|Subject:||Re: [socialcredit] a "well-researched" article|
|Date:||Friday, May 29, 2009 08:13:17 (+0100)|
|From:||Jamie Walton <eurojamie @.....com>
|In reply to:||Message 6775 (written by william_b_ryan)|
As I understand the 'quantitative easing' plan in the UK, - as I recall it from reading the articles on it in the (UK) Financial Times that I bought on the day after it was agreed (I don't have the copy with me now) - the Bank of England would create money to buy UK Treasury bonds (called 'gilts') from bondholders/bondsellers.
In this case, I would think that the money would go to the bondholders/bondsellers, and what they do with it after that is up to them (they may buy more UK Treasury bonds?). I'm not sure how this could be funding the UK government's budget deficit (except perhaps indirectly, through more taxation and borrowing).
With regard to the North's 'Greenbacks'; that period was during a war, and as far as I know the general rule is that wars are inflationary. I'm not sure if it's possible for an 11% portion of government expenditure (maybe 6% of total 'national' expenditure at the time??) to be the cause of the 75% inflation rate stated. I would think other factors would have a greater effect. I understand that $450 million were authorised, and slightly less than $450 million were ever issued (except for replacements of worn 'notes'), and this was later limited to $300 million authorised to be outstanding and in circulation at any one time.
With regard to the South's 'Greenbacks' (obviously also during a period of war), I understand that these were issued as promises to pay (with interest) later (after the war), not issued to pay now (like the North's 'Greenbacks'), and that about $1,550 million (more than 3.4 times more) of these promises were issued, with no limit (there may have been counterfeits as well?). I have heard that the Southern States were not all happy families; they did not co-operate very effectively and tried to compete with each other, even when they were supposed to be allies.
The comparisons with Weimar Germany seem unfortunate, and I'm not sure if there are any parallels between what happened then and what's happening now (or what happened during the American Civil War). I think that to do that question justice would take many months of research and end up being a book, and who has time to do that? - not me!
Ellen Brown's recent essay, "Another look at the Weimar Hyperinflation" is archived at
http://www.geocities.com/new_economics/brown-05-19-09.txt and elsewhere on the Internet.
I think it would be interesting for us to discuss some points in the essay.
The first I would to discuss is this assertion, which she attributes to a "well-researched article" by Martin Hutchinson. Now, the article may in fact be "well-researched," but Hutchinson supplies absolutely no sources or references for any of the assertions in the article, which is archived at
http://www.geocities.com/new_economics/hutchinson-04-09-09.txt so we must take as a matter of faith that it is "well researched". We must give complete credence to what this goldbug marketer of "investment advice" has to say.
According to Huntchinson, "The really chilling parallel is that the United States, Britain and Japan have now taken to funding their budget deficits through seigniorage. In the United States, the Fed is buying $300 billion worth of U.S. Treasury bonds (T-bonds) over a six-month period, a rate of $600 billion per annum, 15% of federal spending of $4 trillion. In Britain, the Bank of England (BOE) is buying 75 billion pounds of gilts over three months. That's 300 billion pounds per annum, 65% of British government spending of 454 billion pounds. Thus, while the United States is approaching Weimar German policy (50% of spending) quite rapidly, Britain has already overtaken it!"
Ms. Brown informs us that "seigniorage" means that government is effectively printing and spending money.
I do not find it astounding that some 15% of federal spending is being effectively printed and spent. We do have some precedent. The Greenbacks that were famously printed and spent during the Civil War represented only about 11% of federal spending during that time. My source for this number is a book published in 2004, *An Empire of Wealth,* by John Steele Gordon, page 196. During that time the annual inflation rate was about 75%, which Gordon described as being "manageable," which it was, certainly in comparison to the contemporary experience in the Confederacy. The Confederacy printed and spent, through their central and state governments, more than half of their budgets, in a much higher rate of inflation, approaching hyperinflation in the later stages of the war. The Greenbackers are silent on the experience of the Confederacy's "greenbacks."
What I do find astounding is the assertion that Britain is currently funding 65% of its spending through the printing of money, rather than conventionally, through taxation and borrowing.
