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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: gpowell who wrote (54003)	2/16/2006 12:57:27 PM
From: mishedlo	Read Replies (2) \| Respond to of 110194

I don’t know Heinz. He seems like a reasonable person, but some of his views have no theoretical underpinning and are mutually exclusive, but they all do seem to point to the same conclusion - fiat money is worthless – so you better buy gold. Fiat money generally heads to zero over time. It does not have to however. In a world of no fractional lending and balanced budgets, purchasing power of a currency, would likely hold. It is the discipline of gold that keeps things honest (assuming there is no fractional lending either). Mish

To: gpowell who wrote (54003)	2/16/2006 10:29:58 PM
From: basho	Read Replies (1) \| Respond to of 110194

I would accept that view as theoretically sound, as long as we are clear that what you view as wrong with the system is not fractional reserve, fiat regime, etc., but rather the various explicit and implicit government guarantees that create moral hazard. I entirely agree that moral hazard is the critical problem. Nevertheless, I still have some reservations about fractional reserve banking and incline to the strict Austrian view that demand deposits are in fact claim transactions rather than a credit transactions and should be legally treated as such. This small but vital change could in my view go a long way towards lessening systemic fragility. It was Mises' view that much of the drama of the 1930s in bank runs and exchange rate fluctuations was due to the error of banks guaranteeing effective on demand withdrawal of savings deposits. (“Senior’s Lecture on Monetary Policy” in “Money, Method and the Market Process” R.M. Ebeling ed. [1933]1990 / ibid 108-109). To what degree this distinction could realistically be enforced in an entirely free market banking system is another matter of course. Still, it seems to me any efforts to draw a clear distinction between money on the one hand and savings (when money is loaned for some specified period)on the other should be encouraged. What I attemted to point out, moral hazard aside, is that if one looks at the perfomance of fiat regimes since 1986 - they have operated approximately as if reserves were fixed, and that is consistent with what one would expect from a commodity standard. I’m not quite sure what you’re saying here. If we look at the US and Australia, for example, from 1986 to the present their monetary bases have grown by an annual average of 7.4% and 6.5% respectively. This doesn’t strike me as either fixed or the sort of growth rate one would have expected from a commodity standard. Have I misunderstood your intent somehow?