2010 November 22 Monday
Quantitative Easing Explained

Using an XtraNormal video "malekanoms" offers an explanation of the Federal Reserve's policy of Quantitative Easing II. XtraNormal is a great innovation empowering many biting commentators.

He makes a good point how many important prices are still rising. If gasoline, medicine, and food are going up then why say there's deflation? Also, declining prices increase buying power which is a good deal if your salary does not decline as fast as prices. A commenter on the YouTube web page say that since housing prices are falling and the banks have huge amounts of money loaned out on mortgages that the Fed is acting to serve the interests of the banks. This is at least a plausible argument when you look at the interests involved. By pushing up general prices far enough housing prices will rise and this will reduce the incentive to default on underwater mortgages, thereby saving banks from bankruptcy.

James Grant, editor of Grant’s Interest Rate Observer, argues in a New York Times Op-Ed that the solution is a return to the gold standard.

Let the economists gasp: The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it. It was simplicity itself. National currencies were backed by gold. If you didn’t like the currency you could exchange it for shiny coins (money was “sound” if it rang when dropped on a counter). Borders were open and money was footloose. It went where it was treated well. In gold-standard countries, government budgets were mainly balanced. Central banks had the single public function of exchanging gold for paper or paper for gold. The public decided which it wanted.

Experts get to make many more decisions for us today, whether we like it or not. We are expected to appreciate them for their work.

Share |      By Randall Parker at 2010 November 22 07:02 PM  Economics Currency

not anon or anonymous said at November 23, 2010 7:00 AM:

Or, get rid of the central bank and let people use as money whatever they want, with debts to government payable in traditional non-fiat means (barter for services, gold, silver, or whatever's liquid at the moment). With the use of credit on plastic, people will be more interested in exchange rates than interest rates. And cash can go back to being whatever people want it to be, including precious metals, bank notes, hard-to-factor numbers, or reputation on a decentralized trust-accounting network.

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