I understand how hard it is to shake off the gold standard logic, but this isn’t a “proposed” approach to economics. It is how it currently works, albeit badly for us because of mismanagement. I went through all the same denial and withdrawal until the bulb of realization lit up. It’s kind of like that twirling dancer pic that changes direction of rotation in your mind without you even realizing exactly where it happened.

If we are bowling and you roll 200 did you get your points from the bowling alley? Are they any poorer in points for giving you 200 of them? If they then give me 200 also because I matched your score does that mean we really only got 100 each by the standard used to measure your points? Would the bowling alley gain anything by taking back points from either of us, and would that then increase the “value” of the points we had left because the establishment would have more points to give to others? Once the truth of our economics with a sovereign currency dawns on you this analogy will make more sense than you might realize now.

With a “pinned” currency or fixed exchange rate, such as we worked with pre-’71, you would be almost correct in thinking that doubling the currency would automatically half its value because it would purchase the same amount of gold either way. We no longer have that restraint and you can’t even purchase anything from the Federal Reserve any longer. If you bring them a dollar bill they will “exchange” it for another just like it, and nothing else. Gold was really just as intrinsically useless as the currency except that it had value in relation to the currency, but to use it you’d have to sell it for currency anyway. It certainly didn’t reflect the value of a modern economy in any fashion.

Increasing the money supply does not create inflation that simply now. The Fed would actually like to inflate the economy a bit to make the dollar weaker against our trading partners, but it’s finding that harder to do than they thought because there is so much reserve potential in our economy to absorb the injected money. Injecting currency only drives inflation when the ability of the economy to produce goods and services is weakened or the economy is at full potential. Until that happens we can absorb a hell of a lot more than we have seen injected to date.

Also, remember that only money that has “velocity” (movement within the economy-changing hands) can inflate the economy. Fat bank accounts have almost 0 velocity, so the economy is harmed by wealth accumulation that isn’t compensated for. If we are going to ascribe validity to the current fervor to reduce the debt then we should logically do so by taxing “only” accumulated wealth because the debt represents those private reserves, and not money injected to compensate for them. This is why the “tax the rich” mantra of the left makes more sense than the austerity mantra of the right. Although both are wrong, the left is less wrong because the reserves were already sequestered from the economy, so taxing them has little impact. The danger of too much private reserve capital in relation to the velocity of the currency is that it tends to bid up “real” resources, such as housing and commodities where it is invested.


Meandering to a different drummer.

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