So if the free market is responsible for the growth over the past 15 years then the record negative growth over the past 18 months must also be as a result of free market economics. You can't have it both ways. And had it not been for Keynesian intervention that negative growth would have been much more dire.

I thought the 1930s depression was the record negative growth period. Also nearly all commentators have agreed that the 1930s depression was made much worse by the policies of governments increasing tariffs and collapsing the money supply. This time the credit crunch was due to US and UK property booms caused by Greenspan in the US keeping interest rates too low and Blair in the UK removing dividend imputation in 1996.

The thrust of the article is that excessive government intervention in the economy causes both inefficient use of and mis-allocation of resources. As yet the interventions by Obama, Brown and Rudd have not yet worked out but it looks like the UK is going to have a pretty strong rise in domestic interest rates.

To me the argument is simple, compare the economic progress of West & East Germany post WWII. As Friedman said it was one of the instances in the history of economics where a controlled scientific experiment took place.

<<<The concept of giving government a greater role in shaping our economy and society has been tested to destruction and it has never worked.>>gee aint that a kicker[let me put a few things into perspective]

the rail system[govt]..the road system[govt]..ports[govt]...phone.mail.electricity.water,sewrage[govt.govt govt]where would buisness be without them?

but there is more[govt subsidies like the farmers get..[yes and tarrifs]that created an autoindustry[for egsample]...[]or govt subsidy to the pharma industry, or tram's,busses,not to mention cheap electricty/water to electrical generation[and smelters[building dams[think of the hydro-sceme]

but im one against big govt as well[and coorperate welfare]and centralised control..so on to the next quote

<<The result was clear:where governments accounted for below 30 per cent of GDP,the economy grew by more than 4 per cent per year on average.>>OK SO 7 percent seems fine?

so waynes 'predictions' of 4%..are fine

<<On the other hand,governments taking just under half of GDP only managed growth rates of below 3 per cent.>>were no where near half gdp so the point[issue is somewhat spurilous]

<<Roughly speaking,for every 10 per cent of GDP that government consumed,economic growth rates suffered about 1 per cent,according to the OECD.>>>interesting stuff but im not seing why its relitive[is this the quality of news paper reporting?...no wonder there going bust

anyhow i agree big govt is dumb[i would have appriciated some evidence to help me make my case[i suspect the bigger it gets the less effective it gets[and the more we have public servants mates with their noses in the trough..[getting the too generous govt super[govt cars,perks and special travel

we are over gouverned damm it cant you paid bloggers even ,make a better case to suit the headline?

how can we kill off the states?
how can we stop states selling off our assets
are you even trying to make a case[or just filling in some news sheet]

Isn't it quaint how neo-classicals just hate, hate, hate government with such a passion that they think that editing history somehow magically makes their re-writing true.

It is a fact that from WW2 to 1970, unemployment in this country was in the extreme low range, hovering between 1.9% and 3%, growth and nation building went ahead in leaps and bounds and inflation was relatively low. How ironic then that this was also an age of big government "interference" in the economy when governments left and right produced but 1 single surplus budget between them in that entire 30 year stretch - the rest were in deficit. Seen in that context, all these hysterics about defict and debt become ridiculous. Why would the government that issues the currency that everyone else uses have to worry about whether or not it can pay for deficit spending in their very own currency of issue?

As much as the neo-classicals wish it were not so, it is a fact the (federal) government is an utterly crucial part of the economy. Only when the federal government net spends can new currency enter the economy and a manic drive to run up federal surpluses all the time is not responsable, it sets us up for the next downturn and bigger deficits by contracting the money supply. What we have had since 1970 is sharper cycles of boom and bust with unemployment spiking far higher than in the age of deficits, and a permanently heightened unemployment rate (don't forget hidden unemployment - underemployment. Australia in the neo-classical age has a very high rate of casual and part-time jobs, all of which are officially measured as the person being employed).

