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MacroEconomic Recovery Paradigm v1.5 .pdf


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Title: ...Lift*Off: A Macroeconomic Paradigm for Stabilization and Growth
Author: Chaim Scheff (IPR2ROI@Yahoo.com)

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NEW Economics for 2012...
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1.4

Monetary Policy for Future Generations


for

Comment

and

Consensus

...Lift*Off : 1/19
Dec.11,

2011

“The Federal Reserve sets the nation’s monetary policy to promote the objectives
of maximum employment, stable prices, and moderate long-term interest rates.”
(www.federalreserve.gov - The Federal Reserve System: Purposes and Functions)

Question: Why has the economy not responded significantly to massive
cash-injection recovery programs nor to unprecedented government bond
yields? Observation: Over the last hundred years, increasing issuance of
market-valued corporate stocks and bonds (Wall Street) has created positive
and negative “instability events” (Booms & Busts) that continue to evolve
beyond the scope of government stabilization mechanisms (the FED's
Monetary Policy).
Answer: The scope of real market-stabilization mechanisms absorbs the
cash-injections, leaving negligible trickle-down to people living on Main
Street.

Fact: The post-modern economy is dependent on industry of all

scales, large and small, for significant portions of the Gross National Product.
Solution: Migration to two separable legal tenders (e.g. Dollars for
ordinary life activity and Treasuries or FEDs for ordinary corporate
transactions) and empowering a National Authority to manage the exchange
rate between these. Corollary: Future government programs will clearly be
denominated in Main Street currency or Wall Street currency, and the
exchange rate policy between these currencies will be known.
Explanation: Wall Street instabilities, both positive and negative, become
insulated from the Main Street economy because the National Authority
managed exchange rate can favor either legal tender. Result: Treasury/FED
yields can effectively go-negative-as-necessary to promote the objectives of

maximum employment, stable (Dollar) prices, and moderate long-term (Dollar)
interest rates. [re: fluctuating Dollar to Treasury/FED demand disparities.]

Risk Reformation & Reward Renaissance:

Moving Beyond The Inequities of Negative Equity
...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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An Introduction to

...Lift*Off:
A Macroeconomic Paradigm for Stabilization and Growth
The most curious and frustrating aspect of the current economic mess is
the failure of policy makers to achieve a substantial positive responses from
massive cash-injection recovery programs (bailouts, job programs, tax cuts,
etc.) and unprecedented yield structures (low interest rates); by the Federal
Reserve (and by Foreign National-Reserve Banks – ECB, BoE, PBC, BoJ).
Now, let's reduce this economic picture to a simple analogy: Main Street,
Wall Street, and Earth Street; which works together like an ordinary three
“strata” operating, control, or management system (albeit having many
government,

NGO,

and

international

“modules”

for

integration,

optimization, and/or partitioning).
People live on Main Street. Main Street is where life-sustaining
Fundamentals (“F”) set a basic standard of value for goods and services
related to food-clothing-shelter; and thereafter to aspects of basic healthcare,
education, and municipal services; and likewise to utility infrastructures of
energy, communications, and currency (instant liquidity savings). Qualityof-Life for people living on Main Street is the sole purpose of a robust
economy, which must be structured for sustainability to eternity! Recessions
and Depressions should not be allowed. Creative Deconstruction may be for
other Streets, but not for Main Street. Human Capital is our greatest asset,
wherein Intellectual Capital is our greatest peacetime dividend; otherwise
the post-modern Knowledge Economy of the Information Age has basically
brought us to Electronic-Funds-Transfer and increasing human hardship.
One very large portion of the national wealth is on Wall Street. Wall
Street is where private investors store assets and where public corporations

