceries - interest - investment - Nancy Pelosi - national debt - Silver Certificate - starting over - stimulation - stocks - treasury notes - unemployment insurance - US Mint