Posts Tagged ‘inflation’

Real vs Money Incomes – the one thing we need to understand during deflationary times (with an illustration from Greece and Cyprus)

March 13, 2016

Yanis Varoufakis

deflation.jpgIn inflationary times, real income growth is always good news. However, in deflationary times, real income growth may well reflect a deepening recession (or even a depression). This is important to know lest deepening recession is presented as… economic recovery (as has been the EU’s wont in recent times).

How can real income growth reflect a deepening recession?

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Money

August 13, 2010

Money, whence it comes.

When the Central Bank prints off more bank notes and the supply of money exceeds the supply of goods and services, ie there is a mismatch, they are not in balance, we have inflation.

Inflation is a hidden tax, the pound in your pocket is worth less than it was.

When Gordon Brown claimed the economy was safe in his hands, this lie was exposed by looking at the depreciation of pound sterling. When the pound sterling fell against the Micky Mouse euro with all its woes and internal contradictions, then it was fairly obvious that something was very wrong. The pound almost reached parity with the euro, it has since picked up and is hovering around one pound equals 1.20 euros.

I am famously reminded of Harold Wilson after the UK had to go to the IMF with a begging bowl claiming the pound in your pocket was still worth the same. But I digress.

It is not only Central Banks that create money, so do Commercial Banks, they do so every time they make a loan.

You borrow a thousand pounds from the bank. You buy a car and pay cash. The man of whom you have bought the car deposits the money in the bank. The bank then loans out this money several times over.

You pay your loan back to the bank. You not only pay back the loan, you also pay interest. Where has the interest come from?

It is not only the Central Banks and Commercial Banks who create money. We do every time we buy goods and services with our credit cards. Prior to our using our credit card, the money did not exist. We hand over our credit card, and hey presto, we have created some money out of thin air.

Easy credit, easy money, creates debt!

I have somewhat oversimplified, I have ignored the velocity of money, ie how fast it circulates within the economy.

We need local currencies. Local currencies help to isolate us and put our money to better use, creating jobs in the local economy.

If we spend money in a High Street shop, that money (apart from an infinitesimal amount) goes straight out of the local economy. If we spend it in a local shop, a significant percentage of our spend, is then spent in the local economy. If it is a local currency it can only be spent in the local economy.

It used to be a capital offence to debace the currency.


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