Actually, it's not a bad idea. But it makes our money seem fake, like Monopoly money. Let me be first to admit, our present system is no more or less fake. But the present system is much more convoluted and confusing, so the money doesn't seem so fake.
This plays to the "confidence" and "trust" aspects of our economy.
There was an article in Parade not long ago about the Value-Added Tax, the VAT. (See my post of 5-31-2010.) The article said: "some policy experts worry that a VAT could actually raise so much money—and so easily—that it would encourage Congressional waste. 'A VAT would take the pressure off the government to rein in spending,' says Rudolph Penner..."
Now, I'm not sure what it means to raise money "easily" by taxation. But I'm sure it would be "easy" to raise money by printing it. And it would lead to Penner's problem: It would take the pressure off government to rein in spending.
The mathematical reason I cannot accept print and spend as a workable plan is that Federal deficits tend to be bigger than the increase in money justified by growth. Printing enough money to cover the deficit would therefore be inflationary in the old-fashioned sense of the word.
Between 1950 and 2008 the Federal debt increased by about $9.75 trillion. In 2008, M2 money totaled about $8.15 trillion. And M1 money, the better measure, totaled only about $1.6 trillion. Printing money to cover deficits would therefore have led to a great increase in the quantity of money. That is, inflation in the old-fashioned sense of the word.
Interestingly, it may be that after the economic problem is solved, the deficits will be small enough that printing money could cover them and more, and still not be inflationary. At that point, the notion comes into its own and I accept the concept. (In a healthy economy, people wouldn't be so worried about money being "fake.") But unless and until we can run our economy right, printing money to cover deficits will only make matters worse.
2 comments:
The money supply needs to be rigorously controlled. For many centuries, tying the dollar to a commodity like gold could restrain spending by actually making the money worth something--unlike now where dollars can simply be printed up with little consequence. The Austrian school of economics (at their heart peaceniks) actually tried to stop wars of aggression by keeping the money supply in check. (With a gold standard, once the empire's vaults are empty, they can spend nothing.)
The Federal Reserve exists to give money value-I can think of no other justification to give a group of private banks control over our money supply, a coup in itself.
You may know the Jefferson quote:
"If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered."
Now the banks give money value through establishing an interest rate. Without interest, money would devalued, or so they believe. In actuality, it's Congress--who's constitutionally responsible for the money supply--who present the greatest threat to the value of our money. They simply can't stop spending--fiscal policy.
There's nothing that says money can't be free. If the supply is tightly controlled, it can retain its value. Interest payments actually detract from growth--they're the mechanism by which excess growth can be slowed.
The Nazis, of all people, actually rebuilt the German economy decimated in the early 1920s through interest-free loans. Now one needs to understand that the Germans are bureaucrats par excellence, who count and map every single tree in a forest! We Americans could only dream of such discipline!
Anyway, if loans were given out interest free, the bankers would lose all the interest. In Hitler's day, many bankers were Jewish, and the purge of their banking system gave the Nazis total control. Economically, their system worked--until it over-militarized.
In America today, we don't have free money, owing to the political power of the financial caste. If things get bad enough, you'll see the creation of state banks which can lend at ultra-low rates.
As bad as defaults might sound, we need to remember that money in itself has no value. Should an entrepreneur go under, it's not a zero sum exchange. If, for instance, a bank wants to make a loan, it needn't pull money from its vaults--it can simply enter a debit in the borrowers account. So the loans never deplete reserves which are in fact fabricated in a fractional reserve system. So when they go away, nothing of value is disappeared.
Besides, money is meant to be used, circulated, and invested, not parked at some bank. Now if too much money gets circulating, we have inflation, so controlling monetary policy is crucial. Once too much spending gets going, money needs to be harder to borrow. In our system, this means interest rates climb, in the Nazis', they could simply stop lending. I can't see Congress ever controlling their lending or spending, thus inflation would worsen and necessitate much higher rates to put the brakes on growth.
jbpeebles: "The money supply needs to be rigorously controlled.... Besides, money is meant to be used, circulated, and invested, not parked at some bank."
The quantity of money needs to be rigorously controlled, and the balance between M1 and M2, or more clearly, the balance between money circulating and money saved must not be ignored.
Quantity is always and everywhere the focus of concern; but Balance is adamantly ignored. This is harmful because, as you say, money is not meant to be "parked at some bank."
For comparison: The number of chickens in a hen-house must be rigorously controlled; but the balance between rooster and hen must not be ignored.
Clearly, it matters.
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