Saturday, January 31, 2009

Can Ringworm Start Out As A Big Bump?

A crisis with inflation?

The crisis with inflation?

means these days more and more economists predict a crisis in the U.S. by inflation. This reasoning is rooted in the explosion of the monetary base in the United States. The monetary base is the money issued directly by the central bank either through refinancing or Open Market. To speak more clearly, the money is created by the central bank to lend to banks or to buy them treasury bonds. The mechanism of the multiplier bank, the monetary base can multiply by 10 or 20. It is by adjusting the monetary base upward or downward in theory central banks can control the money supply and thus inflation.
In recent months, the monetary base in the United States was simply doubled from 800 billion to 1600 billion. In theory, the money could be doubled as well. If this were the case, inflation would result in a very large scale. Thus, the huge debt accumulated by the states, households, businesses and financial institutions evaporate plainly and simply. The reasoning is: You have 100 dollars in debt - the price increase 20% - Total revenues also increased at a rate roughly equal to 20% - Debt is less difficult to repay - the real price of your debt has declined in constant dollars, it is worth more than $ 83 million. Like magic, the debt burden has been decreased.
Proponents of this hypothesis are missing one key point. How a central bank euro 20 euro become outstanding? As we saw earlier, is through the fractional reserve system. By lending money on current account or savings account unblocked, banks create money and operate the bank multiplier. Thus, if economic agents repay their debt more than they borrow, the Fed will throw as much money as she wants in the banking system, it will not increase the money supply in circulation in the real economy The money injected just accumulate in bank reserves.
What happens currently? Excess reserves of banks, that is to say the amounts placed with the central bank in addition to reserves, have made ballooned whether the U.S. or Europe. In fact, the word spectacular is not strong enough, but I do not currently have in my arsenal to describe an increase of that ilk. Excess reserves were so nonexistent so far, the order of several billion dollars. They reached a few months the $ 800 billion. Basically, increasing the monetary base in the United States has been almost entirely absorbed by the reserve banks. For now, it is clear that this money is not paid. If money is rotting in excess reserves remunerated it will not multiply.

Imagine now that the banks begin to lend. Then the money multiplier may resume its course. So it is an additional indebtedness of economic agents that trigger the multiplier bank ... In short, inflation without additional debt, in our current system does not exist. This is indeed a very awkward way to fight against indebtedness! Pretending that we will fight against a serious debt by global inflation is a complete illusion. It should be understood that the inflationary process is rooted in the same development uncontrolled monetizing the debt.


In the wilderness system advocated by Irving Fisher and Maurice Allais, a European central bank created by a 1 euro remains outstanding. The multiplier bank disappears. In times of debt, households, businesses must go through an inevitable reduction in their expenses. The government may then take over in boosting consumption and investment by heavy spending financed by printing money. This money creation naturally counter the effects of a deflationary debt crisis and resulting with moderate inflation. The risk of hyper-inflation would be zero since Euro euro.

The crisis is possible.

Thursday, January 1, 2009

How To Tell If A Trench Coat Is Male Of Female

Plea for a monetary revolution

The current economic crisis highlights a striking feature of almost incomprehensible developed societies: a production level ever in the history of mankind matching excessive fragility its financial and monetary system. Each day shows a little bit more instability in the pyramid of debt on which the whole system rests. A single gust of wind, the subprime crisis, and the house of cards collapsed in a few months, a fraction of a second; rescues in panic and major U.S. financial institutions Lehman Brother paralyzing almost all the global economy. In the opinion of all, we avoid a general collapse with massive help from our countries financial system. Imagine a history book explaining a minor real estate crisis has been put into question the very existence of the Roman Empire or Chinese? Could you imagine calling a historical narrative "crisis" a decline of 0.3% production? We are faced today with a simple observation, which takes its value from a historical perspective, how is it possible that our industrial societies with such a technical arsenal, such means of production, strong public institutions of such a human capital could risk a major collapse following a minor reversal, laughable situation?

To understand this fact, we must return to base our monetary system. Simply put, it is based on a concept that is particularly familiar debt. In recent decades, our nations are indebted, not only states but also households and the private sector. In many countries with degrees have become quite untenable. The most striking example is of course the United States made a mad frenzy of debt during the past 25 years, the debt growing far faster than production. Between 1980 and today, the overall debt (households + State + private sector) of the United States rose 150% of its GDP over 350% today. The Federal Reserve Bank, the debt rose from 32 trillion to in 2002 to $ 000 billion over 51 today will be more than the value of world production in one year. 7 trillion of that debt held abroad would be more than one fifth of the GDP of the world, an immense burden for the international community. Going back violently from 1.5% to 5.25% interest rates in less than a year without leaving the slightest adjustment time, the Federal Reserve Bank was virtually his own country into bankruptcy, the weight of the interest becomes untenable for a country in debt at this level. Other industrial countries are obviously not to be outdone, many emerging countries are also short of resources to pay their debt.

policies undertaken since the crisis began to show how our leaders are bewildered at the situation. Existing measures are comparable to a new loan to a household debt well above its means. Western states are facing a total debt (government + business + household) huge. This weight became so heavy in some countries that financial institutions lose confidence in households, businesses and states that it can sometimes pay off. But if, as is so often said that debt is not refinanced, that is to say if we do not lend to repay old debts, bankruptcies are likely to multiply with their attendant social pain: unemployment, job insecurity ... The basic question then to ask is: is it possible for us to return to a healthier economy less dependent on a massive debt?

"The study of money, more than any other segment of the economy, is when one uses the complex to disguise the truth, not to reveal" the process by which banks create money is so simple that the mind is disgusted " [1] John Kenneth Galbraith

To better understand the situation, we must return to base our system of money creation. Money creation, it is the additional amount of money circulating in our economy, to be able to exchange quantities of additional goods and services produced. In 1998, broad money supply (M3) in the euro area, representing 4.5 trillion in 2007, we were in 8500 [2] . Our economy is based on a fundamental absurdity little publicized and rarely explained in major economic speech. This fundamental absurdity is that the bulk of money creation takes the form of debt. Now what mechanism is created specifically change?

Firstly, through which central banks lend money to banks to enable them famous interest rates to refinance. The second mechanism is slightly more complex than money creation bank due to fractional reserve system. Imagine that you were going to file for 1000 euro banknotes on your deposit account to the bank while the legal obligation to put some of that money in its reserves, say 10%. It can lend EUR 900 to third. So there are two people thinking they could freely use the 900 euros you and the person who borrowed 900 euros. There was duplication of money. These 900 euros loan are deposited in another account. The second bank can lend 90% of the 900 euros and so on. For 1000 euros deposited with a rate of mandatory reserves 10%, the banking system can lend up to 10,000 euros by this mechanism. The sad truth is that we no longer use any other way to create money in most developed societies.

Thus, any positive balance in an economic agent is a negative balance, a debt to repay another agent. Money as such is almost over. We have only debt we share for our economic relations. A sort of general consensus has gradually emerged about the issues of creating Money that could be summarized as follows: "This issue is extremely complex, let the experts do." However, I think this debate is crucial for our democracies. Opponents of the monetary system based on debt have two of the greatest economic theorists of the twentieth century, Irving Fisher, U.S. economist who revolutionized the monetary thought in the 20 and 30 and Maurice Allais, Nobel laureate in economics who criticized the French system Current Credit "cancer of liberal societies" [3] .

The positive points of our current funding mechanisms are commonly accepted: the elimination of child care expenses of the deposit banks, easy access to credit supposedly for all economic agents, flexible credit market and a supposedly optimal allocation of monetary resources. I think it is also important to highlight the negative consequences of such a system and demonstrate why it takes us to an impasse.