It is sad that neo-classicals don't veiw situation - one easily fixed with properly targeted government spending - as a social problem of any great consequence.

its the economy stupid
jobs jobs jobs...lol
howhard made govt bigger[despite his promise of making it smaller]

howhard didnt pay off govt debt[him shifting the ownership of telstra/telicom did]..but i will use a quote

<<The spending plans announced in Wayne Swan’s budget are leading Australia down a path that will eventually slow our economic growth. They are also dangerous because of the vast amounts of debt he has planned.>>as many have pointed out its planned spend...aimed to give certainty[the opposition is talking about futuire numbers[labours real dumbness is not bringing the numbers back to the reality of the current debt

<<Public debt of $188 billion would mean annual interest payments of $7.6 billion.>>yes it WOULD mean[in time..but its not the case yet

<<This is money that cannot be spent on hospitals,schools or transport.>>note now the intrest on loans we havnt actually created YET is being sold as a nett loss[little seeing the complete absurdity of when the debt is created thats the very reason it gets created FOR...lol

<<It is also money that will have to be raised in taxes.>>CRAPpp, this is having it BOTHWAYS[either it is being created by lending [or it aint...seeing as were going to be paying intrest[or our children are.,who also will be having the bennifits via better education and health services etc..lol

<<And it is almost twice the amount the government currently spends on infrastructure.>>>lol thats sort of the point, yes currently there is an underspend[mainly because howhard had to give his mates tax cuts[and no death duties[and shift the burden of taxes onto the poor, as we get ever more poor of course the income from the serfs falls

<<Over the past 15 years,Australia enjoyed the benefits of having a comparatively small government,>>MYTH making not supported by the facts healthy public finances,

<<and strong economic growth.>>its a bubble stupid

<<The Treasurer is leading us towards big government,>>began by howhard
<<permanent deficits,>>speculation
<<high debt,>>how about higher equity,quality of life

<<and slow growth>>mate come-on...4 percent

<<As it turns out,this is the very opposite of smart government.>>but very clever reporting..lol

OK I'll join the chorus.
How is it that the Government debt we are entering into is so bad, whereas the record private debt that accumulated under Howard is so good? The massive private debt has lead to government propping up the banking system, real estate, superannuation, etc because if the "free market" were to operate the crash would be monumental and last the next decade.
As another poster pointed out, Australia's current prosperity is based on decades of government nation building that the capitalist system rides on. Lately they have been asking for a free ride, or to put is more accurately, they are transferring wealth from the younger and future generations to themselves now.
The Liberals (and followers) are blaming Labour for a situation that they engineered. (Though I admit that Keating also had a role)
The money markets are now totally dis-functional because the privately run Fed in the US corrupted the free market with stupidly low interest rates when, by rights the cost of money should have been increased. We followed along blindly.
Now the financial sector has bled us dry and created a few more millionaires and billionaires at the expense of a whole generation of middle class families, it is *not* the time to be going "law of the jungle".
All waste is bad: government and private. Spending 30% of GDP fiddling with computer money at the expense of real industry is the real problem.

Throwing money at climate change 'damage' to the Great Barrier Reef is not going to overcome the real cause of damage. See

http://www.solomontimes.com/news.aspx?nwID=4043

JF Nutrient pollution has been known/very strongly suspected as the cause for some time.
Why else would the cane farmers be spending so much to deny it?

You only have to dive anywhere near places like Dunk Island to see the damage that agriculture does. The further from agriculture, the healthier reefs are. Any reefs close to runoff have been dead for years now. Sadly, the GBR is dying before our eyes and even the outer reefs are now dying off.
Real science has so little respect in our society that any finding that annoys people can simply be whitewashed by "independent studies" as used by the tobacco and oil industries. Another example of corporate responsibility (to profits at expense of all else) in action!

Ozandy, it is the southern city source of nutrient load/supply that is not scientifically known or admitted that is causing the overload, when it reaches GBR waters, the total load sometimes amounts to pollution.

Agriculture has been there for years with little or no impact. Farmers do not waste expensive fertilizer. It is nutrient pollution causing the bleaching, not toxic chemicals that farmers use. It is the oversupply of nutrients that coincide with massive southern city and town population increases. If anything, use of fertilizer has been decreasing due to increased cost and farmers curtailing waste. Farmers would deny it because they are lateral thinkers and know fertilizer use has not really increased, despite perhaps a few more farms.

Science knows the geology of eastern Australia longshore current but the CSIRO for sure does not know the biology of that current system that transports nutrient matter from Victoria to Cape York.

Dunk Islands dumps or soaks nutrients from tourists into GBR waters so increased damage is likely nearby.

