I have modified the subject to add
"Theft By Debasement" -
for that is what this is!!
I am severely disappointed that these two luminaries (I am driven to sarcasm) do not state this at the outset and condemn it.
There was a time when money was worth something - in gold and sliver coins. Back then thieves, 'clip artists', would clip or shave off the edges of coins, retain the resultant profitable bullion then pass the debased coins on at the same face value. If caught, some of these thieves would then meet a nasty fate. Governments learned from this and milled the edges of coins to make clipping or shaving obvious. For some time now, governments/central banks, have been doing the clipping themselves by printing more money, and typically give it the wicked euphemism 'quanititative easing'.
Why does no-one in the public radar call it what it is **Theft By Debasement**? Honest people who work and save 'good money' have part of it stolen from them because HMG prints bad money and gives it to their friends.
John Maynard Keynes in 1919 wrote "Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
Well, I am one of those, inexplicably, few men and I call it Theft. The culprits do evil. They will probably sit pretty in this life and get opulent bonuses and pensions, but I would not like to be in their shoes when they stand before God.
xxxxxxxxxxxxxx d
Are we right to start 'printing money' ?
There is an error in the title of this message: "Start" implies that money the money supply hasn't already been rapidly increasing.
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I give here two views on the whole thorny question of 'quantitatve easing' , one from Mark Field MP and one from Andrew Lillico a distinguished economist!
The first is much more easy to follow but the second, written in reply, is at thimes dificult to follow. I post them in the interests of general information.
xxxxxxxxxxx cs
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CONSERVATIVE HOME 26.2.09 Printing money now could lead this nation to fiscal and monetary ruin Mark Field MP
In such turbulent and volatile times it is tempting to suggest that Conservatives should concern themselves more with political positioning than making a cool assessment from economic first principles.
There is little doubt that for a few months around the turn of the year the 'do nothing Party' tag resonated with the public at large. No longer - it is fast dawning on a bewildered British public that frenetic government-by-daily-initiative is no substitute for sound judgement and longer-term thinking.
Whilst superficially the spirit of the age leans towards ever more government intervention and expenditure, so David Cameron's vision of a smaller state and promoting thrift (which all Conservatives should wholeheartedly support) carries short-term risks. In the medium and long-term it will be vindicated. Moreover, it is a clear sign that we are serious about the challenges ahead of government.
The next big question on the domestic economic agenda is quantitative easing - the printing of money by the Bank of England, necessary (or so we are told) to reflate the economy. An attractively easy option, but the wrong solution to our economic woes.
Because every other government initiative over the past five months has failed to get the economy moving does not mean we should resort to printing money without a crystal clear analysis of its dangers.
At the heart of the credit crunch afflicting the global economy is not the quantity of money, but the velocity with which it circulates through the financial system. Printing new money runs the risk of undermining further trust and confidence in the UK government in the bond markets with future inflationary consequences. The current level of government debt already baffles most of the general public. Amidst the mindblowing announcements that total public debt now stands at over £2 trillion, we need to educate the public to understand the plain truth.
In the past five short years we have added more to the national debt than we had previously borrowed in the 300 years since the UK was created. And this borrowing has not been investment at all, but for current consumption. For every £5 the government will spend in 2009, it will have raised only £4 in taxes. This is the lamentable legacy we pass on to future generations of taxpayers footing the bill for today's consumption.
Printing money now would simply represent more of the same. I fear it will lead this nation to fiscal and monetary ruin. Conservatives should not now shy away from making the case that enough is enough. After all, sticking closely to the financial orthodoxy of so-called banking industry experts over recent years has got us to this place. For the sake of future generations of taxpayers, Conservatives must now stand up and be counted. We must call time on unsustainable government debt.
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RE: Printing money now could lead this nation to fiscal and monetary ruin
Andrew Lillico
I see there is quite a bit of concern about the Bank of England's quantitative easing measures, but I don't think it quite hits the target (i.e. I'm concerned about something different from other commentators). Central banks engage in quantitative easing all the time - they just usually refer to it by the name "interest rate cuts". For the way in which many central banks cut interest rates is to offer banks more money (i.e. print money), so the price of money
(the interest rate) falls. On other occasions they engage in "quantitative tightening" - i.e. interest rate rises.
The key interesting thing in the current situation does not relate to the principle of quantitative easing but, instead, to the form or method of it. For once interest rates reach zero, one cannot employ the same methods to increase the quantity of money. So if they are to engage in monetary easing, they have to use "unconventional monetary policy".
Obviously we have less experience in the precise effects of unconventional monetary policy, so there is a good debate to be had about the best way to do it. But whether to do it is a variant of the usual sort of monetary policy debate - are we in a situation in which we want to tighten or loosen monetary policy? It's pretty obvious to almost everyone that we want to loosen (money supply is collapsing; inflation is projected to go well under target; the real economy is tanking) - though there might be some who would point to the loosening there has already been and say it should be allowed to work before we try more. [Many commentators are already warning of the looming dangers, from what has been done already,, of runaway inflation -cs[]]
There is, however, an important difficulty related to uncertainties about the effects of unconventional policy in a deflationary environment. As Mark Field correctly points out, in deflationary episodes it is almost never the case that the amount of money, per se, is inadequate. Instead, what happens in deflation is that the money stops circulating so rapidly in the economy (the "velocity of circulation" falls) - e.g. because the banking system stops functioning normally. And he is right in that what really matters is the multiple of these two - the total amount of money circulated, usually called "nominal GDP".
Now, suppose that I care about the multiple of two things. Let's say, I care about the number of apples I have in my lorry times the price of each apple, i.e. in the total value of my lorry-load of apples. Then, if the amount of one of these things falls I can make up for that by increasing the amount of the other. For example, if the price per apple falls, I could keep the total value of my lorry- load of apples the same by increasing the number of apples I carry.
In the same way, if we care about nominal GDP (the amount of money times its velocity of circulation), then if the velocity of circulation falls we can make up for that by increasing the amount of money. That is what is proposed here: we make up for the deflationary pressure created by a fall in the velocity of circulation of money by printing extra money.
But there is a problem. For the velocity of circulation will, eventually, return to something not too far from its previous level. Although in the short-term velocity can be extremely sensitive to expectations factors, in the medium-term it must depend on things like the state of technology (say, whether we have cash-points), institutional factors (how the banks interact), and other "real" factors. A significant financial sector episode like the current one might well mean that the velocity of circulation will fall even in the medium-term, but it won't fall by anything like as much as it falls in the short-term (driven by negative sentiment).
Now go back to the apples. If the price of apples is low as I arrive with my lorry, then I will need extra apples to have a load the same value. But if I arrive with the extra apples, then the price goes up before I've sold them all, my extra-apples lorry-load will eventually end up being worth more than my original fewer-apples one.
In the same way, once the velocity of circulation rises back up to its medium-term level, the fact that we have printed extra money will mean that nominal GDP will shoot up, creating inflationary pressures. This effect is likely to be rather large and difficult to control. [as many commentators warn -cs]
Consequently, on the "exit path" - i.e. as velocity returns to its more normal medium-term level after the deflationary problems are over and the banking system starts to function more normally - one would expect to have quite a bit of inflation. This is sometimes called the "ketchup-in-the-bottle effect" - you keep bashing on the bottle by printing more and more money without obvious effect on prices, then you suddenly get a splurge when your bashing finally works.
To manage this, one needs a monetary framework that tells you what to do on the exit path from a deflation. Inflation targeting does not. A price-level target does. That is precisely the main reason I have argued previously that price-level targets were better at dealing with liquidity traps (i.e. zero interest rate or banking sector impairment scenarios)
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