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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Haim R. Branisteanu who wrote (31445)6/4/2005 7:28:56 PM
From: Elroy Jetson  Read Replies (1) of 116555
 
REAL MONEY is something which:

1.) can act as a medium of exchange;

2.) maintains its value over time.

Since most purchases are made some time in the future, after earning the "medium of exchange", a "medium of exchange" which does not "maintain its value over time" also fails in its role as a "medium of exchange".

Nations which have experienced high inflation, where employees immediately take time off from work on pay day to spend their money before it loses value, are just an extreme example of money which fails to act as an effective medium of exchange because it fails to maintain its value.

Unlike an income, sales or valuation tax, the Monetarist tax is very inefficient and costly. Creating false money with a Monetarist tax results in lost productivity, mis-allocation of capital, and greatly reduced economic growth due to a lack of savings. Milton Friedman believes he is being charitable when he suggests reducing the Monetarist tax to 2% of GDP, while at the same time supporting those who replace income taxes with additional Monetarist tax. Yet he knows perfectly well the staggering costs the Monetarist tax imposes on the economy.

A related problem occurs because Monetarists falsely believe that high levels of monetary velocity as a sign of a healthy economy, when in reality high levels of monetary velocity are a sign of a failing currency and speculation.

Real money does not require a metal. Instead it requires discipline and honesty - something in very short supply. Metals have historically provided discipline and honesty because they cannot be easily replicated and their weight is obvious.
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