The "independent studies" sure are doing damage to real science and I think this is one reason why the subject is no longer so popular in schools. Pity. Lets hope the situation changes with scientists standing up like decent people and coming forward with honest science and relevant solutions before too late.

govt is not only too big[the two party game is avoiding discusion]as i write turnbull into vootes is yet again attacking imaginary numbers[he could be debating the new tax[for egsample] in the co2 tax debate the two parties are chosing not to have

this is because the sponcers of the new_tax..[the finatial system..is..needing a new cash cow..,carbon CREDITS..that the derivitives traders will tade]..

its nothing to do with global warming/cooling change...remember cfc's ruining the ozone..it hasnt rated a mention...in this debate..were also not having by questioning govt PROJECTIONS..recall how they got it consistantly wrong '...constantly under real return..for cost-hello..sloppy joe and howhard

if we dont have a double disolution...this to will become clear this time next year...thus the too big to fail big govt opposition makes hay..before the under predictions become..yet again apparent

the non debates..big..[too big]..govt/public service..hasnt had..[its pretty smart not talking about the white/elephants..in the house..[nor the media loyally changing the topic to people..not dying from the manufactured bird/swine human flue hybred created in briton,..by the drug industry

I do agree with the views of the author.

If we accept there is a “sludge” effect inherent in government:

the tardiness and inertia, engendered from disinterested bureaucrats, versus the driving force of involved and motivated individuals –

Why on earth would anyone expect a government to be more “responsive” (let alone responsible) than those individuals?

I note the author wrote a paper on the wasted monies and resources of labor government motor vehicle strategies and policies.

Such strategies being no different to every other form of government intervention…viz

Tax the consumer to fund ….
Government favoured resource deployments…
Which, ultimately, pervert the product or service supply price in favour of a government sponsored “winner”…

Rather than

Simply letting the product or service live by its own merits before an informed and discerning consumer?

“Smaller Government” was recognized as the better option 30 years ago and it still is today.

All that has happened recently is some smart assed politicians got into the mix and regulated for a disaster, in the name of a political agenda.
The social and commercial basics remain the same, less meddling produces better outcomes because resources are now squandered on pre-ordained “government winners” - as the UK saw with the bungles of socialism in the post WWII years and the old Eastern Blog saw as their "all powerful" governments failed and built walls and fences to stop individuals leaving.

The Australian government - be it Labor or Coalition - presides over a modern monetary economy using a non-convertable fiat currency Col.

Taxes levied by the federal government therefore do not fund anything.

Fozz,

If that were the case, then why would a government bother taxing its' people? Do they just do it for fun? According to you they would just print more money. Hilarious!
Assuming this were true, it would then also be reasonable to assume that our currency would be about as valuable as Zimbabwe's, but it isn't.

I've read quite a few of your posts now, and not one of them has any basis in reality, logic, or true economics.

Utter BS mate, which leads me to believe you had a Keynesian lecturer at Uni, (if you went at all) and you actually swallowed it.

The aspects of economics that Keynes got right were not new, and the rest he got completely wrong. Keynes was an upper class toff, who was narrow minded, hated the proletariat, was unaware of how humans interact or think as individuals, and was not omniscient as you seem to believe.

I just don't understand how so many professional economists, and you right.
Your logic would most likely be questioned by a small child.

Governments DON’T create wealth. They steal from one section of society via coercion, to give to another section which they personally prefer, or hope will deliver votes down the road.

Even the Chinese have figured this out, and have therefore opened their economy to free trade. They realised they were going nowhere with government as the sole economic power. Hey presto, the standard of living rose, and wealth was created. NOT by the government, but by private citizens.

How on earth one can believe that government knows best how to create wealth, let alone manage an economy defies logic, especially these days when barely any of them, (particularly on the left) have ever held a real job, or run a real business.

Don’t bother with a retort, as I know it will be rubbish before you even start typing, since you live in a fantasy world, and I’m not going to read it anyway. Besides it would only make all who read it dumber for having done so

Rechts,

it is clear that you do not understand the basic functioning of our modern monetary economy. It does not function according to "left wing" or "right wing" prinicples, our individual political outlook has no effect on this.

Think hard about where money comes from. Then clearly explain, step by step how private citizens somehow create wealth in the absence of the currency monopolist (federal government in this country). How does economic growth of itself magically create the medium of exchange necessary to finance itself? How does the market of itself expand the money supply?

Word limits do not permit detailed explanations here but basically: we run a fiat money system. The federal government does not get this money from anywhere. It simply spends it into existence by crediting bank accounts in the commercial banking system. When it taxes, the money does not go to a government bank account. The government simply debits bank accounts and the money goes....to oblivion. It is extinguished.

The (federal) government's spending is not revenue constrained. It simply creates what it desires to spend. Because it does not make sense to save what one can simply create, federal budget surpluses are not national savings. They are simply an accounting statement indicating that the government has removed more money from the economy in tax than it has added by spending.

If it did not require everyone who works or does business to pay some of this currency that it has simply created from thin air back to it in tax, the currency would be more or less worthless. This is why they tax.

I no doubt approach the word limit but you must try to appreciate that a federal budget is not REMOTELY the same thing as a household budget. Public and private sectors are two sides of the same coin and federal government is a CRUCIAL part of wealth creation. But refer back to my second paragraph - clearly explain this magical, self-financing economic expansion that does not need the issuer of currency.

Fozz

“…clearly explain … how private citizens somehow create wealth in the absence of the currency monopolist (federal government in this country).”

You mean, how would private citizens create wealth in the absence of the currency monopolist, yes?

In the absence of fiat money, citizens would use money supplied by the market - as they did before government became a currency monopolist.

“How does the market of itself expand the money supply? How does economic growth of itself magically create the medium of exchange necessary to finance itself?”

There is no magic in it. It is simply the economics of productive activity using a medium of exchange.

The market doesn’t need to expand the money supply to finance economic growth. (To answer your question, it expands the money supply by increasing the supply of whatever is being used on the market as money: gold, silver, cigarettes, shells.) But the reason it doesn’t need to expand it in order to finance economic growth is because prices are exchange *ratios*. What matters is the *relative*, not the absolute amount of money.

To finance economic growth, say a particular project, *expansion* of the money supply is not necessary, any more of fiat money than of shells or cigarettes. The same total quantity of money stuff will suffice, even if the total economy increases in size. All it means is that the price of money, the value of the money unit, will go up in terms of goods.

“The (federal) government's spending is not revenue constrained. It simply creates what it desires to spend.”

But according to you, the federal government's spending is revenue constrained, because the creation of new notes causes the value of the existing notes to decline in value, which is why, according to you, they need to reduce the amount of notes in circulation by taxation.

Therefore by your own admission, the government is not creating real wealth by printing paper. It is diluting the value of the money stock, and it can only do that by transferring real actual wealth from all the other holders of banknotes.

Fozz
It is you who have completely failed to understand the modern monetary system.

As proof, governments have taxed for millennia. Tax is - (or according to you, was) - a forced taking of other people’s wealth, whether in cash or in kind.

So according to your theory, the nature of
1. taxation
2. of money as a medium of exchange, and
3. of productive activity itself

must have *fundamentally changed* in history some time after fiat money was brought in, so as to change the function of
1. taxation from revenue raising to currency deflation,
2. the function of money from medium of exchange to magic pudding, and
3. productive activity from based on work and savings, to based on bureaucratic decision.

This disproves your theory, otherwise clearly explain what, how and when each of those changes was.

It is hard to comprehend the confusion of ideas that must have given rise to your theory that real actual wealth is created by stamping paper, and the laughable belief that government is the source of all wealth.

According to your theory, why not just abolish private property and human freedom altogether? Totalitarian government would be more productive! Laughable.

So let me ask you this. Why government? Why not the local soccer club? What was it about government as an organization that made it the fountain of all productive activity?

“government is a CRUCIAL part of wealth creation”
But according to you, only in its capacity as a monopoly currency supplier, yes? But that is not an argument that government is a crucial part of wealth creation, since if they stopped imprisoning the competition, the competition would provide the same service. (They would actually provide the same or better service cheaper – that’s why governments imprison them!)

I have clearly explained what you asked; let me know if not.

Now you need to clearly explain the answers to all the questions asked.

Your theory is mere confused a-historical, anti-economic voodoo and you are being publicly thrashed and humiliated, only your shameless ignorance doesn't understand so.

[i have avoided comment..because so many missconceptions have occured on this..[and..a simular thread..but..will attempt to put my opinion on the matter]

first..govts dont issue fiat money..[the fed does]..the worlds/feds were taken from govt..by debt from war..[money was lent by govts and presure was put to sign over the worlds/fed's..to the money changers..[read..'creatures from jeckle-island'..]..the us fed for egsample was sold for 44.4 billion

how govt gets money is/by issue of a bond..the fed converts to fiat credit..[all income-tax goes straight to the fed,..to repay govt-debt..[at intrest]..tax..on income arose after privatisation of the fed reserves..[the hansard/debates at the time mention;..debate was to be minimised because of the urgency of the matter..[income-tax was held to be unconstitutional..[then as now]

anyhow..money was a..'promise to pay'..[in weight of silver]..thus we had pound notes,..on them was written..''promise to pay bearor one pound silver''..[sterling silver..[thus was the/pound-note called pound sterling,..according to the grade of silver..redeemable for the note