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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issue Stocks (hereinafter “S”) & bonds, warrants, options, dividends, and
the like. The goods and services of Main Street come from Wall Street.
Occupying Wall Street, Revenge on Wall Street , and Dismantling Wall Street
will all have negative consequences for restoring a healthy Quality-of-Life
for people living on Main Street. However, (i) Epidemics on Wall Street
should be quarantined from spreading to Main Street, (ii) Corruption still
requires Quality-of-Life-Loyal regulators; and (iii) Inequitable risk mitigation
arrangements, that “balance” privatized profits against socialized losses,
must be restricted to the tiny-enough-to-fail scale.
Basic physical commodities (Petroleum, Iron, Corn, etc. - hereinafter
“B”) come from Earth Street. Earth Street is essentially where all of the raw
materials, that Wall Street processes for life on Main Street, come from!
There are serious ecological issues related to Earth Street's management. But
those are items for consideration elsewhere (especially because these may
have already reached a critical level only solvable by global policy – while
this article is about smaller-scale independent-autonomous nationaleconomic policies).
Earth Street is better understood in comparison with the other Streets.
Main Street is characterized by small-scale normal-values. Wall Street is
characterized by high-complexity large-scale. An ecologically managed Earth
Street is characterized by limited means for negotiating between the values
of Main Street and the robust economy scale of Wall Street. Oddly enough,
Main Street's Life-Quality priorities must dictate pragmatic terms for
ecological management of physical commodities; because ecological
management of Earth Street is not an end unto itself.
The objective of this article is to describe a Reformation & Renaissance
regulatory structure that will help us Move Beyond The Inequity of Negative
Equity (when an outstanding loan obligation exceeds the valuation of loan

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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collateral), which is the current most-significant symptom of the Wall Street
epidemic that has infected Life-as-we-knew-it on Main Street. More
specifically, this article is about giving Government a new administrative
mechanism, whereby epidemics on each street can be directly dealt with
(using known regulatory and/or stimulus mechanisms), and whereby a
Reformation & Renaissance of Life-as-we-knew-it on Main Street (or at least
a healthy Life Quality) appears as a realistic near-term goal!

....Lift*Off is a forward looking Monetary Policy, structured to
Restore small-scale normal-value Expectations for ordinary persons
while Preserving high-complexity large-scale Dynamics for
Commodities, Industry, Markets, and Financial Institutions. Essentially
....Lift*Off is A Macroeconomic Paradigm for allowing simultaneous
life-quality Stabilization (Restoring Main Street Expectations) and
economic Growth (Preserving Wall Street and Earth Street Dynamics).
Public and private policy makers have used all of their best knowledge
for reversing the national/global destabilization tragedy. Yet, they are not
achieving adequate results. There is a missing piece from their collective
analysis. There is a fundamentally equitable administrative solution
(described hereinafter); and it is significantly less painful than economic
recovery scenarios contemplated elsewhere.
For simplicity, for each nation-state (or common currency zone) there is a
money supply (typically M0, M1, and parts of M2 – hereinafter Currency
“C”) and a government management (Federal Reserve, Treasury, etc.) of
various fixed-term financial Instruments (hereinafter “I”), which under
“normal circumstances” are used to hold “C” within robust-elasticity
bounds; be that according to the Taylor Rule or according to the formulas
that will inevitably replace it.

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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Now, using these “C” & “I” metrics, there are three substantially nongovernmental value systems' Streets: Basic commodities (“B”), life-sustaining
Fundamentals (“F”), and market traded Stocks & bonds (“S”).
EARTH STREET
Earth Street is a strata of Basic physical commodities (Petroleum, Iron,
Corn, etc. - hereinafter “B”) which are substantially materials having
minimal value-added aspects – even though the degree of technological
components involved in their ordinary mining, harvesting, and delivery are
constantly increasing. “B” is normally measured by weight, volume, energycontent, band-width, or similar gross physical metric. Today, “B” may also
include reasonable transportation costs, since we must remember that we
expect to remain in a globalized world for the sustainable future. The
“reasonable” for transportation costs requires creating an appropriateongoing composite

index

to

allow

modest

normalization

between

commodity “harvesting” facilities of different scales; typically “irrationally”
located with respect to their first-immediate bulk delivery commodity
receivers.
MAIN STREET
Main Street is a strata of life sustaining Fundamentals (hereinafter “F”),
typically the goods, services, and real properties held by individuals having
a life style defined as substantially from the local poverty line to about one
standard deviation above the local median household income. These
fundamentals include basic sustainable items of food, clothing, and shelter;
thereafter aspects of basic healthcare, education, and municipal services; and
likewise utility infrastructures of energy, communications, and currency
(instant liquidity savings). Included in this strata should also be a liberal (but
not generous) metric of income-producing property, which (as defined for a
hypothetical individual living in an average size household having income
of about one standard deviation above the median household income) would

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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be up to the employee's per-head book-value portion of the corporation that
employes him. (That is a econometric definition; not a suggestion for
assigning corporate ownership to the employees.)
WALL STREET
On Wall Street, there are private investors storing assets and public
corporations issuing Stocks & bonds (“S”), warrants, options, dividends,
and the like. “S” has associated market forums for typical issuing (IPOs,
stock splits, M&A stock swaps, etc.) and untypical repurchases (buy backs).
Of course, there is an ongoing struggle to regulate the complexities of trust
that are needed to keep these market forums operative; but that is a topic
outside of the current scope.
Once these forums were exclusive small private clubs for extending
ownership-risk to structured limited-partnerships. Then these forums grew
into grand mitigation-conventions; the original stock markets, mercantile
exchanges, commodities markets, etc. This shifted the neo-feudal exclusivity
into

structured

representative

one-share-one-vote

democracies.

The

democratic appearance construction gave legitimacy to the idea of a
corporate-person; while actual labor relations more often resembled the surflife in a feudal state. Today, ownership of these corporate persons is a vast
instantaneous social-electronic networks of time-share members, who have
no concern for the long term health of the enterprises that they embrace.
(Welcome to the new Electronic-Funds-Transfer-age economy, where eCommerce technical trading dominates what was once a simpler long-term
investment forum for high-net-worth individuals.)
Simply put, the software-transaction stock market is the mercantile
equivalent of Rave Scene anonymity for drugs & sex. Momentary stock
ownership is clearly not related to belief in the business of the enterprise, per
se. It is rarely loyal to the enterprise's price-performance dividend capacity,

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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per se. Most often, a myopic fixation on profit gratification of instantaneous
risk-reward expectation for the stock price, per se, is the charter of the
disloyal owner of the opportunistic micro-moment. Sigh; true love – between
the humble hard-working investor and the diligent forward-looking
enterprise – is no more.
Beyond issues of ecological management of Earth Street, obvious AntiMain-Street abuses, by Earth Street Cartels was an early symptom of current
ongoing economic-regulatory intractability. Global negotiations have shown
little potential to impose global economic health. Thus, an autonomous
regulatory “paradigm shift” is called for. Simply, it is unreasonable and
unlikely that global negotiations will stay or cure the current Wall Street
Earth Street inequity-epidemic.
Returning to Wall Street, the regulatory audit-impossible complexity of
instant electronic funds transfer systems and, most egregiously, the googlescale-volume of software generated Wall Street trading has created a
speculators' paradise. This in turn fostered a Main Street culture of
imaginary pyramids and bubbles that has deflated the global economy.
Ordinary pragmatic expectations of reformation and rational aspirations for
renaissance seem like over-the-horizon rain-bows. At the very least, this
electronic-age crisis situation calls for a viable regulatory structure that will
electronically kick in; long-before any eventual Wall Street reporting
“anomalies” can be prosecuted.
There may still be some future in having humble hard-working investors
and diligent forward-looking enterprises. Today's national and global
macroeconomic problem arises (in part) because the three substantially nongovernmental value system Streets (strata) – Basic commodities (“B”), lifesustaining Fundamentals (“F”), and market traded Stocks & bonds (“S”) – all
function using the same mutual “C” (& “I”) metrics. Hence, it is easy to