The immutability of debt

the current system, money as such does not really exist. Any money flowing is equivalent to a debt incurred by an economic agent at a particular time an individual, business or government. We only exchange in reality debt, "promises to pay" as described Maurice Allais. It consists simply while saving one's debt is another. Similarly, the debt of one corresponds re in debt for another at the other end of the line or risk seeing the money in circulation decrease. Thus we are condemned to keep debt levels very high. Support a debt of the State such amounts in part to support an additional indebtedness of households or businesses. [4]

The only way to get rid of this debt on a global level would be a monumental series of bankruptcies (non-payment of debts) personal and private or a nonrenewal massive loans granted. Now the counterpart of these events would be a major economic crisis. We are thus condemned to a massive debt overhang. In the preface Plan 100% Money Irving Fisher, the finding of a former officer of the Federal Reserve of Atlanta in the 30s can understand our present situation: "If all bank loans were repaid, no-one would deposit in the bank and there would be more dollars in a single room or ticket traffic [...]. We do not have permanent monetary system " [5] .

Our monetary system is fundamentally unstable

Our financial institutions have a certain point of view the possibility of creating and to destroy the currency. With the fractional reserve system, when you file your 1000 euros on account of demand deposit, your bank may pay 900 euros which is 1900 euros in circulation. If once the loan is repaid, the bank does not renew the loan to another agent, then the currency in circulation amounts to 1000. The 900 have disappeared. Thus, in the aggregate, if the banks stop renewing loans repaid, the money can evaporate violently in recent years. Thus, as explained Maurice Allais: "the creation of bank money depends on a desire on the willingness of banks to lend on demand and the willingness of economic agents to borrow. In times of prosperity, that will exists and deposit money increases. In times of recession, this will double the bank money disappears and goes " [6] . is what happened in the 30s in Europe, the United States (27 billion dollars in circulation in 1929, 20 in 1933 [7] ) or more recently at the Japanese stagnation of the 90s.

Thus, if banks reduce their lending to the economy, it means a lower payment means outstanding. There is more then enough money to redeem all the goods produced. The result is an overall decrease in trade and prices and incomes. The amount of the debt remaining unchanged him, his weight is proportionately greater number of aggravating the default, the risk of bank failure and of course causing a decline in lending and so on. In this context, we understand the reactions in panic states and central banks to inject debt (commonly known as: liquidity) in the middle of this crisis of confidence where banks fear to lend and firms to borrow too much sum. It is then the role of the state borrow heavily to keep the system afloat. But it works as private institutions rely on the state capacity to repay.

We are thus entirely dependent on the "trust" for financial institutions in our economic system to be able to repay the newly issued debt. However, the more our total debt accumulates, the greater the risk of loss of confidence worsens. A sword of Damocles constantly hanging over our financial system. The absurdity of this statement is put into perspective. Without any external shock, our economic system based on a pyramid of debt could collapse on itself.

Our monetary system is uncontrollable

The volatility of growth in money supply in the euro area over the past ten years is glaring whatever monetary aggregate chosen. Between January 2003 and January 2008, amounts deposited in demand deposits or term of less than two years have exploded from 63% in France from 999 billion euro 1.632 trillion [8] . These numbers are absolutely disconnected from the evolution of prices, output growth, savings rate, changes in wages. Is this surprising? In our monetary system, the banking system expands the money supply every time a bank lends to view. With compulsory reserve ratio to 2% in the European Union, the machine can run in an unpredictable speed thus preventing any control over money creation. Where is this money? I 'm afraid that nobody knows. It is time to have democratic control over the creation of our currency.

The highly speculative credit destabilizes our market economies

"In fact all the great crises of the nineteenth eighteenth, nineteenth and twentieth century have resulted from excessive development and promises to pay their monetization " [9] analyzed Allais in 1977. The phenomena of bubbles are not an inevitability of capitalism, but are closely related to our monetary system and credit. Mechanisms boom / depression have been well theorized by Irving Fisher in 1933 [10] . In times of euphoria on stock markets, commodities or real estate is expected sharp increases in price and yield. Banks can lend huge sums to speculation causing at the same time higher prices and a continuation of euphoria. Thus, paying to view, banks are creating new means of payment which will feed the bubble. Following the bankruptcy of some major players, doubt sets in and the banks stop lending such sums. Some speculators can no longer refinance their debt through debt and must sell at any price the assets they hold. It follows a decline in doubt aggravating, aggravating the shortage of credit for speculation exacerbating the fall in prices. The bubble has burst. Asked where the money came from and where he disappeared, we can answer: nil, nil is returned.

