Wouldn't "neutralizing" a currency overhang have to be done by cutting back on the printing of new currency until the desired balance of currency-to-productivity ratio had bee attained? Of course, that would mean governmental spending cutbacks.
In the USSR, "neutralizing" the currency overhang could have been done by selling off government-owned assets (incl. factories) to the private sector, but instead Russia opted to distribute ownership shares to workers (who went on to quickly sell them to the oligarchs-to-be. In the Republic of Georgia, the ruble overhang was successfully "neutralized" by the strategy I mentioned. Is there any other way to "neutralize" excess currency? Or does the excess currency get simply absorbed by the growth in the economy that it allegedly creates?? That is, the currency-to-productivity ratio is restored to balance through an increase in production rather than a corralling of the currency overhang? Cheers, Lawry On Jan 24, 2013, at 2:26 PM, Keith Hudson wrote: > There are two fallacies concerning quantitative easing (QE). It's the second > one that fascinates me more. This is that when QE is supposed to have done > its good work in reviving a jaded economy a la Krugman, a la Bernanke, a la > Keynes (mid-life Keynes, anyway), then the excess money can be "easily > neutralised". I've heard that phrase used more than once. I'd like to know > how to neutralise money. Once it comes into existence then it exists forever, > I'd have thought. Can it be stuffed into a central bank vault and allowed to > rot? Can it be set fire to? Can it be placed on ships and sunk? Can it be > rocketed into space? More to the point, would the owner of the money at the > time agree to the money being "neutralized"? Of course not. > > Keith > > <<<< > Daily Telegraph 24 January 2013 > Money printing 'amounts to theft from our children' > > Money printing amounts to theft from our children and may be merely storing > up problems for an even bigger crisis, top economists and investors have > warned. > > Philip Aldrick > > Speaking at the World Economic Forum in Davos, Davide Serra, founder of > leading hedge fund Algebris, and Nouriel Roubini, the head of Roubini > Economics known as Dr Doom for predicting the financial crisis, set out the > case against those who think quantitative easing (QE) and low rates are > benign policy tools. > > “When governments borrow, they are taking money from our children. QE is the > same – we are lowering returns for future generations. QE creates an > inter-generational dilemma,” Mr Serra said. > > Mr Roubini warned that central bankers need to think about turning off the > cheap money tap or risk creating another, possibly even worse, bubble. > > He argued that policymakers have encouraged markets and individuals to take > on crippling levels of debt by leaving asset bubbles unchecked in a boom and > coming to borrowers’ rescue in a crisis. > > "Ten years ago we had the Greenspan put, now we have the Bernanke put. What > are the long term economic consequences?" he asked. > > He said loose monetary policy is creating a system biased to creating > bubbles, "that's why we've been moving to more unconventional territories" in > policy responses - from low rates to QE to credit easing. > > "Central bankers have affected the behaviour of the private sector. They have > to think about that," he said. "As you do a slow exit out of QE you may > create another bubble and make another crisis. > > “At some point, the consequence of postponing deleveraging is that you end up > with zombie banks, zombie companies, zombie households, and zombie > governments.” > > The warnings came after the Bank of Japan caved into political pressure and > pledged to buy government debt in potentially unlimited quantities in an > attempt to stimulate growth. > > The move prompted accusations that Japan had launched a fresh attempt to > debase its currency and improve the competitiveness of its exports. > > As an investor, Mr Serra said QE had led to a “misallocation of capital”, > echoing concerns voiced by the Bank of England and others that QE might be > distorting markets and creating new risks. > > Both Mr Roubini and Mr Serra agreed that QE had been essential at the start > of the crisis but, by protecting governments from attacks in the bond > markets, it was now making it “difficult for the bond vigilantes to do their > job – force fiscal reform”. > > For Mr Serra, the time to stop increasing QE had come. "QE just buys time. > When you buy time, you must use it. I'd follow the ECB [European Central > Bank] model and not the Bank of Japan and US Federal Reserve model,” he said. > > Defending QE in the panel debate, Adam Posen, director of the Peterson > Institute for International Economics and a former UK rate-setter, argued > that QE was merely an extension of normal monetary policy and has been used > throughout history. The decision on whether to use the tool depended on the > balance of growth and inflation, he added. > > “Will the economy in two to three years be below where it should be, and is > there an inflation risk? That’s the question. And it’s the same if you’re > using interest rates or QE.” > > He added that the current problems regarding the effectiveness of QE were > less to do with monetary policy and more to do with investor behaviour. > > “The same investors who blamed the crisis on central banks keeping rates low > are now saying low rates are reducing risk appetite,” he pointed out. “We > should shift the focus to investor behaviour.” > >>>> > _______________________________________________ > Futurework mailing list > [email protected] > https://lists.uwaterloo.ca/mailman/listinfo/futurework
_______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework
