Don’t Like "Money Printing"? Then Stop Borrowing. Whip Inflation Now!</
by Steve Roth
Don’t Like “Money Printing”? Then Stop Borrowing. Whip Inflation Now!
Cross-posted at Asymptosis.
There’s a widespread conception that “money printing” by the government causes inflation, and that “money printing” = government deficit spending.
But people don’t realize that:
Fallacy #4 by Bill Vickrey, 1996: “Inflation is called the cruelest tax….”The main difficulty with inflation, indeed, is not with the effects of inflation itself, but the unemployment produced by inappropriate attempts to control the inflation. Actually, unanticipated acceleration of inflation can reduce the real deficit relative to the nominal deficit by reducing the real value of the outstanding long-term debt. If a policy of limiting the nominal budget deficit is persisted in, this is likely to result in continued excessive unemployment due to reduction in effective demand. The answer is not to decrease the nominal deficit to check inflation by increased unemployment, but rather to increase the nominal deficit to maintain the real deficit, controlling inflation, if necessary, by direct means that do not involve increased unemployment” Just as relevant today as in 1996. Unfortunatley, the lunatics in charge of the asylum are about to have the unemployed “committed.”
Whip Up Inflation Now!
Many of whom are increasingly unlikey to escape. There is a large and growing tendency among organizations with openings to reject all applicants except those currently employed. So once you get comitted they may never let you out, especially after you’ve completed your 40th or so orbit around the nearest star…
I think there is another factor at play. It is the cost of credit. We are in our third year of ZIRP. Cash is truly trash. This is what the Fed wants, and this is why we see commodity inflation. There is no cost of ownership, therefore ownership increases.(call that investment?, call that speculation?)
Look at silver. That is not based on demand. That’s cheap money at work. It works for silver, it works for corn, cotton, soy and rubber too.
That’s exactly right. It’s fractional reserve banking that creates money. I remember reading an article about the gold mines of Juneau, and how a $25,000 gold brick in the vault let the Federal Reserve extend $71,000 in credit to its member banks and that those banks could then extend a total of $550,000 of credit to their customers, all based on that single block of gold. So much for the gold standard controlling money supply. It’s always been fiat currency, even when there was gold coinage, because so few people with any quantity of gold coins intended use them at any given time, and there was money to be made lending them.
You should also mention how money is destroyed, ironically by saving. Do the bookkeeping. Someone makes $100 spends $50 and saves $50; that has the same economic effect as calling in a $50 loan. Sure, saving can enable investment, but actually investing money requires spending it. You can draw little Feynmann diagrams of this. If someone is getting rich, that means money is being pumped out of the economy. Most people save, then they retire and spend their savings, so their lifetime effect on the economy is transient, but large accumulated fortunes, and particularly multi-generational fortunes, are a drag on the economy.
It’s all part of the problem you talk about: distinguishing money that actually flows buying goods and services, and money that is saved and sits still. You’d think economists would call one kinetic money and the other potential money by analogy with physics. In the 70s, the problem was too much kinetic money, and that led to inflation. Now, as in the 30s, the problem is too much potential money which has led to the risk of deflation. When the earth orbits the sun, there is a natural cycle of kinetic and potential energy, but the economy has no built in cyclic balancing.
That’s a cute story about how fractional reserve banking creates money and it’s essentially true in a grade school primer sort of way but has nothing to do with the mechanisms of Federal Reserve Open market operations.
In those, which is how QEII is being conducted the Fed buys Treasury securities from its small group of Primary Dealers who are the worlds big banks. The securities tendered being either the banks own assets or the bank working as an agent for its customers. Big customers. No matter who exactly sells them or why within 1 second of reciept of the cash the sellers have to find a new home for it in another financial asset. Nobody holds cash after all but fools. So week in week out for 20 weeks $17 to $25 billion in cash has liquified the financial markets. That isn’t chicken feed. It tends to put a bid under anything that can be traded. Oil, gold, copper, rubber, corn and stocks and junk bonds etc. etc.
Good post, Kaleberg. But the only potential money is cash under a bed or excess bank reserves. And unless getting rich means putting piles of money under your bed, your point about the feynmann diagrams is not correct. Getting rich does not mean sitting on cash. Quite the opposite, usually, imho.
I’d be interested in hearing how one can spend more than one earns and get rich on the difference. Bernard Baruch and Benjamin Franklin suggested that it worked the other way around. Do they make up for the loss with volume?
Most rich people get richer by swapping one form of potential money for another more desirable form based on the fad du jour. This has only a little to do with kinetic money which is spent on goods and services. In fact, it is possible to run entire market boom, and bust, completely by trading potential money. There’s nothing wrong with this, except when it starts interfering with the actual economy.
“So if you don’t like money-printing, (sell your financial assets, and)…”
But if you sell your financial assets to someone who goes into debt in order to buy them haven’t you inadvertantly become an accessory to money printing?
Money printing is mostly done by the central bank of the country and yes its the major cause of inflation in the economy.
The title says the whole story but its the eye of a person who should grab the real side of the story here inshort the corruption within the country on the peak. It’s no doubt an inspirational content for all the people working for removing such things from the root.http://www.kgbttv.com>kgbttv
The title says the whole story but its the eye of a person who should grab the real side of the story here inshort the corruption within the country on the peak. It’s no doubt an inspirational content for all the people working for removing such things from the root.kgbttv