Blood congested around the nations heart?

The FED is trying to solve the problems by injecting liquidity (indirectly letting the printing press run). We have a money contraction (credit contraction from faltering housing market) and at the same time FED tries to fix this with money injection around the heart of the economy. Will the money flow where it is most needed? Or will in congest around the heart? We have a problem that people was well aware of back in time. In 1879 after a period of FIAT in USA with high inflation and price instability there was a big discussion if one should keep inflating the money supply to solve the problems, or return to the gold standard. The debate was quite harsh between the opposite views.

Thomas Nicole secretary of the The Honest Money League, delivered at Faneuil Hall Boston, Oct 5. 1878, the following view:

“The fiat-money men also tell us that money is the blood of commerce, the free circulation of which makes commercial life and health. We answer: there is abundance of this blood of currency, more than ever before. But we are told it is congested around the great commercial centers, leaving the country in the condition of a man with his blood congested around his heart, while his extremities suffer for want of blood. Then we want such a course of treatment as will draw this blood away from the centers and send it flowing through the great arteries of commerce outward to the extremities of the nation. We don’t want a stream of artificial money injected into the business of extremities of the country, any more than the patient, with the blood congested around his heart or in his head, wants a stream of cheap liquid injection into his extremities to cure congestion. Just as sure as such a course would still weaken or kill the patients, so sure would the injection of the artificial money into the extremities of the commercial body weaken, and, if persisted in, destroy the commercial life of the body. And we are all members of that one body, and when the body suffers, you know, the members all suffer.”

And yes they ended up returning to the gold standard.

The tax rebates is an attempt to get today’s FIAT-blood out in the extremities of the nation (the cheques are now in the post). Will it cure the patient? I hope so, but I am afraid it is far from the best medicine, some medicines have ugly side effects...... Only time can tell, but it helps reading the history.