Re: two currencies and Korean war

[William F Hummel <wfhummel@xxxxxxxxxxxx>]

On Sun, 27 Jan 2002 13:53:32 +1100, you Bruce McFarling wrote:

>On Fri, 25 Jan 2002 13:48:01 -0800, William F Hummel
><wfhummel@xxxxxxxxxxxx>
>
>>Aside from Liu's strange remarks, I haven't seen "chartalism"
>>used on this list as a policy prescription.  In my view it is
>>simply a description of the key mechanism by which a modern fiat
>>money system operates
>
>You know, change that "the key mechanism" to "a key mechanism",
>and I am much happier with chartalist theory.  Certainly
>businesses must keep the tax man happy or be shut down, but
>they must also keep their banker happy or be shut down, given
>that obligations are undertaken prior to payment being
>received so that business firms often must be net borrowers.
>If banks are required by their regulatory authority to have
>a particular financial asset on hand in order to avoid being
>shut down themselves, and the amount they must have on hand
>is determined by the balance of oustanding obligations of one
>or more different types, so that for direct purposes and for
>purposes of interbank lending they are happy to get that kind
>of financial asset, that can also be the basis for a currency
>that is widely accepted by the business who must regularly keep
>their bank happy.
>
>Of course, combine the two -- acceptability to banks and
>acceptability for tax payments -- in one financial asset,
>and you may well have something whose acceptability is so
>general that its original standing as a financial asset
>depends entirely on those two characteristics.
>
By "the key mechanism", I was not referring only to the
acceptance of fiat money for tax payments as the description of
chartalism.  An essential feature of a viable fiat money system
is a balanced circular flow between the government and the
private sector that allows the government to control the own rate
(overnight interest rate) of its fiat money.  Revenues from taxes
and debt sales must, on average, equal spending to make possible
control of the own rate by the central bank.

William F Hummel