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It is widely held that a growing economy requires a growing money supply, because economic growth gives rise to a greater demand for money. It is also believed that failing to accommodate the increase in the demand for money, will lead to a decline in the prices of goods and services. This, in turn, could destabilize the economy and produce an economic recession or depression.
Some economists who are the followers of Milton Friedman—also known as monetarists—want the central bank to “target” the money supply growth rate to a fixed percentage. They hold that if this percentage is maintained over a prolonged period it will usher in an era of economic stability.
The idea that money must grow in order to support economic growth gives the impression that money itself somehow sustains economic activity. However, money’s main job is simply to fulfill the role of the medium of exchange. Money does not sustain economic activity. Historically, many different goods have been used as the medium of exchange. On this, Mises observed that, over time,
…there would be an inevitable tendency for the less marketable of the series of goods used as media of exchange to be one by one rejected until at last only a single commodity remained, which was universally employed as a medium of exchange; in a word, money. …
By demand for money, what we really mean is the demand for money’s purchasing power. After all, individuals do not want a greater amount of money in their pockets. What they want is a greater purchasing power in their possession in order to exchange for goods now or in the future.
In a free market, in similarity to other goods, the price of money is determined by supply and demand. If there is a decline in the amount of money, all other things being equal, its exchange value will increase. Conversely, the exchange value will decline when there is an increase in the amount of money, all other things being equal. Within a free market, there cannot be such a thing as “too little” or “too much” money. As long as the market is allowed to clear, no shortage or surplus of money can emerge. …
Even Milton Friedman’s scheme to fix the money growth rate at a given percentage will not do the trick. After all, a fixed percentage growth is still money growth, which leads to the exchange of nothing for something (i.e., economic impoverishment and the boom-bust cycles).
What about keeping the current stock of paper money unchanged? Would that do the trick? An unchanged money stock would cause an almost immediate breakdown of the present monetary system. After all, the present system survives because the central bank—by means of monetary injections—prevents the fractional reserve banks from going bankrupt. Therefore, it is not surprising that the central bank must always resort to large monetary injections when there is a threat from various political and economic shocks. How long the central bank can keep the present system going is dependent on genuine production and saving within an economy which happens alongside artificial growth. Central bankers may also realize that this process has brought about price inflation and—if they keep printing—it could eventually destroy the monetary system. After a certain point, no amount of monetary inflation will prevent the implosion of the system.
Of course, for the central bank it is damned if you do and damned if you don’t because the central bank is nothing more than state interference in the marketplace. It also presents the problems that Hayek saw with The Pretense of Knowledge and who knows the appropriate prices for the economy to run smoothly. One person does not know, sorry about that Mr. Powell, neither does a committee of a few people know, sorry about that FOMC. Not even the separated district Federal Reserve Banks know. However, together, when there is no state interference, we all know the correct prices and rates of interest. When will these people learn? When will the Federal Reserve Bank give up the power for the banksters to loot the economy as they are doing? Don’t know, but stay tuned for future contretempts!
I don't think "give up" will be the right description for how they lose power.
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No, neither do I. I think it will be torn from their hands leaving bloody stumps in the place of their grasping, greedy digits! I don’t know if only Trump and congress will be able to do it. I will put my money on the Law of War tribunals. I don’t think we are operating under commercial, marine or common law right now. You have to read the Law of War manual to see just what is in store for the near future!
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Growth rate makes sense for nearly everything but for money it is a stupid approach. You get rich by printing money not because you created something, you only get rich because you steal from others. And then they get addicted to stealing.
Growth rate to zero. ZERO!
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Yes, you have the idea!! Something for nothing is what happens with the increase in supply for money. Cantillon Effect at his best!
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