Monday, 24 October 2011

Lawrence Summers wants to pour gasoline on the flames.

Summers in the first paragraph of this Financial Times article has tumbled to something that has been obvious to most of us for three years. This is the recession was caused by excessive borrowing, yet the elite (i.e. Summers & Co) are trying to get us out of the mess by encouraging borrowing. I pointed out the absurdity here in a letter in The Times in 2008, but the absurdity is doubtless obvious to the average ten year old.

To be more accurate, Summers claims that three things will get us out of the mess: more confidence, borrowing and spending. As to confidence, that is thoroughly elusive and impossible to control, so FORGET IT. As to spending, well obviously more spending is required, but the question is how. Silly Summers wants to do it via more borrowing. Stupid!!!!!!!

Modern Monetary Theory (MMT) advocates spending debt free money (i.e. monetary base) straight into the economy in a recession. That way you get extra spending with no more debt.

Personally, and speaking as an advocate of full reserve banking, I’d take it further, and abolish the system we currently have (fractional reserve banking). Fractional reserve means that every additional $ of money is matched by an additional $ of debt. What’s the logical connection here? That is, if the economy needs an extra $1bn of money, whence the assumption that there should also and automatically be an extra $1bn of debt?

Milton Friedman favoured full reserve banking. He was right.


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