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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realize that any radical change in one system strata will cascade into radical
changes in at least one of the other two system strata. Respective historical
examples, of causes that propagate into inter-strata cascades, are embargo of
a critical commodity, human epidemic, and sudden market drop.
To date, the historical solutions have been attempts to find alternative
commodities, to stimulate labor-saving technologies, and to relax the money
supply. However, while these may be viable-type solutions, they require time
spans much longer than the time it took for the initial radical changes to
propagate. Accordingly, the conceptual paradigm solution is first to create a
non-physical economic time-delay between the three strata systems, and
then to coordinate-manage the remedy for each strata system individually.
Simply stated, the paradigm is about deconvolution of a highly-complex
domain into three fuzzy-orthogonal domains; “F”, “B”, and “S”. More
bluntly, there should never be any strong linkage between stock prices and
essential food-clothing-shelter ratios; because stocks and essentials exist at
two very different ends of the expanding-parametric economic continuum.
GOVERNMENT AND MAIN STREET
Government certainly has an ability to influence life on Main Street. Any
progressive taxation policy that encourages managing personal finances
according to a reasonable stress test would be a favorable accomplishment.
(Tax rebates do not do this.) Just as people can be led into becoming
irrational economic actors, they can also be led into a culture of respectable
rational

economic actions. Thereafter, consumer

maturity must be

sustainable. Tax structure changes alone do not change most people (just as
fines for littering did not change most people – but anti-littering advertising
did).
As in so many cases, public education, public discussion, and public
involvement change how people think; which in turn changes how people

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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act. Carrots and Sticks (incentives and penalties) work better on educated
people than they do on dumb animals – please note! An educated electorate
is a nations greatest resource. Most plainly, Main Street and everything
related to the Quality-of-Life on Main Street is dedicated to sustainable
benefit for the electorate. This is just a non-technical alternate-model
restatement of the FED's measurable objectives: “maximum employment,
stable prices, and moderate long-term interest rates.”
Now on the first order, the original Currency “C” was focal to the strata
of life sustaining Fundamentals “F” - and that will remain as the most
familiar aspect of the solution. Currency “C” will remain the medium of
exchange (the sole legal tender) for goods and services at the retail level.
Wages are paid in Currency “C” and food-clothing-shelter are purchased
with Currency “C”. Minimal-interest short-term savings accounts also
constitute an aspect of this currency supply; as do short-term personal loans.
Balancing of Currency “C” using government management-of-exchange
with various fixed-term financial Instruments “I” will continue according to
ongoing best-practices wisdom (as is discussed below). So for all life
sustaining Fundamentals “F”, the original Currency “C” will continue to be
the legal tender.
On the second order, longer-term savings accounts will be held by
exchanging personal excess “C” into personal held (or bank held)
government-issued fixed-term financial Instruments “I”; which must now
also include retail denominations. This should not cause any administrative
difficulty, because today's electronic record keeping and auditing are fully
scalable – at least for these long-latency “C” & “I” swaps. Broadly, this
should cause an accumulation of wealth (increased savings) for ordinarywage earners and an accumulation of positive results (increasing velocity of
retail currency) from job stimulus programs; neither of which are appearing
on the current layman-expectation horizon.

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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GOVERNMENT AND EARTH STREET
Furthermore on the first order, all Basic physical commodities “B” –
when delivered in commercial non-retail quantities – will be paid for in a
combination of Currency “C” with the various government-issued fixedterm financial Instruments “I” - and the legal long-term C/I ratio for
accepting bulk commodity delivery will be set & published about one year in
advance; even if this, in and of itself, creates a shadow market for hedging
the official C/I ratio.
The markets still set all the prices, yet long term setting the C/I ratio will
allow government some measure of regulatory control over international
balance-of-trade in commodities, some measure of control over inflationary
pressures in the strata of life sustaining Fundamentals “F”, and some
measure of control over currency speculators (during times when that is of
particular importance).
The commodities market still operates as usual to set the commodity
prices, except the legal tender for those transactions is according to the C/I
ratio. Essentially, brokers are on notice that the legal tender for the buying
and selling of wholesale quantities of commodities is the official C/I ratio;
and that during the next calender year there will be a new C/I ratio, which
may be slightly shifted from that of the current year.
For example, if the current year C/I is 60/40, then for a $100M commodity
transaction, the commodity delivery is in exchange for $60M of “C” + $40M
of “I”. If the buyer has an excess of either “C” or “I”, then the buyer must go
to the government exchange window and swap C's for I's according to his
need. Alternately, the broker knows that the official commodities legal tender
ratio for next year is 59/41, so he can defer his transaction to avoid part of the
“C & I” exchange window swap. The broker can not go to the stock market

