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16 Comments

  1. Just got the email on inflation well done. Under the system that I’m creating in my basement, every child born will increase the value of your currency..

    Hiya hiya hiya

  2. They ( Governments & their Central Bankers ) will now change the Term ' DEFICITS & DEBT ' to ' PRODUCTIVE SPENDING '. It sounds more appropriate & legal.

  3. I have suggested for years that we return the Fed to a single mandate of price stability. And further, we should link growth in the money supply to growth in GDP. Inflation is most often caused when the money supply grows faster than an economy (GDP) grows. The money supply only increases when the economy grows. And when the economy declines, the money supply remains constant which will have a somewhat stimulative effect….

  4. Good summary. Ferguson's book When Money Dies (1975) reveals how even after hyperinflation ended the state did not understand what had caused it. The book contains diary entries by an ordinary middle class person that describes the day to day effect on citizens. Ironically, the only drop in the inflation numbers came when the printers went on strike.

  5. The problem I find with this analysis, not just this host’s analysis but every one like it, is that it completely ignores that money is a political phenomenon. It’s the main neoclassical economic issue really.

    Government spending is not the only influence on money creation. If the elected government doesn’t provide enough currency to support all of the economic activity in a growing country, then the growth will be fuelled by private debt. Either that or you just don’t grow and your economy sputters out, but more likely than not, if there is a potential for profit growth, the money will show up either through public or private debt.

    The idea that cutting off the ā€œmoney printersā€ will solve this problem is naive. The entire idea behind Volker’s rate hikes and Raegan’s budget cuts was to reduce the deficit. Instead, it simply shifted the money creation onto the private sector, which is why you see private debt start rising dramatically starting in the late 1970’s.

    Neoclassicals tend to think that public and private debt are basically the same thing when it comes to inflation. They blame the rise in private debt on the loose policies of the Fed, but they ignore the fact that decades of government cuts forced the Fed’s hands in allowing for more private debt. All of their arguments about why the Fed is bad at this job are true, but they refuse to recognize that their other policy ideas force this reality.

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