[at decimilisation..'silver'..became nickle..[the only..'true-silver'..coin[to survive decimalisation]..was the round 50 cent piece..[today containing arround 8 dollars of silver..[while due to inflation the 50 cent/nickle-coin..is now near 50 cents worth of..nickle

this in no way excuses the theft..of our silver..[coin is the only constitutionaly legal tender]..[our one/two cent pieces contained 5/10 cents..[of coppper]..before they too were stolen by the fed...

the fed lends fiat paper..[and virtual-credit to the bankers..[to get into the banking/scam..you need to put up a set/payment..to get a multiple of that..in fed paper/credit to lend at intrest..[that created money..has nothing to do with govt]

the fed..to print money..pays the mint 7 cents..[a note]..to print the notes..[govt can no longer order the printing of any money,..any payments made to govt..go to the fed..[via the treasury]...before the fed stole our silver..it..stole our gold

[once upon a time a pound/was a pound of gold]..then it became a/pound of silver..ie..[pound/sterling]..now its two bucks..[or a few hundred grams of nickle]..not silver/not gold/not govt,..just a nice banking-cartel...lurk..charging govt..intrest..to lend our..'own'..money..[sorry legal-tender]...lol

How about you educated economists answer a back to basics question or two. We hear so much money has been lost worldwide, so where is that money now? Who has it or where is it? Who has increased their wealth from all the money that has been 'lost' in this present world economic crisis?

We know steel mills engage in meldowns. Where is the lost money?

We don't have a 'free market', and never have. Thirty to fifty per cent of all income is handed over to the Government treasuries. This means, even ignoring all the influence of goverment regulations, transfer payments and infrastructure spending, that Australia has and has always been a 'mixed economy'.

Floatinglilli
That is true, but is not an argument in favour of government threatening to lock people up for consensual productive activity, which is ultimately the issue as between so-called mixed economy and free market.

JFAus

We need to distinguish between money meaning real actual wealth – as in “He’s got lots of money.” – and money meaning the paper stuff.

It is the destruction of real wealth that is the underlying cause of a recession. The paper is only important as it stands for the real stuff.

Government manipulates interest rates to make money – paper - cheaper.

But this does *not* increase the quantity of real stuff – otherwise we would have discovered a way to make real wealth out of thin air by stamping paper.

Inflation increases the wealth of government and political favourites, at the expense of everyone else, especially the poor, workers, and savers.

When government lowers interest rates, capital and labour flow into businesses and industries based on fake demand, away from businesses and industries based on real demand. By fake I mean that, absent the inflation, businesses aren’t really willing to invest, because consumers aren’t really willing to pay for the goods. The inflation deceives them.

The bubble of fake money creates a boom that must eventually collapse when it becomes obvious that people are not really able to re-pay the debts.

But the stuff that has been created in the bubble – say wide-screen TVs – cannot be converted into stuff that people really want – say cattle - without great loss.

Enormous amounts of capital are destroyed, thus wasting all the years of human effort that went into making it. It is this wastage of capital and human life-years that is the ultimate cause of impoverishment, because capital increases productivity, ie more output for a given amount of input.

Meanwhile the politicians, bankers, speculators and academics who benefited from the scam are retired on fat pensions – paid for by all the people they defrauded, who don’t understand it. They think the problem is *not enough* government manipulating the money supply.

Peter Hume,

How can one distinguish between "He's got lots of paper stuff"? Money was money when I went to school and it's the same now when I go to buy whatever.

By paper stuff do you mean 10 dollar notes or money on paper? Anyway, money on paper is not legal tender, in reality it's not money and is impossible to melt unless it involves gold shares.

Your explanation makes me think Treasury is short selling money, no wonder consumers lack real money.

When government increases interest rates to 'slow the economy' and borrowers pay increased interest with real money, who gets that real money?

I see when government reduces interest rates a lot of people borrow, then up go interest rates and lawyer politicians feed their industry with foreclosure legal fees, lenders thriving on penalties.

Yes, inflation deceives people, in more ways than one. I sold a house not that long ago for a then top price of $30,000.00, now worth $1.5 million. Not long ago a chocolate cost 1 penny and if it went up 100% it became 2 pence, no numbers in between. What next, naughts taken off with even more impact and drama?

If enormous capital is destroyed as you say, is this a shredder or metal meltdown in action? Let's be real about this. Previously people increased capital with their productivity such as through gold panning and fishing. Available natural resources produced capital at the bottom of the economy but now natural resources are devastated. Now big corporate mining and long range fishing factory ships are required and even those are producing less unless more effort at cost is applied.

