Economic Crises, Liberal Fiscal Policies, and Modern Monetary Policy

This work discusses the latest economic crises (global financial crisis and the coronavirus many-sided crisis) and the public policies used to mitigate the recession and improve the economic growth. The current target rate (monetary policy) is closed to zero since December 2008 with a new experimental, modern monetary policy (“quantitative easing” and many other new tools) to stimulate investment, growth, and employment. The abandonment of the fiscal policy and the current U.S. tax system, which reduces the disposable income and makes savings negative (dissaving or borrowing) and the high inflation, which has done real deposit rate negative have contributed to this slow growth of output and persistent true unemployment. The COVID-19 is a lasting long and preserving crisis for political benefits and it seems that people will suffer with it until a new crisis will be “invented” by the “experts”. Due to the policies adopted and the low tax burden on enterprises, the national debt and budget deficits have grown significantly. People borrow the present value of their uncertain future wealth because of their high debt and low income, which raises the risk and causes the interest rate on loans, particularly credit cards, to increase. While raising public investment, the government must raise corporate taxes, cut wasteful spending (such as on the military, national security, and wastes), and minimise inefficiencies and corruption in order to reduce the national debt (infrastructures). In order to prevent crises, boost growth and employment first, then cut inflation and maintain moderate interest rates, public policies must be blended (fiscal and monetary). The current one-sided monetary policy and the tax system need to be changed and become optimal, which are necessary to improve social welfare, fairness, equity, justice, and to benefit the neglected middle class (the 90% of the population) in our society. The middle class cannot be terrorized and be controlled or just working only to pay taxes and interest on its debt (redistribution of its wealth to government and banks), due to low disposable income, high unemployment, and unfavorable monetary policy. The disappearing of the middle class will affect negatively the entire socio-economic structure of the nation and will threaten its existence.