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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(Wall Street) for a “C & I” swap, because all stock market transactions are in
I's. On Wall Street, “S” and “I” are traded; but “C” is not in use.
Alternately stated, on the second order, insufficient or excess Currency
“C” accumulating at commodities “producers” will require exchange with
government-issued fixed-term financial Instruments “I”. Simply stated, the
pre-Lift*Off C/I ratio for commodities transactions was 100/0 – and since “I”
now becomes a “partial” legal tender in the strata of Basic physical
commodities “B” - there will be an initial need for most commodities buyers
to first buy I's with their C's – in order to accomplish even a 99/1 C/I ratio.
Likewise, as was the case in the strata of life sustaining Fundamentals “F”,
longer-term savings accounts will be held by exchanging excess “C” into
government-issued fixed-term financial Instruments “I”; which are then
portable outside of this strata – and into Wall Street.
GOVERNMENT AND WALL STREET
Finally on the first order, turning to private investors storing assets and
to public corporations issuing Stocks & bonds “S”, warrants, options,
dividends, and the like – ALL of these will be transacted exclusively using
denominations of government-issued fixed-term financial Instruments “I”.
Again, on the second order, all longer-term savings accounts will be held as
government-issued fixed-term financial Instruments “I”. This means that any
radical change in aggregate metrics of Stocks & bonds “S” will only veryslowly migrate into the operational prices in the strata of life sustaining
Fundamentals “F”; essentially weakening linkages between food-clothingshelter values and stock-bond markets. Simply stated, investments in Stocks
and bonds “S” remains the fastest liquidity reservoir for holding value
appreciating wealth, but looses the capacity to instantly perturb economic
sustainability dynamics in the other strata “F”; albeit to “B” according to the
C/I ratio.

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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This is really the crux of the ...Lift*Off solution, so here are a few walkthrough micro-examples of how the two legal tender economy works. (1) An
entity goes to the stock market with an IPO. The stock price is set in I's (not
in C's). A new Main Street investor will go to the FED and buy I's with his
extra C's, and then go to the stock market to buy shares in the Entity; using
the I's as the legal tender (for such transactions). The commercial investor
already sits on a reserve of I's (that used to be his cash reserve of C's). This
commercial investor buys shares in the Entity using his I's. (2) The entity
wants to buy raw materials “commodities” for value adding manufacture, so
the entity takes some of the I's and sells them at the FED to get C's, and then
takes the required mix of I's and C's to the commodity seller to by the raw
materials (according to the current-year legal tender C/I ratio for
commodities). The entity wants to pay wages and has not yet begun retail
sales, so it goes to the FED, buys C's for I's, and pays wages in C's. The Entity
wants to issue a dividend to the stock holders, so it either pays the dividend
from the Entity's reserve of I's; or the Entity takes the C's that it suddenly has
from income, goes to the FED and buys I's using the C's, and pays out the
dividend with the I's. (3) A Main Street investor need to make a domestic
purchase, and need to dip into his savings to do this, so he takes his I's to the
FED, buy's C's, takes his C's to the store and buys his food-clothing-shelter,
etc. Simply, a two legal tender economy.
Now, if speculators try to dump their Wall Street problems onto Main
Street, the regulatory C/I ratio slowly shifts to structure an anticipatory
quarantine of the counterproductive spill over. The frantic speculator can
store some of the problem by buying commodities, but this is part of what
they do anyway in the current single legal tender economy. Simply “C” is
exchangeable for “I” and “I” for “C”.
Such conversions can occur easily under most circumstances. However,
during times of economic stress, conversion may be restricted, prioritized, or