In my view the answer is lateral debate toward solutions, involving big government prepared to listen and examine what is, or is not happening at the bottom of the economy. From experience I think you have to be there to see it to understand it at the bottom. Politicians and bankers are not there and that, as evidence indicates, is a reason why cause of this worldwide financial crisis is not officially known.

Fozz “Taxes levied by the federal government therefore do not fund anything.”

Interesting PoV..

If they “do not fund anything”,

why levy them in the first place?

And btw, when governments borrow to meet their funding promises…. Who pays the interest on the debt?

I tend to think Recht has the measure of you but feel free to attempt a cohesive reply.

And whilst you seem to think Recht does not “understand” basic functioning of modern economics (how patronizing of you… I think he is right, you must be a teacher of some sort, only they can lay it on that thick, a position where you rely on the generosity of the public purse and avoid any real accountability) I suspect he has a far more practical appreciation than yourself…

As Margaret Thatcher, who I had the honour to vote for when in UK, said

“Any woman who understands the problems of running a home will be nearer to understanding the problems of running a country.”

Don’t divorce your wife, because with your comprehension of “basic economics” you will be hard pushed to pay for your own fast food and utility bills.

What makes an economy work are several factors predominant but not limited to and in no particular order:

1 Innovation in products, services, their processing and delivery along with market development
2 Risk capital to invest over time, in an insecure world
3 Market understanding of demand
4 Consumer demand
5 Public confidence

Take away any of the above and an economy will either fail or become very sick.

BUT NOTE

none of the above rely or need government intervention and imho when governments pretend to direct or control any market, their attempts are so stupidly ham fisted and ill conceived, that waste and spoilage are the only outcomes.

Wing Ah Ling, Peter Hume

This is what I'm talking about. When it comes to how the modern economy functions, I am talking about what IS. You are talking about what IF? You seem to be analyzing the modern monetary economy in the context of an old commodity-backed currency economy and then applying that analysis to the modern economy. They are not remotely the same thing.

So once again: we run a modern monetary economy using non-convertable fiat currency with a floating exchange rate. The government does not need to acquire gold or anything else to issue (spend) currency. The central bank does not need to worry about defending a fixed exchange rate.

The federal government may issue Australian dollars as it sees fit. It has no prior need to tax or borrow in order to spend, unlike everyone else. It is THEIR currency. They alone issue it. Do you have a good answer as to why I would need to earn or borrow what I can simply create at will before spending? The proposition is ridiculous. This is NOT the same thing as being in favour of unlimited budget deficits.

Now after you previously accepted my propositions of fact - as you yourself called them - why go ahead and argue that the government is revenue constrained? You either need to earn or borrow or you can simply issue the currency everybody else uses. If you alone can do the latter, it does not make sense to argue that you are bound by the former. Unless the government spends first, nobody else can get hold of the currency.

Now once you have accepted this basic fact of the modern monetary economy - that goverment that issues it's own fiat currency which is non-convertable and is not tied to anything at a fixed value CANNOT POSSIBLY need to earn back or borrow back IT'S OWN ISSUED CURRENCY before spending (issuing new currency), then we can move on. They cannot run out of money. Ever. Please tell me you understand this.

So what is the cause of the world shortage, the crisis, the meltdown as they call it?

An idiot can understand problems caused by a lack of money.

In my opinion there is not enough money in circulation to supply people with means to pay higher prices for almost everything.

On July 1st just passed, cost of telephone calls to Solomon Islands and perhaps elsewhere increased more than 100% to A.$3 per 1 minute.

Whatever you economist's or banking or money experts want to call the type of money system we have, get back to basics and comprehend it is the shortage of money that is driving potential customers away and business to the wall.

Changing tact somewhat, the GM bankruptcy filing did not even make the ASX flinch one bit yesterday. Missed that one for a quick bit of short selling, yes?

FOZZ<<So once again: we run a modern monetary economy using non-convertable fiat currency with a floating exchange rate.>>>you might run it but govt dont, its run by the imf..run by the currency exchange..run by the market

<<The government does not need to acquire gold or anything else to issue (spend) currency.>>>no it finds the nickle to mint their coins...lol...mate it would be funny if it wernt so missleading

<<The central bank does not need to worry about defending a fixed exchange rate.>>yet it does currency swaps with other central banks to retain parity..[only last year we swapped 10 billion of ours for usa currency]

<<The federal government may issue Australian dollars as it sees fit. It has no prior need to tax or borrow in order to spend, unlike everyone else. It is THEIR currency. They alone issue it.>>.rubbish mate the fed reserve issues money,and the fed reserve is controled by bankers,not govt..the same bankers control most of the worlds feds

<<Do you have a good answer as to why I would need to earn or borrow what I can simply create at will before spending?>>you might contropl it by govts dont[the fed does..and the fed is run by bankers..[who can and do issue..their fiat franchise as THEY chose

<<The proposition is ridiculous.>>>it would be if govts did control their own feds [but i agree its rediculous that they dont]

mate see the treasury dosnt hold cash[it returns it to the fed[all our taxes go directly to the fed]...and the fed sold the gold and silver/copper... long ago..[just like it will sell the cupra/nickle when they remove the last of only real..consatitutionally legal currency

It might help to to quote Ludwig von Mises, of the Austrian school of economics.

