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If your economy is growing in nominal terms it will need more high-powered money, unless you want your financial system to become brittle from increasing leverage.

There is precisely one way to inject high-powered money into the economy: Sovereign deficits. So on average over the long run, the sovereign should run deficits.

The fact that you should sometimes run surpluses during the boom part of the business cycle does not change the fact that the sovereign has to be in the red on a cycle-averaged basis, any more than a cold summer disproves global warming.

If you're talking short-run, then attempting to run surpluses is counterindicated at the moment. If you're talking long-run, then surpluses are wrong-headed, full stop.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 14th, 2011 at 02:56:23 PM EST
[ Parent ]
Sigh? Now that is an argument?

What is high-powered money supposed to be?

by IM on Sun Aug 14th, 2011 at 03:50:11 PM EST
[ Parent ]
High-powered money is money that is valid for the settlement of taxes and central bank clearing. Unlike low-powered money, which is valid for the settlement of private debts.

High-powered money is created ex nihilo when the sovereign spends, and destroyed when the sovereign taxes.

Various sorts of low-powered money is created by various sorts of private lending.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 14th, 2011 at 04:15:18 PM EST
[ Parent ]
Wikipedia: the monetary base
(also base money, money base, high-powered money, reserve money, or, in the UK, narrow money) is a term relating to (but not being equivalent to) the money supply (or money stock), the amount of money in the economy. The monetary base is highly liquid money that consists of coins, paper money (both as bank vault cash and as currency circulating in the public), and commercial banks' reserves with the central bank.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 04:18:06 PM EST
[ Parent ]


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