Thursday, January 26, 2012

Credit creation: The dangers of the privatised money supply

Martin Wolf's article in the Financial Times 25 Jan The World's hunger for public goods highlights what must be provided (usually by the state) so that society can progress. He says free markets cannot provide on their own such public goods as security, an educated population, public health, law, infrastructure, et al.  Public goods are ever more needed with progress.

He writes that, unfortunately, the free market economy  as we know it, is unstable through the ability to expand credit without limit at zero cost. This credit expansion determines the money supply and thus: 'instability is baked in the cake'. Economic stability is a public good that does not happen by itself. Wolf points out that the dire economic consequences we are suffering are a good reason for government intervention. He backs this with reference to Milton Friedman. He quotes Tyler Cowen (author: The Great Stagnation) on how to fund public goods.

We are allowing endemic instability to continue because we are not challenging the fundamental premise of the banking system: the private creation of the money supply. A very few private individuals (top bankers) are personally profiting because they are allowed to play with this dangerous toy which produces an unstable financial system for us all, characterised by booms and crashes. Where is the open debate that government should  take control of the creation and allocation of the money supply?

Is economic stability as fundamental as clean water, or not? If an epidemic developed through an infected  water supply an emergency would be declared to get to the root of the problem and stop it happening again. Is the mis-allocation of credit so slow acting that it is obscured as a cause? Maybe public discussion is suppressed? Become enlightened: Link to Prof Richard Werner's short YouTube video interviews on credit creation, the money supply and how a new stability could be found. 

The book The Free Lunch - Fairness with Freedom examines  the interfaces between the individual, the market and the funding of public goods. To buy see Amazon

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