Jens Weidmann; Speech at the 18th colloquium of the Institute for Bank-Historical Research (IBF) in Frankfurt
The caption for today’s event is “Paper money – Public finances – Inflation. Did Goethe hit upon a core problem of monetary policy?
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ECB's Weidmann On Gold: "Money Is A Social Convention
Submitted by Tyler Durden
15 comments:
Having skimmed thru the speech, far as I can see, Weidmann just makes the point that central banks shouldn't print too much money. A valid point, but not desperately original.
Presumably the reason for this speech, and the similar speech he gave a week or two ago is that he is under pressure from Euro periphery countries to print loads of money and buy their dodgy bonds.
"print loads of money and buy their dodgy bonds. "
Ralph,
Of course you realize that they dont "print money" anymore it is all done on computer systems and that the periphery bonds are not "dodgy", but rather the morons running the Euro system over there are not providing for enough balances in those jurisdictions to allow for savings desires and settlement balances.... rsp,
Ralph, that's right. Strange that he doesn't mention production and economic growth in connection with his price stability paradigm. If an economy is to grow, it needs a continuing injection of money just to avoid deflation.
Also, the independence of the central bank makes it hard for the central bank and government to coordinate on socially beneficial policies that accelerate the removal of debt overhang. For example, the government could hire people with "printed" money, and as they pay down their debts and also pay taxes used by member states to pay down their debts, the government could immediately tax some of the capital gains from the creditors, if necessary to hold down inflationary pressures.
But the Eurocrats's silly model is that they should maintain high unemployment and low growth for an extended period, during which the society's aggregate balance sheet contraction via debt payment proceeds at a trickle, until at some time years from now enough of the debt is gone that people begin spending again.
From the Zerohedge psychos: "while a little dramatic, should indeed strike fear into many with its clarity. The financial power of a central bank is unlimited in principle; it does not have to acquire beforehand the money it lends or uses for payments."
What would the bank use to "pay for" the "money" it would "acquire beforehand"???
They are insane....
This I guess from Weiderman: "for the properties of money is very old; it was already discussed in the 4th century BC by Aristotle in his Politics and Nicomachean Ethics."
Ari did not discuss "money" he discussed "nomisma" and that it has value not by nature but BY LAW.
No mention of human 'LAW' by Weiderman here, only "social convention", very WEAK...
This German at core does not trust human authority (wonder why!), and instead thinks it a better idea to remove this authority from civil government:
"However, such government interference in central banking, combined with the government’s large demand for funding, often led to a strong expansion in the volume of money in circulation, causing it to lose value through inflation.
In light of this experience, central banks were subsequently established as independent institutions, with the mandate to safeguard the value of money, in order to explicitly keep the government from co-opting monetary policy. "
They dont trust their own government...
Granted, this is not as old as Aristotle, but I recently came across this series of questions (the Querist) written by George Berkely, the Irish philosopher, in 1735:
21: Whether other things being given, as climate, soil, etc., the wealth be not proportioned to the industry, and this to the circulation of credit, be the credit circulated or transferred by what marks or tokens soever?
23: Whether money be considered as having an intrinsic value, or as being a commodity, a standard, a measure, or a pledge, as is variously suggested by writers? And whether the true idea of money, as such, be not altogether that of a ticket or counter?
25: Whether the terms crown, livre, pound sterling, etc., are not to be considered as exponents or denominations of such proportion? And whether gold, silver and paper are not tickets or counters of reckoning, recording, and transferring thereof?
32: Whether there be any virtue in gold or silver, other than as they set people to work, or create industry?
34: Whether current bank notes may not be deemed money? And whether they are not actually the greater part of the money in this kingdom?
Geoff,
Right seems like more evidence of the battle within humanity as to whether "money" (metonym) is based on a weight of metals or is a lawful construct...
Seems like it was the latter during Greece and Roman times, then it went back to silver and gold for almost 2,000 years and now last century it has swung back to law via the 2 human lawful actions in 1933 and 1971...
So looks like we (humans) at least got it back on track although there still are plenty of metal-loving morons about who look like they will go down kicking and screaming...
rsp,
Tom,
You'll be interested in this def: see footnote 1:
http://blogs.ft.com/gavyndavies/2012/10/14/will-central-banks-cancel-government-debt/
"http://blogs.ft.com/gavyndavies/2012/10/14/will-central-banks-cancel-government-debt/"
The article is so far out of paradigm it is useless. The only thing of value in the entire article is some references to keywords (Abba Lerner FI) that may lead some curious readers to do their own thinking.
Thanks, Ramanan. Interesting post except for the fatal mistake of thinking that Tys securities "sterilize" rb. If one believes that, then the conclusions follow, more or less, that more liquidity will be available for spending if Tsy issuance into the private sector is circumvented for fiscal policy. He is correct in thinking that this is the rationale. MMT economists claim that this is wrong-headed, but he doesn't refer to that argument, leaving it as if they had not considered it. Cheap shot.
Moreover, if the preference indicated by purchasing Tsy securities is to save, why would removing that vehicle result in more spending instead of merely a shift of assets from Tsy securities to some other safe asset? Would not the market respond with comparable vehicles?
The opponent has to explain why govt would be necessary to provide a somehow special saving vehicle that the market cannot. Once this argument begins, then the MMT economists' further arguments have to be considered, and the opponents lose. So they are not going to bring it up. Either they have not thought it through, or they have and don't want to go there because their argument is the weaker.
Tom,
I just wanted to post the link since I saw the footnote - just bringing it to your attention.
Gavyn Davies obviously doesn't get it. He displays a lot of Monetarists' intuitions. Funny how they keeping muddling through.
Significant that they are reading MMT economists though. Keen is also pretty widely referred to. One is also seeing more references to Kalecki, Kaldor, Fisher, Minsky, etc. and I suspect that a lot of economists are also reading G & L. I sense momentum building.
don't get too excited.
don't get too excited.
Once it gets around that some people are paying attention to whatever, then everyone has to take a look at it so as not be left out should there be anything there. Then when a couple of big names come out and say, No big deal. We knew this all along, then everyone piles on yelling, So did we.
Ramanan,
Just so you don't get the wrong idea, my criticism was directed at the article, not the fact that you posted it or saw something in it, which you did correctly.
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