series of bubbles in recent years, housing bubble, stock market, commodities, the consumer credit, derivatives, LBO, or the art market have led to historical accumulation of unproductive debt. The oil price was then multiplied by 7 divided by 3. The evolution of the CAC 40 resembles a large 8. However, the formation of stable prices is a key function of a market economy. The price is the result of direct confrontation of the offer and demand and informs the consumer and producer of the relative rarity of a good or service. The price makes optimal use of our resources. It is easy to say here that our system has totally failed in this mission. Information as volatile will destabilize our market economy and result in a huge waste. Historically, these phenomena of bubbles have always undermined the banking system and the economy as a whole.

These phenomena are repeated relentlessly for over two centuries. We can not yet say that the understanding of such phenomena is complex. John Stuart Mill wrote in 1861 in all simplicity: "As long as the amount of money that the company has does not change, we can use to buy a lot of things without using less to purchase a few others. But this is not done with cash, is done by extending credit. When you go to market with the money we hope to receive later, it draws on a background that has no limits. Speculation, and sustained, can span any number of goods without disturbing the regular course of others. [...] After a while, and those who have wish to sell and buy prices sag. " [11] . Without the almost unlimited extension of credits allocated by banks made possible by our fractional reserve system, the phenomena would be more than speculative limited.

Our monetary system is doomed eventually to a major crisis

The paradox highlighted here is obvious. The overall debt (government + business + households ) Society is impossible without deflation. Indeed, it is impossible for an agent to tell the difference between a loan related to a creation of money and a loan from a capital savings. Thus, a debt reduction of all agents can only lead to a reduction in money supply which results in term deflation, which in a prior serious debt can only lead to a deflationary spiral.

In a context where the least speculative excess and unproductive can create a huge expansion of debt relative to wealth actually created, it is unlikely that overall debt is stagnant for a long period. Thus, we are just waiting for the moment this serious deflationary crisis arrives. The figures in France in recent years is striking. The overall debt increases by 10% per year for a nominal GDP growth 3 to 4% (real GDP growth + inflation). The accumulation of unproductive debt is wearing a weight of more and more heavily in our society that will ultimately untenable.

Our monetary system makes it less painful stagnation

Invest € 1000 thanks to credit and show a production worth € 1050, is the miracle work, innovation and human ingenuity. By cons you run a nice € 100 bill in every sense, the exchange at high speed or anything, the ticket will not be turned into a ticket from 105 €. So if 100 € is issued by a central bank or private, there are 100 € more traffic, but because of the interest on this debt, the promise of repayment will be above 100 €. Thus, in accounting terms, the promise overall rebate issuing institutions will always exceed the actual amounts available. So there is a continuing obligation to issue ever more debt so that interest may be paid, thereby increasing the risk of global crisis. So that agents can exchange this extra money, it is necessary that the quantities produced by a company are also increasing. If instead the debt increases and its sequel means of payment but production is stagnating, it is almost inevitable inflation. If growth projections are zero or slightly declining, banks may also not increase or even reduce the amount of loans because they believe that business investment will not have the profitability needed to repay the interest on the debt. The credit becomes scarcer, the debt burden weighing on businesses while forcing them to drastically lower the cost to fulfill their commitments, this often leads to job insecurity. If the interest to pay far exceeds the amount of new debt issued, the increase in defaults seems structurally inevitable. Thus, a simple stagnation in production can put our economic system under great stress and cause an important series of bankruptcies.

The absurdity of finding should however be obvious to all. Stagnation of production means in a stable population that output per head has not fallen. And income would be the same and constant demand. In a healthy system, there would be stagnation and impoverishment not like today where no growth takes forever unemployment and precariousness.

Our monetary system, through the interest is wearing a immense burden on our societies and unjustifiable

Each euro in circulation comes from underwriting debt. Thus, on each outstanding euro, someone has to pay interest. To be even clearer, we all pay, absolutely all an invisible tax each year by a few cents on every dollar in circulation in our pockets or our bank account. Even if you are not personally indebted, much of your taxes will go straight to debt service the first item of expenditure of the French State (118 billion euro, with 38.7 billion in interest, 6.5% and 2.15% of GDP respectively in 2008). A very large portion of the sales margins of companies used to pay interest on loans previously increasing prices and lowering wages. Thus we are constantly trying to contribute to repayment of debts incurred by others.

This tax goes virtually unnoticed until it seems natural that one who subscribes to a debt will pay interest. The problem here is that if nobody goes into debt, there is no money in circulation therefore no exchange. This debt, seen globally, is not a choice but a necessity. In France, the overall debt of non-financial agents (households, nonfinancial corporations, public sector) currently stands at over 3600 billion euro more than 200% of GDP [12] . Assuming that the average interest is about 6%, this would mean that 12% of the national wealth produced goes directly to paying interest. This means that worked 8h, 1h is to repay the weight interest. If American or English, it dares to ask what did they get extreme.

We are thus forced at will thank you to repay interest on debt incurred in our country. Do not be afraid to speak, I think, a real drain on the economy. We all pay a fee for use of seemingly painless for our monetary system. A huge chunk of our work goes straight to the service of interest by wearing a weight unacceptable and harmful to our economy.

Not convinced? In 2006 40% of the profits of the 500 largest U.S. stock quotes from financial institutions, not bad for a sector whose role is to mediate ...

What to do?

It is high time to revive the democratic debate around the creation of money. It is a debate usually embedded in a highly complex terminology making this subject incomprehensible to the majority of the population. It is a topic where the trade-offs seem rather clear. This quote from the economist and banker David Ricardo dating back almost 200 years can reason in the ear of everyone:

"In the case of money creation would still be the advantage for those who would issue credit money, and as the government represents the nation, the nation would be spared the tax, if it, not the bank itself had made the issue of the currency ... The public would have a direct interest in that was the rule, not a company of merchants or bankers who made this issue " [13]

Let's talk about simple matters with simple words. Obviously the technical details can be extremely complex, but the overall operation and spirit of our monetary system are understandable to everyone.

The alternative to our system of money creation would be a system where, as advocated by Maurice Allais in the 70 [14] and Irving Fisher in the 30 [15] , money creation would be the monopoly of the state. Specifically, a portion of state spending would be financed from money simply created from scratch. The state would not need to repay that money. It would have to done and could spend on research efforts, or large public works.

In return, the fractional reserve system would be abolished and banks would have to keep in reserve all deposits. During the transition, a huge sum created from scratch by the State would go to banks in exchange for government bonds or private banking and credit so that they can equalize their reservations with the amount of demand deposit and term of less than three months. The influx of this money would not lead to inflation because it would be money in reserve of just stuck to the amounts of existing deposits. The money in a deposit account would be fully covered by reserves, which would prevent any mechanism Monetary multiplication by banks. Another of the immediate effects of this move would significantly reduce the state debt by canceling automatically a large number of bonds redeemed.

Thus, circulating currency would be beholden to anyone and would be a real store of value. The threat of deflation would be virtually nonexistent because no mechanism could eliminate the currency and largely avoiding the risk of global crisis. The credit market is ensured by a blocked term savings at least equal to the duration of loans consumers and businesses. The transition period could be achieved by massive loans from state banks to ensure an active market for credit. Subsequently, as described by Maurice Allais, a savings "glut" will irrigate the credit market to low interest rates. These savings would be real this time rather than an accumulation of debts from other economic agents.

