Mish: Instead of having dinner with those that caused the problem and have no idea how to fix it, the powers that be should have instead sat down with the top 20 economic bloggers as to what to do. We have been warning about these problems for years.
Volcker, for his part, says the current crisis has its roots in the lack of restraint inherent in the highly leveraged system that evolved, one in which winners were rewarded exorbitantly but the inverse didn't seem to hold.
"The first panacea for a mismanaged nation is inflation of the currency; the second is war."
-- Ernest Hemingway, Esquire magazine, September 1935
"Price stability is something which is essential for the poorest and the most vulnerable of our citizens. They cannot protect themselves against inflation. It is extremely important that we understand that moderation today is necessary if we want to deliver price stability in the medium term."
- European Central Bank president Jean-Claude Trichet, April 2008
If a wolf says he is there
If a wolf says he is there to protect the rabbit, and yet, we can observe the wolf eating the rabbit daily, we then think that as reasonable and observing people we will be wise to say that the purpose of the wolf is to eat the rabbit.
If a lion says he is there to protect the antelope, and yet, we can observe the lion eating the antelope daily, we then think that as reasonable and observing people we will be wise to say that the purpose of the lion is to eat the antelope.
Yet, if Government says their intention with instituting the Fiat Money system is to have no inflation, and yet, we observe that inflation is the only thing that ever happens under Fiat Money system, we somehow still think that we can consider ourselves reasonable and observing people, if we say that the purpose of Fiat Money system is to make sure there is no inflation.
What else could G7 possibly do? All they want and ever wanted is Inflation, nothing but Inflation. That is why G7 exists, that is what they want. Moral hazard? You mean that by allowing the inflation today, they make future inflation even more possible? How unreasonable of them! Instead, we should expect them to do everything they can to eradicate the possibility of ever reaching their goals?
cRavias, I agree
Fractional banking and a fiat currency REQUIRE inflation. If there is deflation, then everyone would move to deleverage at once, which would cause the entire system to collapse.
This one is new to me...
But you're might be onto something. It is an interesting thought.
All I was saying was that the Fiat Money exist for single purpose - theft of purchasing power through inflation. Therefore, it is strange at the very least, to expect such a system to deflate or to say that it cannot inflate.
Of course it can and will, that is the whole point and purpose of it.
But your point is even more interesting. I had been thinking about something similar, except that I thought that I would state that "The system of proggressive taxation requires inflation because it requires a progressive risk to compensate for a value stolen through a taxation. If there is a deflation, then everyone at risk would move to deleverage at once, which would cause the entire system to collapse. At the same time, every successful attempt to avoid the collapse, implies some costs, and these costs had been carried primarily by those who are taxed, and the progression applies here to amplify the burden of cost bearing. Therefore, to compensate for the value stollen through the taxation, those taxed most must now leverage even higher, or in other words - assume even greater risk, thus pushing the entire system to yet less stable equillibrium."
My point was usually to point at the progressive taxation as a direct cause of ever increasing risk in the economic system, while a taxation itself is a cause of some additional risk, that otherwise would not be taken by market participants. I don't know, may-be you can actually apply the risk of deleveraging to explain the fiat money system.