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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otherwise restructured by government intervention. The ordinary-times
administrative mechanism for determining the exchange rate is according to
supply and demand; albeit with a forward-looking directional incentive;
according to the overriding mandate to preserve Quality-of-Life on Main
Street.
While administrative exchange rate “circuit breakers” kick in to control
the official rate – there will develop a large private exchange for the
“shadow” swapping of “C” with “I” – thereby not replicating the currency
markets of a generation ago (when governments determined rates). On the
other hand, the government does control the ability to expand or shrink the
supply of “C” and the supply of I. In addition to the government's ability to
set “I” yields positive or negative, the control of supply can be used to keep
the instant-time-transaction speculators away.
According to at least one scenario, negative yield government
instruments “I” would still be an investment opportunity; when there is high
demand for converting “C” to “I” - and this occurs because either investors
see hot investment opportunities in stocks of Wall Street or a safe haven in
commodities

of

Earth

Street.

Likewise,

when

there

are

highly

inhomogeneous metrics of stress testing for Banks, Funds, and like financial
institutions, then these are force by statute to shift significant assets into “I”.
Under these conditions, which partially resemble our current conditions,
negative yield government instruments “I” would still be a safe bet, within
any other investment mix. Long term investments in “C” and in “I” are
certainly acceptable. Short term speculation in “C” or “I” are at the risk of
government intervention events, which properly-applied may be more
terrifying to the speculators than current occasional risk-failure electronicmarket-trading events.

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
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GOVERNMENT – A NEW ADMINISTRATIVE MECHANISM
Well then, the ...Lift*Off solution to our national (and global) economic
situation-of-woe is to transition our national economies to ones having two
partitioned forms of legal tender – “C” and “I” (C&I)– and this will act to
reposition the stability of respective fiat currencies into acceptable
psychological perspectives and healthy expectations.
Because Wall Street transactions are “I” denominated and Earth Street
transactions are regulated C&I mixture denominated, there will be many
respective C&I demand disparities. Substantially international market forces
on Wall Street and on Earth Street will create fluctuating DollarTreasury/FED demand disparities; which in turn will even allow regulators
to occasionally let Treasury/FED yields effectively go-negative-as-necessary.
This is a key to protection of Quality-of-Life on Main Street; and to
improving long term international C&I investment reliability. Essentially, by
this transition from a “C” economy to a C&I economy, recovery programs
can efficiently focus resources on renewal of Quality-of-Life on Main Street!
Each country and each common currency zone can adapt this scenario to
suit the scale of their respective economies. Large economies will probably
elect to have their own C's and their own I's. Smaller economies may elect to
keep their own C's while using some larger economy's I's (or vice versa).
International bodies may elect to provide loans or aid in one tender-unit (or
basket of tender-units) and receive payback in another tender-unit. In all
cases, regulatory C/I ratio shifts should quarantine speculators from creating
many forms of civil-economy disorders. Apparently, globalization maturity
must bring with it a new autonomous regulatory mechanism paradigm.
A further ...Lift*Off benefit is that economic cycle linkages respectively
inherent to “F”, “B”, and “S” will experience some stabilizing diffusiondecoupling, that will in-turn provide higher inertia against propagation of

