| Subject: | FWC: Deficit monetisation and the "printing press" |
|---|---|
| Date: | Sun, 11 Dec 2011 08:50:47 -0800 |
| From: | Jas Jain |
FWC: Deficit monetisation and the "printing press"
Deficit monetisation and the "printing press"
Money-issuing organisations seldom behaved like currency boards in the past. In fact, they almost constantly practiced fractional reserve banking. Any time they used reserves (gold or other legal-tender money) to purchase financial assets, they actually engaged in money creation in favour of some borrower. More often than not, this borrower was the government. Note, however, that money creation is not exactly the modern version of coin debasement. Debasements instantly reduce the real value of all money-denominated contracts. This is not the case with money creation, as long as confidence in the issuer's ability to preserve the value of money is untarnished (Hicks 1969). That is why deficit monetisation cannot, as such, be equated to a debasement – or to its fiat money regime equivalent, i.e. the "printing press".
http://www.voxeu.org/index.php?q=node/7412
There is lot of propaganda and misunderstanding regarding the fiat currency regime and "Printing Money." The "coin debasement" option is not available under the current fiat money system. (Fluctuations in the relative value of freely traded currencies are primarily a speculative phenomenon not much different than the stock prices and even yields on sovereign debt). FDR, in consultations with his Treasury Secretary, did engage in coin debasement of some 32% in increments under the gold standard by changing the price of gold in dollars. He was trying to create inflation, which he succeeded in, due to the mistaken belief that we needed to create inflation in order to stimulate the demand. It is lot harder for Bernanke to create inflation than it was for FDR! Amazingly, lots of economists today believe that higher inflation is good under the current "depressionary" conditions. Good for some and bad for most.
Nature of govt intervention during 1930s was different than during the past ten years, but the net results are worse today. Yes, GDP growth rate and productivity was higher during 1930-1941 than during 2001-2012! And far worse is yet to come because America's relative economic position in the world is far worse today than during the 1930s.
"Based on the assumption that today we are better than any of our ancestors at understanding the world, this teleological approach is what drove us directly into the crisis."
No one is guiltier of this than Messrs Bernanke, Krugman and Reich. This is common disease among born-and-bred Americans and the conceit is proportional to educational attainment, e.g., Krugman, and financial success, e.g., Rush Limbaugh. The four men listed are economic parasites engaged in propaganda business and have no understanding of economics.
Jas
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