I was struck by a comment by pommy on thoughts on freedom. His theory wasn’t that he himself didn’t know about monetary economics. Rather he had the idea that the current crisis is really complex and that the authorities are doing a pretty good job of fixing things.
If you understand banking the matter is not the least bit complex. You have a ponzi-scheme/counterfeiting racket. Any financial instution can go under if people remove their deposits, and a great deal of unproductive activity goes on when you have monetary inflation. A great deal of redistribution of wealth and disruption to real business goes on because of the high money growth and the consequent instability of spending. And it affects business-decision-making on all levels.
The idea then is to lessen the extent of the ponzi-racket if you don’t have the guts to cut it out entirely. Which meant that at any point at all in the situation, all that needed to be done, if for quasi-religious reasons you need to be minimalist about it….. was to add cash and a reserve asset ratio together.
Once you do that there is no need to bail anyone out, banks will go belly up from time to time but it is no threat to anyone. And if from there on in you don’t have money growth, except what is needed to maintain nominal gross domestic revenue, then eventually the size and scope of the financial industry will reduce and most of the employees will get proper jobs.
Whats so complicated about that? The complexity comes in trying to gauge when an elephant balancing on his trunk will fall over. This really is impossible to know. You know that he could fall over at any time. But you can get 1000 alleged experts in risk management and they won’t be able to tell you the timing of it.
Notice that, as opposed to bailouts, simply adding cash and a reserve asset ratio doesn’t lead to more liabilities on the part of the public. It will lead to less profits on the part of the banks and less bonuses for the bankers since they make their money via new money creation and the secondary effects of the new money creation.
All this isn’t the least bit complex. And once you have plenty of cash out there and a very high reserve asset ratio the serious halt to monetary growth and the deregulation can begin.
However I’m missing out one fact. The government and bankers are natural counterfeiters. So they will abuse any such system, so easy to sort out in theory. This is one reason amongst many that having fixed things up as far as the current crisis is concerned one would need to continue until one had purely private 100%-backed commodity-money.