JFAus
“The entrepreneurs who approach banks for loans are suffering from shortage of capital; it is never shortage of money in the proper sense of the word.”

“No increase in the welfare of the members of a society can result from the availability of an additional quantity of money.”

Fozz
“If you increase the quantity of money, you bring about the lowering of the purchasing power of the monetary unit.”

“If it were really possible to substitute credit expansion (cheap money) for the accumulation of capital goods by saving, there would not be any poverty in the world.”

“The quantity of money available in the whole economy is always sufficient to secure for everybody all that money does and can do.”

“For two hundred years the governments have interfered with the market’s choice of the money medium. Even the most bigoted statists do not venture to assert that this interference has proved beneficial.”

Fozz, yes it is a fact that we live under a fiat money system. However that is no justification. The question of policy is what the system should be.

It is also a fact that:
- fiat money does not create new wealth
- it only redistributes existing wealth, making society poorer not richer
- it is a fraudulent sneak tax
- it is always inflationary for the same reason that frauds want to get other people’s property without their consent
- it privileges the rich and powerful at the expense of the poor and weak
- it is based on suppression of honest competition which, given the freedom to choose, the people would prefer
- it causes the greedy privileged economic boom, and then the depressing injustice of the economic collapse
- it is used to fund aggressive wars and provoke crises that aggrandize the state (‘war on’ this, that and the other)
- it favours violent over non-violent social co-operation
- the mass of the people don’t understand the above; if it were clearly explained they would abolish dishonest money.

Peter,

Once again you are talking about what IF?, rather than what IS.

So you accept that we live under a fiat money system. This is good but you still seem to be avoiding the key question. Under our fiat money system, why would the sole issuer of the currency actually NEED to earn or borrow the very same currency that only it is empowered to create before it is able to spend that very currency? The answer is – it doesn’t. If it doesn’t create the currency first (spend), no-one else can get it at all.

Ergo, the Australian federal government is NOT revenue constrained. All spending constraints are voluntary. You can argue till the cows come home about why the constraints are voluntarily adhered to but to argue that they simply cannot spend unless they tax or borrow first is an economic fallacy and serves only to confuse.

“If you increase the quantity of money, you bring about a lowering of the purchasing power of the monetary unit”. Why would this be? This statement makes no distinction between an annual increase of 2% and an increase of 200%. Small, steady increases facilitate economic growth.

“The quantity of money available in the whole economy is always sufficient to secure for everybody all that money does and can do” Incorrect. If the money supply becomes too constrained for too long, recession is at hand. You alluded to something like this earlier. Are you arguing that if the supply of the medium of exchange necessary to allow the smooth transaction of the massively complex array of goods and services in the modern economy on any given day were say, halved, no significant effects would result?

The supply of money is critical. The manic preoccupation federal governments have had in running up ever increasing surpluses year after year serves only to drain liquidity from the economy. As if there was any need for the federal government to “save” money in a fiat money system. The only way to finance growth is then to run down private savings

Cont later

Peter, you say,

“The entrepreneurs who approach banks for loans are suffering from shortage of capital; it is never shortage of money in the proper sense of the word.”

“No increase in the welfare of the members of a society can result from the availability of an additional quantity of money.”

What evidence exists to substantiate it is never a shortage of money in the proper sense of the word? In the real world there is a shortage of money and I think at least one actual cause of that shortage in the proper sense of the word has not been seen.

Cause of this present world money crisis remains unseen.

Given that I understand a relevant unseen likely cause of increased demand on money worldwide, I think an additional quantity of money can be made available for members of society, not for "a" society but for the whole of human society worldwide.

The crisis is worldwide and so solutions must extend worldwide. The cause according to evidence on hand is world natural food resource devastation and shortfall in supply causing impact including unseen worldwide inflation.

Being honest, what do you think could be the likely economic impact of unseen world land and ocean natural food resource depletion/devastation? What do other people think such impact could be?

