Paul,

Is the purpose of your post to be a complete dick?

Aidan,

I see no conflict between the RBA managing the mint to provide notes and coins, and its banking functions. Perhaps you can illuminate! While you advocate printing money to stimulate the economy, you still cannot provide any example.

Keynesian economics shows that cutting government spending reduces revenue and hurts the economy. This is why governments stimulate in a recession, and pay back debt otherwise, as unlimited debt is also a massive problem. P.S. Tax takes money out of the economy and also hurts it.

Currency only has the worth if those using it have confidence in it, and as with Bitcoin relies on its limited availability. Oversupply always lowers its value. I don't know of any case where printing of money to stimulate has not resulted in hyperinflation.

Similarly huge debt attracts huge repayments, and with limited ability to tax there is a real limit to government debt.

Shadow,

There is no conflict. Introducing a requirement for the RBA to borrow money before lending it to commercial banks would create a conflict, but as such a requirement has only ever existed in your imagination, there's no conflict at all.

As I said before, countries are reluctant to borrow from their own central banks, mainly for historical reasons (because doing so WAS a hyperinflation risk in the Bretton Woods era, even though it isn't any more), partly for bank liquidity reasons, and maybe there is also a fear of spooking the markets as some traders may be under the same false impression as you. But the RBA's open market operations mean there's very little difference between borrowing from the private sector and borrowing directly from the RBA.

'Tis only in economic downturns that taking money out of the economy (whether by taxation or government spending cuts) hurts the economy. At other times such action allows interest rates to be kept low (enabling the private sector to borrow more money into the economy) without increasing inflation. There is one caveat though: the strength of the economy varies between different parts of the country.

I notice you didn't answer my question about private sector debt. Are you unaware that our economic system relies on that continually increasing?

Limited availability may enhance a currency's value (due to supply and demand) but it's never the ultimate source. Taxation is usually sufficient to drive demand. Weimar Germany's hyperinflation ended almost instantly when they imposed an effective taxation system.

Do you know of any cases where a country with a floating currency printing money to stimulate the economy HAS resulted in hyperinflation? I can't think of any.

Aidan,

Can you provide ONE example of a country with a floating currency that has printed money to stimulate the economy! I certainly can't think of one. Without such an example your theories fall in a heap.(even though the zimbabwe currency was not fixed) However, whether the currency is pegged under Bretton Woods, or free floating, the risk of hyperinflation is the same.

Taxation slows demand as it reduces the spending power of the private sector.

The economy is dependent on spending both government and private. If private sector debt is increasing, the economy grows more than if the private sector debt was stable. However, I would not go as far as claiming dependence.

Shadow, I too am unable to think of any examples of a country with a floating currency that has directly printed money to stimulate the economy. However there are many examples of countries with floating currencies that have indirectly done so by borrowing money from the private sector while printing money to fulfil the private sector's requirements. Australia certainly has.

The Zimbabwe currency was not fixed, but I think it's fair to say that persecuting the main export industry while discouraging foreign investment is even worse for an economy than pegging the currency. And of course Zimbabwe printed money to finance a foreign war, not to stimulate its economy.

"However, whether the currency is pegged under Bretton Woods, or free floating, the risk of hyperinflation is the same."
No, it's TOTALLY different!

With a free floating currency, when more of a currency's printed there's a slight real time devaluation which tends to be self correcting as it tips the balance of trade to favour exporters.
With a fixed currency, when more of a currency's printed its value declines but is manipulated by the government to stop it falling. Therefore industry is denied the easier exports that a cheaper currency would bring, but with more money, consumers can afford to import more. Unless there's a big productivity increase, the government will eventually be forced to devalue the currency. Speculators hasten the process, getting rich at the government's expense. And the longer the government waits to devalue the currency, the more likely it is to be in the form of a catastrophic collapse (which is what hyperinflation is).

"Taxation slows demand as it reduces the spending power of the private sector."
Absolutely! It counteracts the effect of printing money.

"The economy is dependent on spending both government and private. If private sector debt is increasing, the economy grows more than if the private sector debt was stable. However, I would not go as far as claiming dependence."
It's very difficult for the economy to grow if the money supply doesn't.

"Paul, Is the purpose of your post to be a complete dick?"
Shadow, Oh! the slings and arrows, just when I thought we (that's you and me) had reached a state of complete empathy on this subject you throw such a barb in my direction! And it is the time of love and goodwill towards your fellow man.

Anyway its all water off a ducks back.

What about this,

http://www.youtube.com/watch?v=1YNbVaP9d5U

Economics solved!

Aidan,

Here's a news flash: Borrowing money to lend it out is not printing money. Nice try, but your whole hypothesis has just crashed in a hole.

As in every case, if the central bank prints excess money, there is more money chasing goods and prices increase and or the value of the currency drops very quickly. This happens whether the currency is pegged or not. Note that even fixed currencies can have the pegs moved, as did the pound in the 70s.

Private sector debt is not the only source of money supply growth which can grow without public or private sector debt growing.