Thursday, April 3, 2014

“Dangerously Low Inflation”


It was a rather startling thing to read in the lead article of the Wall Street Journal — but it was there.  On Wednesday, March 26, 2014, in the article on page A1 titled, “ECB Set To Mull Heavier Stimulus,” the venerable Wall Street Journal had the sentence, “European Central Bank officials . . . are willing to consider dramatic steps to guard against dangerously low inflation.”

Positively Dumbfounded
We acknowledge that eyes bugging out of their sockets rarely, if ever, actually happens.  Nevertheless, that sentence took us completely off guard.  We were . . . (“‘Dumbfounded’ is the word I fancy you want, sir.”  “Thank you, Jeeves.”)  We were positively dumbfounded . . . that’s it, dumbfounded.

You see, right on the home page of the European Central Bank, accessed Tuesday, April 1, 2014 at precisely 2:20 pm, EDST, it states quite clearly that the mission of the ECB is “The main objective of the Eurosystem is to maintain price stability: safeguarding the value of the euro.”

Now, we don’t know how the ECB defines inflation, but the Houghton-Mifflin Dictionary defines it as “A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.”  In other words, inflation means price INstability.

Maybe we’re not the smartest people in the world, but we simply don’t understand how ECB officials can, at one and the same time, have the goal of guarding against inflation and be concerned about reaching that stated goal, terming it “dangerous” if they succeed in doing what they say they’re trying to do.

Knapp, Father of MMT
Assuming that the website of the ECB is accurate, and that the ECB officials are (as advertised) honestly “striv[ing] for the highest level of integrity, competence, efficiency and transparency” (ibid.), then there is something seriously wrong with their monetary and fiscal policy.  It’s called “Modern Monetary Theory,” originally developed from theories of Georg Friedrich Knapp, and it’s in place pretty much throughout the world.

We’ve contended for years that Keynesian economics, the basis of MMT, embodies fundamental contradictions.  This seems to prove it.  Still, the experts keep insisting that something that has never worked to solve the problems they think they’re addressing, and is even going directly counter to them, just has to work if they just go even deeper into debt.

The fact is that they don’t have to.  The problems the world’s central banks try to solve by artificially manipulating currencies would solve themselves by making monetary and fiscal policy consistent with the original purpose of commercial and central banking.  That is to create money for private sector investment by purchasing mortgages and discounting and rediscounting bills of exchange based on the present value of existing and future marketable goods and services, respectively.

Rally at the Fed: Be There, or Be Not There
By creating money in ways that finance widespread capital ownership by people who, consistent with Adam Smith’s dictum that the purpose of production is consumption, will spend their dividends rather than reinvest them, consumption power can be sustained naturally, rather than artificially induced through inflationary government stimulus. This is the program embodied in Capital Homesteading, and for which we will be demonstrating outside the Federal Reserve in Washington, DC, on Friday, April 11, 2014.

Central banks were never intended to be used to finance government.  Bills of credit do not represent hard assets, but the ability of a government to collect taxes out of future production that might never take place.

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