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
DRAFT

VERSION

1.4

Monetary Policy for Future Generations


for

Comment

and

Consensus

...Lift*Off : 15/19
Dec.11,

2011

sudden volatility; and provide government regulators sufficient time
intervals for intelligent renormalization of “C” to “I” managing-mechanisms.
Essentially, these autonomous C/I regulatory powers are the logical
extension of prime rates, LIBOR, and assorted traditional “I” managementmechanisms.
There are reasonable mechanisms for independently regulating economic
systems of Main Street, Wall Street, and Earth Street – but there must be a
“simple” way to regulate the economic linkages between them. Restoring the
fundamental idea of a Federal Reserve (and of other Foreign NationalReserve Banks) requires transitioning the (respective) base currency of Wall
Street(s) from “C” to “I” and (autonomously) regulating the C&I “exchange”
rates, and the C/I ratio. This essentially includes empowering (respective)
government(s) to continue to control the supply of their “C” and of their “I”.
There is reasonable expectation that these FEDs know how to use their
authority to manage each of the three quasi-quarantined economy “Streets”;
especially when the FEDs would not have to worry about bizarre
fluctuations in the “printing of new money” by Wall Street (since issuing
risk-uncertain valued Stocks and Bonds requires “depositing “C” at the
window in order to buy “I”).
There are historical examples of economies having two concurrent forms
of legal tender. However, in two grossly-oversimplifying instances (that I am
aware of), the results were sort-of catastrophic; because there was no
government regulation for intelligently managing aspect ratios between their
two concurrent forms of legal tender. The first example was Ancient Israel II
which had a common-use currency and concurrently a temple-transaction
currency; and this led to massive money-changer abuse. The second example
was pre-modern (Meiji Restoration) Japan which had a farmer-certified ricelinked promissory “currency” and concurrently a newly inventedintroduced government-issued

...Lift

fiat currency; and this led to a total

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
DRAFT

VERSION

1.4

Monetary Policy for Future Generations


for

Comment

and

Consensus

...Lift*Off : 16/19
Dec.11,

2011

irreversible-inversion of the classical social structure order – significantly
depreciating the status of the farmer class and artificially appreciating the
status of the merchant class.
On the other hand, there is a quasi-successful example of building phase
transition states from one legal tender (system) to another legal tender
(system) and that is the migration to the Brazilian Real (which was initially a
non-circulating concurrent currency unit). Likewise, The Gold Standard had
many aspects of a regulated two legal tender system.
Looking at the Gold Standard as essentially a two legal tender system
will help regulators understand how to begin to manage “C” to “I” exchange
rates, such as through the occasional use of negative Treasury/FED yields.
There Gold played one sort of equilibrium role with regard to circulating
currency and a different sort of equilibrium role with regard to commodities.
Going off the intractable Gold Standard left a longstanding need to go onto
another “regulatory mechanism” standard; a void that was creatively
covered by Treasury/FED policies – until the current frothy meltdown.
Some may also recall a question asked when the Gold (and then Silver)
Standards were abandoned: “What is backing the currency now?” – and the
answer was: “The industrial capacity and the commodities wealth of the
nation is now backing the currency.” – yet the formal mechanism for
transitioning onto a regulated “Market & Earth” Standard was

never

instantiated. Accordingly, the (Instruments “I” backing Currency “C”) dual
legal tender system herein is that (missing) transition step; with appropriate
regulatory modeling and Quality-of-Life-Loyal regulators. Since these
regulators are the ombudsmen of life on Main Street, responsibility
progresses beyond the current someone-else-was-always-responsible state of
complex anonymity.

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
DRAFT

VERSION

Monetary Policy for Future Generations

1.4



for

Comment

and

Consensus

...Lift*Off : 17/19
Dec.11,

2011

In the global economy of today, Dollars (“C”) and Treasury/FEDs (“I”) of
significant

mega-denomination

are

held

abroad

by

governments,

corporations, and individuals. Will these foreign entities accept transitioning
to this “new” partitioned two legal tender system? Simply, entities investing
in Wall Street will accept the currency of Wall Street, entities investing in
Main Street will accept the currency of Main Street, and entities having
“confused” investment intentions will exchange their Treasury/FEDs (“I”) for
Dollars (“C”) or vice versa. According to all scenarios, their positions will
have less uncertainty than the current situation where Treasury/FEDs (“I”)
and Dollars (“C”) are now subject to instant momentary-market-fad
revaluations or worse.

