It's Failing All Over the Show – So Let's Do More of It!

The insanity that has gripped policymakers all over the world really is a sight to see. There was a time when central bankers were extremely careful not to do anything that might endanger the currency's value too much – in other words, they were intent on boiling the frog slowly. And why wouldn't they? After all, the amount by which the citizenry is  plucked via depreciation of the currency every year is compounding, so that the men behind the curtain extract more than enough over time. That they thereby retard economic progress by decades over time as well is not something anyone would notice after all, since we cannot engage in a controlled experiment that proves it to all and sundry beyond doubt. We only know that it is so if we employ sound economic theory. Since sound economic theory is by its nature not statist, it is not employed by the mainstream, and so most citizens are successfully shielded from the truth.

 

The latest example for the growing chutzpa of these snake-oil sellers is provided by Lord Adair Turner in the UK. To give you a little bit of background: the UK is about to fall into its third recession in a row (a 'triple dip', something that has never before happened) not in spite, but because the Bank of England has monetized a cool quarter of all outstanding gilts, which has allowed the zombie TBTF banks to remain on artificial life support.

However, that is not Turner's conclusion. The policy is evidently failing, so he naturally concludes that there should not only be more of it, but it should become more brazen by veering off into the 'Weimaresque'. After all, we will be able to stop in time, right? We just need a 'little bit of it'. Although Turner for some reason also thinks it is 'not appropriate for the UK' (why not? The UK for some reason 'does not respond to demand and price signals', which would really be a first in economic history…where do they find these people?), he thinks everybody else should do it. According to the FT, under the heading “Print Money to Fund Spending”:


“Lord Turner, the departing chairman of the Financial Services Authority has defended financing government spending by printing money arguing that, within limits, it “absolutely, definitively [does] not” lead to inflation.

Speaking before a farewell speech in London on Wednesday, Lord Turner, who applied unsuccessfully to be the next Bank of England governor, called for “intellectual clarity” in economic policy, including breaking a taboo that permanently printing money to pay for government services is always bad.

“I accept entirely that this is a very dangerous thing to let out of the bag, that this is a medicine in small quantities but a poison in large quantities but that there exist some circumstances, in which it is appropriate to take that risk,” he told the Financial Times.

The tool should have been used in 1930s Germany and 1990s Japan, he said. It should be considered across the world, he added, at a time when banks, companies and households are trying to pay down debts and seeking to return to growth by borrowing more is seen as perverse.

In a direct challenge to the German authorities who shudder at the memory of the hyperinflation of the Weimar Republic, Lord Turner suggested that the absence of monetary financing in the early 1930s, which led to depression, falling prices and the rise of the Third Reich, had been a greater disaster.

“Is [monetary financing] desperately dangerous because every pound of money financed turns into inflation? Absolutely definitively not. There is no coherent rigorous bit of economics that takes you in that direction,” he said.

He did add, however, that the country where monetary financing was least likely to be needed was the UK. There he accepts that more stimulus might lead to higher inflation as the underlying health of the economy is weak and could not “respond to demand and price signals”.

 

(emphasis added)

Let's count the ways in which this is misguided nonsense. It begins with the title already. 'Money' cannot 'fund' anything. What is required for funding economic activities are real savings and real capital. You could drop $10 trillion in the middle of the Sahel zone and still wouldn't be able to 'fund' anything. Money is merely a medium of exchange and as such indispensable to economic calculation, but it is not a means of 'funding'.

Now to the assertion that “printing money does not lead to inflation”, which is at the heart of Turner's argument. First of all, it may take many years, even decades, before a broad-based inflationary effect becomes noticeable. For example, the US and others 'printed money' and engaged in deficit spending throughout the 1950s and 1960s.  There also seemed to be no problem, until the problem suddenly became noticeable in the 1970s.

Moreover, 'inflation' in the sense of an increase in CPI is in any case a problem of secondary importance. Money printing most definitely distorts prices all across the economy – it is relative prices that change, as money is not neutral. This hampers rational economic calculation and therefore leads to capital malinvestment. Scarce capital is therefore wasted, and although there may be a 'feel good phase' (the boom), all the accounting profits generated in the boom will eventually disappear again in a bust. They are an inflationary illusion.

The appeal to the 1930s and Hitler is quite amusing in a way, as Hitler himself was a major inflationist. We already mentioned it:  A war on the scale of WW2 would not have been possible without massive inflation and employment of precisely the methods his Lordship recommends. Moreover, the reason for Hitler's rise is ultimately to be sought in the successive abandonment of the gold standard in order to finance WW1. This made it impossible to return to sound money without upheaval, and the 1920's boom ensued when the US attempted to help the misguided policymakers of the UK by leaving interest rates too low, so they could to push through their return to gold at par. This brought on the credit and asset boom of the 1920s, which ultimately led to the Great Depression.

To blame the rise of Hitler on the “refusal to inflate” is especially piquant if one considers that Germany was in the throes of a hyperinflationary conflagration in the year when Hitler was first heard about (he attempted a coup in 1923). Lastly, the 'argument from history', a specialty of Marxists and German historicists, is inappropriate when discussing points of economic theory.

Finally Turner asserts that “we should take the risk” because allegedly, “Is [monetary financing] desperately dangerous because every pound of money financed turns into inflation? Absolutely definitively not. There is no coherent rigorous bit of economics that takes you in that direction,”

This is at best a half-truth. Since money is not neutral, an outbreak of consumer price inflation may or may not happen, that depends largely on many other factors influencing peoples' inflation expectations. However, as noted above, there is no way a sound economic theory can regard inflation of the money supply as 'harmless' or even 'necessary'. Turner is just another snake oil seller.

As an aside, the Knappists, i.e., the  'Modern Monetary Theory' Church, think highly of Turner since he came out with this crazy argument. Enough said. 

