On today’s show we are talking about why our governments policies in the aftermath of 2008 is making this economic downturn so much more painful than it needs to be. This all falls into the category of a self inflicted wound.

I’m going to share some data with you from the federal reserve bank of St. Louis. But before I do let’s talk about the different types of expenses that a business or individuals can incur.

Broadly speaking, there are two types of expenses: fixed costs and variable costs.

If my business is a bakery, then an ingredient like flour is a variable cost.

A fixed cost would be something like rent or a loan payment. Irrespective of the number of loafs of bread, those costs don’t change.

The cost of labour is also a fixed expense in the short term. Yes, you can reduce the size of your workforce, but that comes at a price that goes beyond just the cost of paying severance. There is a human, social and emotional price to be paid for both employers and employees.

The problem with debt is that it keeps accumulating with the passage of time. Some debt that is government backed can be deferred through government intervention.

But most commercial debt is not government backed. Large commercial projects are funded by insurance companies, but commercial lenders who have issued commercial mortgage backed securities that are sold in the bond market.

A bank that is regulated by the federal government can implement temporary rules based on changes in legislation. But a bond that is held by private investors has no provision to implement a forbearance agreement. There is no mechanism to provide a 90 day payment holiday.

Debt involves bringing future money into the present. That only makes sense if you’re going to have more money in the future, measured in the same dollars so that inflation doesn’t skew the picture and accidentally make the picture look different than it really is. What you find is that our nominal gross domestic product before inflation adjustment has been growing at about 4.5% over the past number of years. The real GDP number, adjusted for inflation is about 2%. But the growth of debt across the United States has been growing at about 9% s year over the same time period. When the growth of those two numbers diverge, you can never catch up. This will eventually blow up. We had the opportunity for debt to implode in 2008. Governments elected not to allow that to happen by issuing even more debt. It seems that since debt is the problem, then more debt is going to be the solution.

Unless the financial system totally collapses this time around, we’re going to be issuing more debt. The only question is who is going to carry that debt on their balance sheet. Will it be individuals, businesses, or the government?

We have a global medical condition and the goal is not to harm the economy, but to put the economy into a medically induced coma. The question is, how do we come out of the economic coma? Does the economy bounce back? Does it take years to limp back to health? The path to economic recovery depends on how governments choose to respond to the economic damage.

You could give the money to the company that employs the people on the condition that they keep people employed. That way, the employees are never separated from the company they work for.

The other approach is to pay people unemployment benefits. But as soon as employees are separated from their employers, the path to economic recovery requires people to be re-hired. That’s a higher barrier than simply reopening the doors.

This is the time for you to get in touch with your elected officials and educate them on how to structure the bailout so as to enable the fastest restart of the economy.

We already have tens of millions of people out of work in the past two weeks. It may be too late already.