Correction

["Esteban Perez" <eperez@xxxxxxxxxxxx>]

Only a correction: meant to say rate of growth of P significantly greater than that of M does to alter the validity of the QT.

>>> "William B. Ryan" <william_b_ryan@xxxxxxxxxx> 05/07/02 10:41am >>>
That famous photograph was pure propaganda.  The German inflation was
not the result of the excessive printing of banknotes.  The rate of increase
in the price level was significantly greater than the increase in the
face value of banknotes.  The German inflation does not demonstrate the
validity of the quantity theory of money.

The German inflation was a complex phenomenon with many causes.  There
were reparations denominated not in deutschmarks but in foreign exchange
that had to be paid.  Germany did not have a "favorable balance" in foreign
trade from which to pay them.  German production had already collapsed.

The deutschmark was continually being "revalued" in terms of Germany's
holdings of foreign exchange, the reserves against bank credit.  Whatever
its reserve basis, "revaluations" had the effect of increasing the ratio
of reserves against bank credit, more than offsetting the bleeding of
reserves.  If reserves are "valued" at X in terms of deutschmarks and
then become valued at 10X in terms of deutschmarks by the fiat of international
bankers, the expansion of bank credit through loans and the purchase
of securities in the domestic market is enabled despite the dearth of
unutilized or potential productive capacity.  The repayment of these
loans requires the further expansion of bank credit.  The credit bubble
expands exponentially.

Despite it all, the printing of banknotes that were reissued in higher
and higher denominations by government authorities is what kept the real
economy going to the extent it kept going.

There are lessons in particular for Argentina from the German experience.
 Argentine foreign debt is the functional equivalent to German reparations.
 Unlike Germany, Argentina's industrial plant is intact.  To allow their
economy to collapse as it has done, in what should be the light of historical
experience, is utter and complete incompetence.  It is a disgrace.

The Argentines should immediately take control of the situation and work
out the details of contractual settlement with their international creditors
and internal bankers later.  Argentina is after all a sovereign nation.
 It should begin acting like one.  They should immediately print enough
government issued banknotes to allow anyone to withdraw his deposits
to do so, denominated of course in pesos, not dollars.  Emergency aid
checks to the people should go out immediately.  People are presently
denied the money to conclude even the simplest of transactions.  They
should immediately take control of foreign trade, not disallowing trade
but rationalizing its financial aspect, in much the same manner that
the old Soviet Union dealt with its trading partners.

The domestic market can be jump started immediately.
--

William B. Ryan
william_b_ryan@xxxxxxxxxx - email
voicemail/fax - 1-866-678-3967 - toll free



---- has27@xxxxxxxxx (Henry Schappach) wrote:
> Fiat currency by definition is "currency backed by the full faith and
> credit of the _____________ government". One may insert the name of
> any
> country or government since fiat currency is not redeemable for gold
> or
> silver or anything of any intrinisic value.
>
> One of the most famous photographs of the 20th. century shows a German
> peasant pushing a wheelbarrow that contains a huge mound of fiat
> deutschmarks. The peasant is pushing the wheelbarrow to a bakery to
> exchange the heaped amount of fiat deutschmarks for one (1) loaf of
> bread. This famous photo was taken a few years after World War 1.
>
> What happens today or tomorrow when the peoples of any country lose
> faith in "the full faith and credit of any country's fiat currency?"
>
> Idealism is wonderful and I would dearly love to embrace a philosophy
> where no one goes hungry or is in want or need. But we live in a
> realistic and not an idealistic world and the "full faith and credit
> of
> any country in fiat money" can reach a point where the peoples of any
> country (and those who believe in globalization) can be strained to
> the
> point where there is no longer credibility in the fiat money of any
> one
> or more nations.
>
> I don't like doom and gloom scenarios but feel there is a need  to
> address "realism". I do not have the ability to address the question(s)
> but would like someone with much better economic credentials to do
> so.
>
> Henry A. Schappach
>
>