 


 

turner_1367473c

Another snake oil seller pops up: Adair Turner

(Photo via telegraph.co.uk)

 


 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

One Response to “Another Snake Oil Seller Pops Up”

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Modi’s Great Leap Forward
      India’s Currency Ban – Part VIII India’s Prime Minister, Narendra Modi, announced on 8th November 2016 that Rs 500 (~$7.50) and Rs 1,000 (~$15) banknotes would no longer be legal tender. Linked are Part-I, Part-II, Part-III, Part-IV, Part-V, Part-VI and Part-VII, which provide updates on the demonetization saga and how Modi is acting as a catalyst to hasten the rapid degradation of India and what remains of its institutions.   India’s Pride and Joy   Indians are...
  • Global Recession and Other Visions for 2017
      Conjuring Up Visions Today’s a day for considering new hopes, new dreams, and new hallucinations.  The New Year is here, after all.  Now is the time to turn over a new leaf and start afresh. Naturally, 2017 will be the year you get exactly what’s coming to you. Both good and bad.  But what else will happen?   Image of a recently discarded vision... Image by Michael Del Mundo   Here we begin by closing our eyes and slowing our breath.  We let our mind...
  • The Great El Monte Public Pension Swindle
      Nowhere City California There are places in Southern California where, although the sun always shines, they haven’t seen a ray of light for over 50-years.  There’s a no man’s land of urban blight along Interstate 10, from East Los Angeles through the San Gabriel Valley, where cities you’ve never heard of and would never go to, are jumbled together like shipping containers on Terminal Island.  El Monte, California, is one of those places.   Advice dispensed on Interstate...
  • A Trade Deal Trump Cannot Improve
      Worst in Class BALTIMORE – People can believe whatever they want. But sooner or later, real life intervenes. We just like to see the looks on their faces when it does. By that measure, 2017 may be our best year ever. Rarely have so many people believed so many impossible things.   Alice laughed. "There's no use trying," she said: "one can't believe impossible things." "I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for...
  • Pope Francis Now International Monetary Guru
      Neo-Marxist Pope Francis Argues for Global Central Bank As the new year dawns, it seems the current occupant of St. Peter’s Chair will take on a new function which is outside the purview of the office that the Divine Founder of his institution had clearly mandated.   Neo-Papist transmogrification. We highly recommend the economic thought of one of Francis' storied predecessors, John Paul II, which we have written about on previous occasions. In “A Tale of Two Popes” and...
  • Where’s the Outrage?
      Blind to Crony Socialism Whenever a failed CEO is fired with a cushy payoff, the outrage is swift and voluminous.  The liberal press usually misrepresents this as a hypocritical “jobs for the boys” program within the capitalist class.  In reality, the payoffs are almost always contractual obligations, often for deferred compensation, that the companies vigorously try to avoid.  Believe me.  I’ve been on both sides of this kind of dispute (except, of course, for the “failed”...
  • Trump’s Trade Catastrophe?
      “Trade Cheaters” It is worse than “voodoo economics,” says former Treasury Secretary Larry Summers. It is the “economic equivalent of creationism.” Wait a minute -  Larry Summers is wrong about almost everything. Could he be right about this?   Larry Summers, the man who is usually wrong about almost everything. As we have always argued, the economy is much safer when he sleeps, so his tendency to fall asleep on all sorts of occasions should definitely be welcomed....
  • Money Creation and the Boom-Bust Cycle
      A Difference of Opinions In his various writings, Murray Rothbard argued that in a free market economy that operates on a gold standard, the creation of credit that is not fully backed up by gold (fractional-reserve banking) sets in motion the menace of the boom-bust cycle. In his The Case for 100 Percent Gold Dollar Rothbard wrote:   I therefore advocate as the soundest monetary system and the only one fully compatible with the free market and with the absence of force or fraud...
  • Silver’s Got Fundamentals - Precious Metals Supply-Demand Report
      Supply-Demand Fundamentals Improve Noticeably Last week was another short week, due to the New Year holiday. We look forward to getting back to our regularly scheduled market action.   Photo via thedailycoin.org   The prices of both metals moved up again this week. Something very noticeable is occurring in the supply and demand fundamentals. We will give an update on that, but first, here’s the graph of the metals’ prices.   Prices of gold and silver...
  • Trump’s Plan to Close the Trade Deficit with China
      Rags to Riches Jack Ma is an amiable fellow.  Back in 1994, while visiting the United States he decided to give that newfangled internet thing a whirl.  At a moment of peak inspiration, he executed his first search engine request by typing in the word beer.   Jack Ma, founder and CEO of Alibaba, China's largest e-commerce firm. Once he was a school teacher, but it turned out that he had enormous entrepreneurial talent and that the world of wheelers, dealers, movers and...
  • Side Notes, January 14 - Red Flags Over Goldman Sachs
      Red Flags Over Goldman Sachs Just to prove that I am an even-handed insulter, here is a rant about my former employer, Goldman Sachs. The scandal at 1MDB, the Malaysian sovereign wealth fund from which it appears that billions were stolen by politicians all the way up to the Prime Minister, continues to unfold.   The main players in the 1MDB scandal. Irony alert: apparently money siphoned off from 1MDB was used to inter alia finance Martin Scorcese's movie “The Wolf of...
  • Regime Change: The Effect of Trump's Victory on Stock Prices
      A Soaring Market On January 20 2017 Donald Trump will be sworn in as the new president of the United States. On the stock market his victory has triggered a lot of advance cheer already: the Dow Jones Industrial Average rose by a sizable 7.80 percent between the election and the turn of the year.   Two big winners: the DJIA and Donald Trump - click to enlarge.   Many investors are now wondering what effect the change in government will have on stock prices in the new...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com