Re: two currencies and Korean war

[David Gleicher <104201.2301@xxxxxxxxxxxxxx>]

Message text written by INTERNET:pkt@xxxxxxxxxxxxxxxx
>Taxes are much larger than government borrowing to avoid or minimize
deficits (which are considered a very bad thing).  What does it have to do
with limiting the growth of the monetary base?  Central bank purchases and
sales of government debt can be used to change the base but this has no
necessary relation to the deficit or to taxes, does it?  Collecting no
taxes
would leave the monetary base unchanged if no part of the spending was
financed by borrowing from the central bank.
<

This statement of Ted's is inarguably correct, and I think gets to what has
made the chartalist position  so confusing to me, at least.  Credit money
is issued by a central bank through its lending to the public (purchases of
financial instruments and so forth), so that there is nothing on the face
of it that I can see that privileges tax payments as a basis of the
currency.  One might more convincingly say it is the willingness of the
public to borrow and accept  payment in the form of such bank credit that
legitimizes the currency.

I believe it was Henry Liu who at some point stated that chartalism as it
is expressed on this list anyway is really the advocacy of a policy rather
than being a coherent theoretical position about money and the existing
monetary system.  The chartalists seem to wish to eliminate central banks
and to unify in the Federal govenmnet the roles of budget-making and
creation of money.  Hence Per, even though he knows better, makes the slip
of claiming that if there were no taxes government spending would cause
huge increases in the money supply;   i.e., all government spending is
viewed as what is commonly known as 'monetizing the debt.'   This is not
the case because, as Ted points out, the government can borrow existing
cenrtral bank credit from the public.

The ironly of the chartalists adopting as reality what they wish would
become reality is that reality in fact seems to be moving in the opposite
direction.  Hence, the feeling I've had reading a lot of this discussion
that it lacks relevancy.  Pioneered by the US, which has always been
ambivalent about the status of the Federal Reserve vis a vis being a
private versus public institution, the functioning of the central bank is
becoming if anything  increasingly more independent of the budget-making
institutions of the nation-state.  One example is the uncontested move of
Greenspan to prop up the Mexican peso even as Clinton administration was
refusing to do so, on the basis that the Federal Reserve was free to use
its assets as it wished.  The other example is the creation of the Euro, a
credit money issued by a central bank of the EU that is not associated with
any particular nation-state at all.   Clearly it is not the budget making
institutions of the various EU countries(i.e., there ability to raise
taxes) that legitimizes the Euro.

Comments?


DG