Posted by: graemebird | December 22, 2008

SADO-MONETARISM*Fractional Reserve Can NEVER Be Acceptable.

“It has been generally accepted that the political costs of less than 2% inflation in terms of unemployment and government welfare support are unacceptable. To politicians.”

Right. But there are reasons that people came to that conclusion. You are being too generous. You know full well that inflation less than that. was proved to be punishing to the rest of us too in the 80’s. 

THEY CALLED IT SADO-MONETARISM*.  Or if they didn’t they ought to have. But its a feature of fractional reserve fiat. That when the attempt was made (particularly by the NewZealanders) to lower consumer-price-inflation below or yet even NEAR that level it hurt too much.

IT HURTS. it hurts too much. It hurts not just the politicians, but people everywhere. And particularly rural people. Whole towns started closing down that ought to have been viable.


Fractional reserve makes us all liquidity-junkies. The monetarists thought they could do things on the basis of national monetary aggregates. Thats my generous explanation now that I’ve been abused and browbeaten for 3 straight years for defending the obvious. In this generous historical-interpretation, the monetarists thought that they didn’t need to bite the bullet, and stand up to the fractional reserve religionists. But fractional reserve can never be acceptable. Not now, not anytime in the future. And not in any form. 

Bank-cash-pyramiding disproportionately favours those areas where land appreciation is already on the fly. Hence fractional reserve with zero consumer-price-inflation is likely to have money exploding all over the place in Aucklands Remuera Road and yet up in Kawakawa people can be universally skint and the shops almost ready to close down until next welfare cheque day.

So Milton Friedmans monetary prescription didn’t pan out as planned. And its just fractional reserve that is the problem, and always will be a problem, and there is no mitigating it, but we need to be rid of it in all its forms and never take any double-talk JIVE!!!!!! from the macromancer end of town.

Once we are quits with fractional reserve, and have carefully phased it out,  it is no problem to have prices falling all the time. So long as Gross Domestic Revenue isn’t falling and is growing very slowly. Growing very slowly without falling.


The other thing is that the people who were attempting to go for ZERO consumer price inflation (most particularly the NewZealanders) were playing golf in the dark. They did not know when their policy was causing Business-to-Business spending to crash since no-one compiles the figures.

If the CENTRAL BANK is working with consumer-price-inflation, and Gross Domestic Product, it is only normal that a central bank targeting ZERO consumer-price-inflation, is going to habitually destroy Business-to-business spending.


And with fractional reserve even when they are not destroying this spending nationally they will be doing it locally.


With thanks to one of my favourite left-wingers BOB ELLIS. For either coining this brilliant term. Or at least passing it on to me.  Someone ought to collect his statements that were on the media yet not written down. It may be that you had to be there. But this fellow, in extemporaneous speech was a powerful post-folk word wizard.

Once I was watching him on TV and he called the Americans “Airbrushed…. Smiling…. And Armed To The Teeth”

Totally unfair of course but in context it was pretty hot shit nonetheless.

And that was an amazing movie you made about Christian-Eschatology Bob. And a terrific song that you wrote at the end of it.



  1. “The left put their team before their beliefs. But hey, plenty on the right do so as well. Contra CL, libertarians tend not to be team loyalists in that sense. Notwithstanding his obsession about shitty victorian abortion laws, CL entirely fails to make the case that libertarians have surrendered to the left.”

    My goodness. Did you fail CL? I would have thought that this case could be made and it would be like shooting ducks being dumped out of a helicopter after having their wings clipped.

    Pedro I doubt that he failed. I think you probably need to go back and read it over and over and over until you get it. Or it might be that you won’t recognise it for lack of historical perspective.

    You bet the libertarians are piss-weak in the face of leftists. Its like they are still desperately trying to get laid with dumb-left undergraduate chicks such toadies are they.

    Thats why we have to go for sovereignty up-front and libertarianism every day.


    We don’t surrender strategic ground on sovereignty in order to gain tactical ground on libertarianism. Not now or ever.

    Rather we go for sovereignty and yet package every step forward in such a way as to reduce governmental depredation with each such step.

    So if we need to boost retirees incomes by a billion, then we can do that, but we will package in 2 billion of mass-sackings of public servants.

    So if we need to enhance the family farm as a pillar of our culture…. we can do that but only with tax-exempt agriculture and land tax thresholds. Never trade barriers. Never outright subsidies.

    We have to harden our act up and strengthen our foundations. This is not in contradiction with libertarianism. Because reducing the governments footprint with each move is the METHOD by which we enhance sovereignty.

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