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posted by LaminatorX on Tuesday March 25 2014, @03:25AM   Printer-friendly

Anonymous Coward writes:

"http://www.theguardian.com/commentisfree/2014/mar/ 18/truth-money-iou-bank-of-england-austerity

Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn't know how banking really works, because if they did, 'there'd be a revolution before tomorrow morning.'

Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called "Money Creation in the Modern Economy", co-authored by three economists from the Bank's Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window."

 
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  • (Score: 3, Interesting) by Bob9113 on Tuesday March 25 2014, @05:11AM

    by Bob9113 (1967) on Tuesday March 25 2014, @05:11AM (#20808)

    The hanging point of the modern monetary theory crowd is that you can maintain low interest rates without causing inflation. If that is true, we can keep interest rates low forever and nothing bad will happen. And it seems to be working right now, at least according to CPI-U. But there's a problem with CPI-U, it focuses on a basket of urban goods, which includes things like televisions and SSD drives that have been plummeting in price.

    Historically, energy prices [wikimedia.org] are a potent leading indicator of inflation. When the price of energy goes up, the price of everything else must eventually follow, since energy is a significant factor in the production of almost everything. It could be that we are experiencing massive increases in efficiency resulting from the information revolution (including computerization and advanced automation) and price reductions from offshoring of manufacturing, and that is masking the underlying inflation that has been happening all along.

    If so, we may face one helluva reckoning. Good time to get a giant fixed interest rate loan and put it in... I'm not sure, equities maybe, but corps will take a hit if inflation comes; I guess pick companies that are not inflation sensitive. Maybe some kind of long-life commodity -- gold, maybe, but gold is already kind of high. Maybe housing, potentially the easiest play for the typical person. Upgrade your primary residence. Maybe I should do that... But I digress. (boy, oh boy, do I digress sometimes :)

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  • (Score: 2) by buswolley on Tuesday March 25 2014, @05:51AM

    by buswolley (848) on Tuesday March 25 2014, @05:51AM (#20821)

    whiskey and cigarettes.
    Still, I don't buy into your inflation fears.

    --
    subicular junctures
  • (Score: 2) by Thexalon on Tuesday March 25 2014, @02:34PM

    by Thexalon (636) on Tuesday March 25 2014, @02:34PM (#20960)

    The hanging point of the modern monetary theory crowd is that you can maintain low interest rates without causing inflation. If that is true, we can keep interest rates low forever and nothing bad will happen.

    That's not their theory at all. Modern monetary theory says that right now, you can and should maintain extremely low interest rates as a way of creating investment that will get people back to work. Once there's 4% unemployment and 2.5% GDP growth and other signs that things are getting better, that's when you start raising the rates back up again to prevent an inflation-palooza like we had in the 1970's.

    This is exactly what a central bank does. The US Fed's decision to send interest rates to the floor is the biggest reasons that the US is doing much better than Europe in handling the whole financial crisis (it's bad in the US, but not as bad as, say, Spain).

    --
    The only thing that stops a bad guy with a compiler is a good guy with a compiler.