...Lift*Off will need transition steps. An easy first transition step is to
accept taxes in either form of legal tender “C” or “I” from any of the three
strata. While this first step may seem almost trivial, it is an essential key to
painless transition; since it frees individuals to begin to migrate to the

...Lift*Off. A next transition step is to shift banking regulations, so that
longer-term “C” deposits must be backed by a high reserve ratio held as “I”.
A third transition step is to iteratively swap the legal tender for stocks,
bonds, warrants, options, dividends, and the like – from “C” to “I”. An
almost concurrent fourth transition step is to set a high (while initially
inherently diminishing) C/I ratio for sales of non-retail quantities of all Basic
physical commodities “B”. Recall, the international market forces on Wall
Street and on Earth Street will then create fluctuating Dollar-Treasury/FED
demand disparities; which in turn will allow regulators to occasionally let
Treasury/FED yields effectively go-negative-as-necessary.
These ...Lift*Off

phase transition steps should smoothly facilitate a

decoupling from the ongoing dangers of instantaneous perturbations
between “F”, “B”, and “S” strata. Concurrently, financial- stimulus packages,
job-creation programs, and currency-management initiatives can then be

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
DRAFT

VERSION

1.4

Monetary Policy for Future Generations


for

Comment

and

Consensus

...Lift*Off : 18/19
Dec.11,

2011

expected to generate proper proportional results; and ordinary persons' life
sustaining expectations can then return to dealing with items on the
national/global hopefully-maturing social-progress agenda.
To summarize, the objectives of ...Lift*Off are (ONE) to Restore---(smallscale normal-value)---Expectations for ordinary persons <By allowing them
to continue their ordinary existence in an economy that keeps classical lifestyle references – specificity common Currency “C”> AND (TWO) to
Preserve---(high-complexity

large-scale)---Dynamics

for

Commodities,

Industry, Markets, and Financial Institutions <By shifting their legal tender
metric to ones that are of more appropriate scale for their activities –
specifically government-managed fixed-term financial Instruments “I”>.
Simply, we need a delicate Wall Street Reformation for a cheerful Main Street
Renaissance, and for healthy Earth Street sustainability too.
Recall: Why has the economy not responded significantly to massive
cash-injection recovery programs nor to unprecedented government bond
yields? Because: The scope of real market-stabilization mechanisms absorbed
the cash-injections, leaving negligible trickle-down to people living on Main
Street. The Solution is: Migration to two separable legal tenders (e.g. Dollars
“C” for ordinary life activity and Treasuries or FEDs “I” for ordinary
corporate transactions) and empowering a National Authority to manage the
exchange rate between these. Otherwise: Wall Street instabilities, both
positive and negative, are not insulated from the Main Street economy; and
the supply of both legal tenders and the National Authority managed C/I
exchange rate remain inflexibly biased. Simply: A properly-regulated twolegal-tender national monetary policy, partitioned and transitioned, facilitates
conditions for Treasury/FED yields to go-negative-as-necessary to promote

the objectives of maximum employment, stable (Dollar) prices, and
moderate long-term (Dollar) interest rates.

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)

NEW Economics for 2012...
DRAFT

VERSION

1.4

Monetary Policy for Future Generations


for

Comment

and

Consensus

...Lift*Off : 19/19
Dec.11,

2011

Editor's Summary
The main premise seems to be that our current economic conditions are due
to the nature/behavior of financial markets. Controlling consequences of
their behavior is to be done by: a monetary system and a monetary
authority. The Monetary System consists of two levels of legal tender. “C”
(Cash) for everyday use <Housing, Healthcare, Higher Education,
Transportation, Food, Energy> and “I” (government Instruments) for
investment (means to store excess quantities of “C”) and for speculation
(shadow market “C” to “I” exchange rates). “I” should be inherently more
secure (since it is made up of government issued securities) and “I” will
usually provide a higher rate of return (if not people will prefer “C”). The
Monetary Authority controls the “C” to “I” exchange rate and will act in
the best interest of everyone; whenever “C” or “I” speculation or
international commodities prices gets out of hand.

Reviewers' Comments
1.

...Lift

*Off: A Macroeconomic Paradigm for Stabilization and Growth
© 2011 <tel: 908-738-2077> editor: S.W.Frey III

by: C.M.Scheff (IPR2ROI@Yahoo.com)


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