I do not reject this remarkable assertion out of hand, but I do expect to see some proof that it is in fact occurring. I would like to see the actual numbers in their original sources. Any help in this regard from our list members would be welcomed.
I have been directed to an essay, "Hyperinflation in Germany, 1914-1923," by Hans Sennholz, which is archived at
which has numbers that are quite contrary to the numbers presented by Mr. Hutchinson:
"While government expenditures rose by leaps and bounds, the revenue suffered a gradual decline until, in October 1923, only 0.8 percent of government expenses were covered by tax revenues. For the period from 1914 to 1923 scarcely fifteen percent of the expenses were covered by means of taxes. In the final phase of the inflation the German government experienced a complete atrophy of the fiscal system."
So, according to Sennholz, in October 1923, only 0.8% of government expenses were covered by tax revenues, which means that 99.2% were not. I would presume that most if not all of that 99.2% was covered by the printing of money rather than conventional borrowing. In any case that would be far greater that the 50% that Huntchinson claims was "Weimar policy."
And would put the lie to the premise to Ms. Brown's question:
"If Britain is already meeting a larger percentage of its budget deficit by seigniorage than Germany did at the height of its hyperinflation, why is the pound now worth about as much on foreign exchange markets as it was nine years ago...?"
The second point I would like to discuss is the assertion that Weimar's hyperinflation was caused by the short selling of the mark:
"What actually drove the wartime inflation into hyperinflation, said Schacht, was speculation by foreign investors, who would bet on the mark's decreasing value by selling it short."
In this Ms. Brown is quoting Stephen Zarlenga who is supposedly sourcing Hjalmar Schacht's 1967 book, *The Magic of Money.* Now, I don't know if Schacht said that or not in his book. The University of Houston Anderson Library has the book, which I plan to consult shortly. If Schacht indeed did say it, I would be inclined to believe it was self-serving, inasmuch as he was very much involved with the German central bank during the time of the hyperinflation. It would be a way of shifting blame away from himself and his colleagues.
While I find it believable that short selling of the currency may have been involved during a time of hyperinflation, I find it difficult to understand how it could be the cause of the hyperinflation.
I would welcome anyone explaining to me how this could be the case.
I find it ludicrous that Ms. Brown refers to Henry C. K. Liu as an "economist." He is by educational and professional background an architect, who runs an investment fund out of New York. He can barely put together a coherent sentence in English, as is evidenced by various postings to the old Post Keynesian list, but employs teams of researchers who put together quite literate multi-thousand word essays that he posts under his name all over the Internet. I've found that they are predominantly cut and paste efforts from other people's work. Whatever they are, they can hardly be considered to be authoritative on any subject.
He has for years pushed Warren Mosler's "State Theory of Money" theory to the Chinese Communist regime. I've called, for good reason, Mosler's theory to be warmed over Nazism. There's nothing original in it, though in the beginning Mosler thought he was a genius who discovered something new. Mosler's and Liu's presentation of Hitler as being a Lincoln Greenbacker is not mere apologetic for Nazism, but for Greenbackerism, which, in its very essence, certainly large aspects of it, is Nazism in disguise.
And, finally, Zimbabwe. Now, that unfortunate land, is experiencing the worst hyperinlation in the history of the world. Ms. Brown attributes this not to the incompetence of the Zimbabwean authorities, but takes--lock, stock and barrel--the statement from the Zimbabwean central bank that:
"the hyperinflation was caused by speculators who manipulated the foreign-exchange market, charging exorbitant rates for U.S. dollars, causing a drastic devaluation of the Zimbabwe currency."
It is more reasonable to believe that the crisis was precipitated in 2001, with the confiscation of the white-owned farms. The farms were handed over to Mugabe's cronies, who knew nothing and cared little about farming. And the farms' employees were not loyal to their new overseers. Farm production and exports plummeted, which were the main source of foreign exchange. Tax revenues declined significantly. It is reasonable to suppose that Mugabe tried to keep things going by printing and spending money, and things continued to spiral out of control from that point onward.
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