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Paper money collapse : the folly of elastic money
\"Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown, Second Edition challenges the mainstream consensus on money and monetary policy. While it is today generally believed that the transition from 'hard' and inflexible commodity money (such as a gold standard) to entirely flexible and potentially unlimited fiat money under national central banks allows for superior economic stability, Paper Money Collapse shows that the opposite is true. Systems of highly elastic and constantly expanding money are not only unnecessary, even for growing economies, they are always extremely destabilizing. Over time, they must lead to substantial imbalances, including excessive levels of debt and distorted asset prices, that will require ever faster money production to sustain. Ultimately, however, there is no alternative to a complete liquidation of these distortions. Based on insights of many renowned economists and in particular of the Austrian School of Economics, the book explains through rigorous logic and in precise language why our system of flexible fiat money is incompatible with a market economy and therefore unsustainable. Paper money systems have always led to economic disintegration--without exception--throughout history. It will not be different for our system and we may be closer to the endgame than many think.The updated second edition incorporates: A new introduction and an extended outlook section that discusses various \"endgames\" Responses to criticisms, alternative views, and a critical assessment of 'solutions' Comments on recent policy trends, including attempts to exit the 'easy money' policy mode An evaluation of new crypto-currency Bitcoin Paper Money Collapse: The Folly of Elastic Money, Second Edition clarifies the problem of paper money clearly and eloquently, and proposes multiple routes to a solution\"-- Provided by publisher.
Book
HOUSEHOLD DEBT AND BUSINESS CYCLES WORLDWIDE
An increase in the household debt to GDP ratio predicts lower GDP growth and higher unemployment in the medium run for an unbalanced panel of 30 countries from 1960 to 2012. Low mortgage spreads are associated with an increase in the household debt to GDP ratio and a decline in subsequent GDP growth, highlighting the importance of credit supply shocks. Economic forecasters systematically over-predict GDP growth at the end of household debt booms, suggesting an important role of flawed expectations formation. The negative relation between the change in household debt to GDP and subsequent output growth is stronger for countries with less flexible exchange rate regimes. We also uncover a global household debt cycle that partly predicts the severity of the global growth slowdown after 2007. Countries with a household debt cycle more correlated with the global household debt cycle experience a sharper decline in growth after an increase in domestic household debt.
Journal Article
Interest Rates and Money in the Measurement of Monetary Policy
Over the last 25 years, a set of influential studies has placed interest rates at the heart of analyses that interpret and evaluate monetary policies. In light of this work, the Federal Reserve's recent policy of \"quantitative easing,\" with its goal of affecting the supply of liquid assets, appears to be a radical break from standard practice. Alternatively, one could posit that the monetary aggregates, when measured properly, never lost their ability to explain aggregate fluctuations and, for this reason, represent an important omission from standard models and policy discussions. In this context, the new policy initiatives can be characterized simply as conventional attempts to increase money growth. This view is supported by evidence that superlative (Divisia) measures of money often help in forecasting movements in key macroeconomic variables. Moreover, the statistical fit of a structural vector autoregression deteriorates significantly if such measures of money are excluded when identifying monetary policy shocks. These results cast doubt on the adequacy of conventional models that focus on interest rates alone. They also highlight that all monetary disturbances have an important \"quantitative\" component, which is captured by movements in a properly measured monetary aggregate.
Journal Article
Credit Supply and the Housing Boom
An increase in credit supply driven by looser lending constraints in the mortgage market is the key force behind four empirical features of the housing boom before the Great Recession: the unprecedented rise in home prices, the surge in household debt, the stability of debt relative to house values, and the fall in mortgage rates. These facts are more difficult to reconcile with the popular view that attributes the housing boom only to looser borrowing constraints associated with lower collateral requirements, because they shift the demand for credit.
Journal Article
Some Unconventional Properties of New Keynesian DSGE Models
We examine the theoretical and numerical properties of a prototypical New Keynesian DSGE model featuring endogenous capital accumulation and labour supply. We find that this completely conventional model yields implausible impact results following unanticipated and temporary shocks when the monetary closure rule is changed from a policy rule setting nominal interest rates (a Taylor Rule) to a fixed money supply rule. We compare and contrast a variety of New Keynesian models, featuring aggregate price stickiness, with their New Classical counterparts featuring perfectly flexible prices. In line with the literature we find that under a Taylor Rule the impulse-response functions following a technology shock are very similar. In contrast, with a fixed money supply the impact effects for the New Keynesian model are implausible. We demonstrate the robustness of this Implausible Result to alternative parameter values and show that it is ultimately caused by the inflexibility of the capital stock relative to that of the real money supply. We suggest several model extensions which will eliminate the Implausible Result from New Keynesian sticky-price models.
Journal Article
Reconstruction of money supply over the long run: the case of England, 1270–1870
This article provides a time series of coin and money supply estimates for six hundred years of English history. Two main estimation methods are proposed. The first (the direct method) is used to measure the value of government–provided, legal–tender coin supply only. Two varieties of the direct method are proposed. Additionally, an indirect method is proposed which relies on a combination of information about nominal GDP with an assumption regarding the evolution of velocity in time, and which can be used to calculate coin supply and M2. Both methods rely on benchmark values known for certain years, but no particular benchmark is determinant for the results. The new methodologies set out here may serve as a blueprint for a similar reconstruction of coin and money supply series for other economies for which analogous data are available.
Journal Article
Short- and Long-Term Interactions Between Bitcoin and Economic Variables: Evidence from the US
Bitcoin’s growing use as a financial asset and transaction instrument has economic and monetary effects. In this paper, we examine the short- and long-term interactions between Bitcoin prices and the money supply, consumer price index (CPI), and economic policy uncertainty (EPU) in the US. Using monthly data covering the period July 31, 2010 to August 31 2020, we employ continuous wavelet transforms, wavelet coherence, wavelet-based vector autoregressive Granger causality test, and nonlinear causality test. The results indicate that Bitcoin prices affect money supply and share dynamic inter-shock with CPI, EPU, and money supply. Specifically, the money supply and EPU negatively affect Bitcoin prices. CPI positively affects Bitcoin prices in the short-term, which supports the role of Bitcoin as a hedging asset. A bidirectional volatility transmission exists between Bitcoin prices and each of money supply, CPI, and EPU. Moreover, nonlinear causality test results show a bidirectional causality from Bitcoin price to money supply across all dimensions and a significant causality with CPI and EPU. The findings matter to investors seeking to refine their investment decisions while considering the effect of economic factors and to policymakers and central banks seeking to formulate policy tools using Bitcoin.
Journal Article