The second problem is that much of the wealth of the past boom was, in fact, counterfeit. Now the counterfeiters are demanding that their counterfeit money be made real out of your pension and salary.
(In principle, the two can be addressed separately, but I rather like the idea of insinuating that wealth disparity is due to counterfeiting by the wealthy - mostly because it's normally true.)
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Productivity growth is a deflationary pressure. To counteract that pressure you need an expansive monetary policy. Otherwise, servicing debt becomes increasingly difficult, a crisis ensues and growth is halted.
Not only have we allowed people to counterfeit money we have based our economic development on people counterfeiting money. Wait this is important. Someone is wrong on the Internet.
The way I see it, any credit (including bilateral trade credit, overdrafts, and so on) adds to the monetary mass. Clearing houses and banks can act as underwriters for trade credit, and they can issue their own credit. Then the monetary authorities merge with banking supervision because they have a dual role as underwriters of bank credit and directors of monetary policy.
So, the State provides a deposit guarantee to the private banks in exchange for outsourcing to them the underwriting of trade credit and the creation of money as credit. The monetary authorities are supposed to keep track of the monetary mass created in this way, and curtail credit creation through their banking supervisory role if they see the monetary mass grow too much. If the monetary mass shrinks, the monetary authorities can inject money into the economy, by lowering interest rates or by buying bonds (issued by the State treasury or private firms) with newly created money.
Private banking for profit has an incentive to create as much credit as possible, as this results in higher personal income for the private bankers. This means that normally the central bank has to worry more about curtailing excessive private credit creation than about injecting money into the economy. But note that the conflict of interest inherent in private banking, where private bankers have an incentive to create as much credit as possible, whether the borrowers are creditworthy or not, in order to skim a fraction as personal profit, coupled with the identity of credit and money and the State guarantee of bank credit implicit in the explicit deposit guarantee, makes excessive private banking credit creation a form of counterfeiting. By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
Not so in the banking system.
There are two problems:
