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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: RJA_ who wrote (91018)	10/1/2007 4:39:13 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 306849

Your opinion that you need to constantly corrupt the value of your currency to "accommodate new goods and services produced, otherwise you get deflation", is quite popular with Monetarists. Let's look at this system up-close. Monetarists claim the currency should be constantly debased at the same rate as the growth in the economy. Surprise! This is exactly what the Fed has been doing. The Fed has increased the supply of "Permanent Reserves" (the Fed's "modern" equivalent to gold) at an annual rate of roughly 4.5%. Perhaps a smidgen faster than economic growth, especially given the under-counting of inflation which inflates the measure of GDP, but close enough. Some, like Paul Kern, have misunderstood Monetarists to suggest that money supply measures which include debt, such as M3, should only grow as fast as the economy. But this is not what Monetarists and Monetarist polict actually suggests - and in fact limiting the growth of a measure like M3 is not really possible to regulate through monetary policy. Debt creation can and should be regulated through banking and other lending regulation to assure stability - but this has been unpopular since Reagan floated the idea of "getting government off the back of the banking system" which in turn blew up the banking system requiring a $1 trillion taxpayer bailout. So we are currently experiencing the horrific effects of "Prudent Monetarism". I bet you're thrilled. The list of horrors created by deflation include: A. the ability of savers to sit on their savings and watch them grow in value; B. a reduction in the amount of money which can be lent, due to the fact that the value of collateral doesn't magically increase relative to a constantly devalued currency. This would result in a stronger, less fragile, economy with asset prices (such as homes) lower relative to incomes. These are indeed horrifying consequences for the rabid anti-capitalist, and I will admit that capitalism isn't to everyone's taste. But its a system which works better and is more stable than Monetarism. .