Would Stimulus without Debt Weaken the Fed’s Balance

Chapter 2

How Would a Benevolent Ruler Combat a Recession?

In this book I will propose “stimulus without debt,” a policy to combat recession that is designed for our actual institutions: Congress, the Treasury, and the Federal Reserve. These institutions impose important constraints on the design of a practical policy. But before I turn to stimulus without debt for our actual institutions, I want to set the stage by considering how a benevolent ruler with complete power, who takes the place of the Federal Reserve, Congress, and the Treasury, could combat a recession without increasing government debt. The policy that is implemented by a benevolent ruler will serve as useful guide for a stimulus without debt policy that is implemented by the Federal Reserve, Congress, and the Treasury.

Government Money Held by the Public Is Not Government Debt

Before I turn to the benevolent ruler, I need to make a fundamental point: government paper money held by the public is