I have noted in many articles and essays that the fundamental cause of our economic problems today can be isolated to this source:   Too much new money is flowing into large corporations where savings occur, and too little new money is flowing to small businesses and individuals where spending occurs.  That observation may sound very arcane, so I will elaborate on it in this essay with new information from an independent study and source. 

The great bulk of our economic activity is based on spending.  In order for a free market to flourish, we must first have consumers who purchase its goods and services.   It is from spending that we derive profits, and employment, and incomes, and taxes, and general prosperity.  In contrast saving gives us personal security, a “piece of the pie” that is so necessary to our future needs. Too much saving, however, leads to too little spending, and this condition will result in too little GDP, too little new employment, too little incomes, too little taxes, and the need for more government, to budget deficits, to a weak dollar in international trade. 

The new map of growth and recovery points to very different futures for American communities. These findings suggest that the gains from growth have and will continue to consolidate in the largest and most dynamic counties and leave other areas searching for their place in the emerging economic landscape. While many will benefit, the new map also calls for a new toolkit for ensuring broad access to opportunity and helping both people and places realize their economic potential. [1] 

The Problem.  The Federal Reserve makes new money available to banks on the hope that banks will borrow that money and lend it out to individuals and to small businesses.  That is how money gets into circulation where spending occurs.  Every dollar in circulation results in 6 dollars of GDP.  And GDP produces jobs, incomes, tax revenues, and a small amount of savings and investments.  This money is known as M1 (currency plus checking accounts).  It is the source of all our economic activity.

Needed.  The Federal Reserve cannot direct that new money it creates and lends out to banks gets into the hands of small business and individuals where it can help the economy.  They must rely on banks to let some of it “trickle down” to those who create economic activity.  After all, 100 percent of all economic growth comes from spending--from consumers (70 percent), from the government (20 percent), and from corporate profits (10 percent, which also comes from spending.  The Fed needs an amendment to its charter that compels them to direct, monitor, and control how much new money gets into spending (M1), and how much gets into saving (M2 – M1). 

I sent this very same recommendation to the chairman of the Federal Reserve, Janet Yellen.  The Fed’s reply “it is being forwarded internally.”   

Summary.  The ultimate measure of any nation’s economic activity is found in the net worth of its residents.   The U.S has $87 trillion of net worth, and $80 trillion of that is owned by the top 10 percent.  The next 40 percent (the middle class) owns the other $7 trillion.  The bottom 50 percent have no net worth at all.  In 50 years, at current growth rates, the top 10 percent will own $2.5 quadrillion while the bottom 50 percent still will have none.  Anyone who believes those projections cannot happen, simply does not want to believe in arithmetic and the historical record of the past 50 years. Economic policy needs to be based on facts, not on beliefs.