O.k. so I do my share of blathering about monetary policy here, but I have so say that it is really starting to get under my skin, and that is how the Fed is so willing to pump money into the economy that inflates asset bubbles while so little of it manages to get to the "streets". Now there are perfectly understandable reasons for this, but I think we need to recognize that these reasons point out a major flaw in the way the system works.
The idea is that money is put into the system which lowers the cost of lending and causes lending institutions to forward cash to people or businesses who spur consumption and investment. The problem that occurs is that lending institutions have come to realize that they can make a much better return investing in commodities in Brazil, let's say, than by loaning money money to some schmuck to buy a car. Never mind that current lending standards post credit crisis don't allow for massive amounts of lending anyway, (which is good, hooray for the frugal culture). So the problem occurs that the Fed puts the money out there but it isn't going anywhere except into asset investment, which causes asset values to become bubbles.
You can stretch this argument a bit, for instance maybe we need to entirely re-tool our energy infrastructure, or do massive public hiring to offset job losses, only problem is we are shackled by the spectre of deficits. So a simple argument would be why not just print the money to take care of that? The the perfectly sound argument against that is that if you just go ahead and print money to pay for whatever you need you get rampant inflation. The only issue being that we have shown we aren't concerned with inflation anyway, given how we like to see asset values inflated. Quite obviously our arguments against inflation are only against inflation in consumer goods, if it is inflation in things that supposedly represent the accumulation of wealth then we are all for it.
In any rate the system needs to change. The powers that be need to find a way to directly channel the funds that they wish to stimulate the economy into the hands of the people who will be doing the investing and consuming. (And by investing I mean actual expenditures on operations, not buying securities). There are a couple ways that this could be done, the exact manner isn't important, just the dynamic itself. Some might say that this is what happens when the government spends money, they are putting money directly into communities. Only problem being that money still needs to come back out, either in taxes or payments on debt.
One of the good things about channeling money through lending institutions is that they act as a filter, especially as concerns business investment, as to what are reasonable uses for the money, so you get a maximum multiplier effect form it. I think this could still be accomplished however via the public sector. Another issue is that o.k. so you find some direct means of putting new money into the economy. How do you do the reverse? How do you then cool the economy, the function has to work both ways. I would put forward that an ideal manner to accomplish this would be a floating tax rate. When the economy starts to overheat the tax rate increases slightly. Certainly the technology exists to have more of a real time gauge of what needs to be done to throttle the economy.
You could start this process by having a system where citizens are granted what amounts to stock in the government. Dividend payments could be based on corporate taxes and existing taxes on imports. New money injected into the economy could be added to these dividend payments. The dividend payments could be used to fund things the government currently pays for, like perhaps education, that way we aren't reducing income while maintaining the current level of expenditures. This would also put more pressure on providers of these services to mainatin standards of service acceptable to their consumers. You could take such a train of thought easy enough.
O.k. so we gut the banking sector, deflate the potential for economic bubbles. Well what we are talking about is destroying the way the economy functions, which also means destroying much of the current value of asset investments. Burn the model up. That is a mighty hard pill to swallow I will grant you that. But the alternative is to continue down a path where our economic model favors entrenching power and wealth in the hands of a few on the basis of gambling in assets, which is madness. It may be a hard pill to swallow to make such drastic change, but you know what, if the alternative is sanity, I am all for it.