Quote from Onlygold:
The mind seems to think that fractional reserve banking, with its ability to create (credit-based) capital, naturally suits modern capitalism.
Not my thought. Seems to me that credit should be created only by saving-based instruments (like CD, bonds, ...) to avoid people think their liquidity is in danger when a crisis arise.
Long term credit should be backed by long term saving, so anyone is forced to stick to their plan and not start a vicious circle. Who want to exit should accept market value, and speculation could be possibile only on this part of the market. I strongly believe fractional system is a scam, and a danger to dinamic stability of any economic system (engineers say that it is a "postive feedback"
http://en.wikipedia.org/wiki/Positive_feedback_loop and
http://en.wikipedia.org/wiki/System_dynamics).
Scholarship very often fails because it is bounded by limits. Take the current talk about a US Senate committee to examine the cause of the current global financial crisis. Assume, hypothetically, that the reason is the world not on a fixed money supply pure Gold Standard. Then the committee that precluded questioning the global monetary system and precluded examining the Gold Standard will never arrive at the truth.
Interesting. I agree that could be a problem, but history teach us than only crisis can push big paradigma changes.
Maybe they need a bigger crisis. WE pay the price of vested interest, as usual.
That "purchasing power should remain constant" may be the result of habit of the linear nature of the common human mind and not backed by any serious scholarship.
The major economics of the last century is largely founded on fiat credit-based fractional reserve monetary system. Most policy makers were schooled in such economics and their mindset have a natural bias imbibed with such economics. Stability is usually desirable in economics and matching growth rate with inflation could have been perceived as the "natural" golden mean for "stability", but it entails "meddling" with the money supply. The end result of "modulating" the money supply to achieve stability could end up as pouring oil onto fire to control its spread.
Seems to me that economics as we know it is useless, but maybe I'm only not knowledgeable enough.
Anyway, "matching growth rate with inflation" is a non sense to me.
Other variables should be taken in account.
First we should call growth rate only a per capita real grow, not gross variations.
And the only grow we have is due to productivity enhancement or more labour (more man-hours, thus more people working or more hard working).
Moreover, changing demographics and employment rate are very important, so resources limits (and the loop price-substitutes/efficiency). But no macro-economic studies on this matters are readily available, AFAIK. If you know any, please give a link...
Seems to me that macro-economic theory do not make a good work to explain this to decision makers.
Quote from Onlygold:
There are different classes of debtors and creditors. Ordinary saving depositors are creditors that never ever need to do "asset repo" and a deflationary environment always encourages savings which is almost certainly the only way towards future higher growth.
I agree we have to distinguish between different class of debtors.
But savings it isn't a certain way to future high grow. You can "create" money from nothing if that money create a bigger productivity/employment enhancement that counterbalance it (that is one reason to assign to Congress the power to issue money, IMHO, be aware that working people consume, unemployed don't). Moreover, you can save for future consumption, if noone is using that savings to improve the system, you will not have any real grow at all (and maybe a shrink).
Financing innovations and entrepeneurship is always a good thing (with its failure rate, of course, so had a internal efficency who drive interest rate and limits money creation) because
create grow. Financing consumption is only a shift in time (shifting today a consumption of tomorrow) and when demographics do not support it with growing population, it will drive to a industrial over-capacity.
There are more variables involved than we normally study in macro-economics, and I haven't found an economist who starts from productive capacity of human life and found his theory on it, taking in account it can change in time due to innovations.