Fozz
If we confine the discussion only to what *is*, not what *if*, then we can neither discuss counter-factuals, as you do, nor policy, which you also do.

Yet the discussion is what happens if the government does this or that, and whether it should. Therefore we have to discuss both what different causes lead to what effects (means), and what values they serve (ends).

From the *fact* that government can print as much fiat money as it wants, *nothing follows* as a matter of policy.

The government is not revenue constrained only in the sense that it can print as much paper money as it wants.

However the government's ability to grant itself a monopoly power to print as much paper money as it wants
a) does not confer a power to escape the inevitable (destructive) economic consequences - (that's the whole point) -, and
b) does not mean that the power is a power to create wealth - it is still only a power to (fraudulently) redistribute wealth.

(“If you increase the quantity of money, you bring about a lowering of the purchasing power of the monetary unit”.) "Why would this be?"

Law of marginal utility?

"This statement makes no distinction between an annual increase of 2% and an increase of 200%."

It doesn't need to: it holds true either way. That's why they do it! The difference between 2 and 200 percent is one of degree, not of kind. The successful parasite tries not to destroy its host.

"Small, steady increases facilitate economic growth."

That is the issue. If it were true that such resulted in the creation of net wealth rather than mere re-distribution, then it would be true that we would have discovered a way to make real wealth by stamping paper. Nothing you have said has established that. I can't understand how you can believe it.

Define "small". Define "steady". How do you know? How do market participants know the difference? Prove it.

"If the money supply becomes too constrained for too long, recession is at hand."

That is the Keynesian/monetarist orthodoxy, but nothing you have said has established that.

What causes recession is that capital and labour have been malinvested in businesses and industries that are unprofitable and unsustainable. The reason for the malinvestment is that both the entrepreneurs in deciding whether to invest, and the consumers in deciding whether to buy, are influenced by the false signals sent out by government's chronic inflation of the money supply. Entrepreneurs become faced with the choice whether to suffer serious losses now or worse losses in the future.

The orthodoxy does not explain: why government? Where do they get this presumed residual economic super-competence? What is it about the power to beat people into submission, or majority opinion, that confers this wondrous acuity?

If it were true, isn't it true that we could abolish private property, and human freedom, and all be better off in a society run by a totalitarian dictator? If not, why not?

The interventionist orthodoxy does not deal with the central problem of economic calculation. In the absence of profit and loss, how does government decide on the relative scarcity of resources? Answer?

Even if government were populated by selfless angels, where would they get the necessary knowledge? How would they know which level of supply or demand of a given commodity at a given place or time is appropriate? Don't tell me, lemme guess: clever (government-funded) academics do complicated mathematical equations?

That is all voodoo, state-worship. It is a re-run of the errors of the socialist myths of governmental omniscience and omnipotence.

In any event, you're a socialist - what credibility do you have in running capitalism? Answer?

JFAus
People want money, not because they want stamped pieces of paper, but because they know other people are keen to exchange them for milk, armchairs, etc.

If we give Jones a licence to print money, he will endlessly print and spend. Government's legal monopoly is merely legal counterfeit. They get other people's valuable goods and services, and give worthless paper.

Wing Ah Ling

From what I see at the bottom of the economy (BOE), people NEED money to buy goods to survive. I want money to buy a car that manufacturers want to sell, but guess what, I do not have enough cash to buy a new car and I will never get caught up in the credit system again.

I think when people at the BOE do buy something, they dont even think about the person doing the selling, unless for example a huge profit is involved.

This is not about a license to print money or poor people always poor because they always spend. The world money crisis I see is about a shortage of available cash people need to buy, to consume, to create employment and wages. It's not happening as it should be due to a shortage of cash and credit at the BOE where the majority of people are.

People at the BOE generally can not obtain credit, lucky for them perhaps because they don't have to spend their lives working to pay interest.

So a situation exists where a real majority of potential consumers lack cash or credit and therefore are unable to participate in the economy.

I think big government is still saying populate to create wealth, stupid really. The people are already there but are unable to spend. This seems why China with her billion plus is not by far the wealthiest country.

You appear Chinese. China has long experience with money. Marco Polo took paper notes back to Europe but it was not until 400 years later that Europeans learned how to value and use paper currency.

Now credit is the unknown. Credit should not be forced on us either. Many people absolutely need CASH even to pay credit interest but there is not enough in circulation worldwide. This is not about redistribution. This is about increased demand due to increased population and inflation. Impact of world natural food resource devastation and resulting inflation is not yet seen and understood.

What is the impact of world natural food resource devastation?