Every year, depending on the evolution of GDP, inflation targets, the evolution of the population, an amount would be created from scratch to finance public policies. This would result in a sudden loss of taxation without any reduction in public spending. More efficient management of the state would soon no longer bear the burden of debt. Inflation risk is much lower today. Today, whenever the central bank issues a euro credit, it can turn into 10 euros of credit issued by private financial sector. Within 1 euro issued by the State would remain a euro. Thus, citizens have provided reliable information on the monetary policies of their governments. If governments succumb to the urge to use excessively printing money, inflation worsen, it could be sanctioned immediately by the citizens and parliament. This mode of money creation would have a strict control of money supply and fit the specific needs of the population. In the view of Irving Fisher or Maurice Allais, operating procedures would be relatively simple and understandable by all. The main difficulties come from the transition from a banking system extremely complex and opaque.

The benefits of reform outweigh efforts largely due to this transition: stability of monetary system, not painful stagnation, preventing phenomena boom / depression, stable banking system, withdrawal of a huge share of the burden of interest on the economy, large decrease of taxation without reducing public spending, increased transparency in the democratic debate about the economy .... The mere removal of much of the weight of interest on our societies would free market forces would allow us to create more wealth and be done with this absolutely unjustified transfer of income from workers to those who have the right unjustifiable to issue currency.

But we can also continue to venerate the facilitated access to credit as the preserve economic prosperity and preserve our monetary system is inherently unstable at risk of collapse overnight at the option of panic, absolutely uncontrollable , which carry a weight on the economy and unsustainable making any dramatic stagnation. That is our choice to make today. In the era of globalization, such a system could work if it was accepted by the vast majority of great powers. The task is immense, of course. But is not "false realism" that do not challenge an unjust system, already showing its limits and leading us right to a dead end? Revive a democratic debate is a necessity.

What is proposed is not an intrusion over the state in the economy, but a return to the true function of money: to provide the company with a medium of exchange for the free movement of goods and services and not a commodity sold at a price, the interest rate that fluctuates with the supply of expectations. You can not accuse nor David Ricardo, or Irving Fisher or Maurice Allais not to be staunch supporters of free market. What is proposed is a sort of revival of capitalism, healthier, more stable, more just and more economically efficient. This complete change of monetary system is also not to be confused with a kind of desperate struggle against an omnipotent world of finance, shareholders of Bear Stern, Lehman Brothers and so many other banks whose prices have collapsed can they be satisfied with the current situation? It is a choice to make for a prosperous econ

Omie. As Irving Fisher wrote, there are more than 70 years to defend his project 100% Money:

"The essence of the plan 100% money is to make independent currency loans is ie to separate the process of creation and destruction of the currency of the loan process for business. A sub-product that is incident would make banking safer and more profitable, but by far the most important outcome would be to prevent the big "booms "Business and the deep depression by ending chronic inflations and deflations that have always been the great calamity of the economic evolution of mankind and which were generally raised by the banking system. " [16]

http://irving-fisher.blogspot.com/





[1] Money, whence it cam, Where It Went, John Kenneth Galbraith, 1975

[2] European Central Bank Statistics

[3] tax on capital and currency reform, Maurice Allais, 1977

[4] These facts may to demonstrate empirically. Since the explosion Japanese real estate bubble, the Japanese government's debt was heavily up to 200% of GDP to avoid a catastrophic deflation following the massive deleveraging of enterprises and households. During the Clinton years in the 90s, the debt of the state coincided with the explosion of household debt in the United States.

[5] 100% Money Irving Fisher 1935

[6] tax on capital and currency reform, Maurice Allais, 1977

[7] 100% Money Irving Fisher 1935

[8] Statistics Bank of France

[9] tax on capital and currency reform, Maurice Allais, 1977

[10] The Debt Deflation Theory of Great-Depression, Irving Fisher, 1933

[11] Principles of Economics Policy, John Stuart Mill, 1861

[12] Statistics Bank of France

[13] Principles of Political Economy and Taxation, David Ricardo, 1817

[14] tax on capital and currency reform, Maurice Allais, 1977

[15 ] 100% Money Irving Fisher, 1935

[16] 100% Money Irving Fisher, 1935