Money is the weirdest of commodities. Everyone wants it. And it costs literally nothing to create it electronically, and something near to nothing to print it if we are talking about reasonably valued notes. Please read this if you don't believe me.
All governments, excluding those that have given up the right to their own currency, can print money out of thin air. The UK has that right. You can argue about the niceties of the Maastricht Treaty and the rules it imposes, but if the chips are down that would be for anther day: the printing presses would roll first.
Greece has given up its right to print its own money. That is the flaw at the heart of the euro project for every single country in it that they would all rather was not pointed out.
But we've not done that. So in principle - and as happened in October 2008 - our cash machines need never run out.
I think it's very important to remember that right now. So please don't panic because of what is happening in Greece. There is no need, whatsoever. Because if only Greece had stuck to the drachma, as we did to the pound, this need never have happened.
So to bring us back to where we started, every country should want its own money because you can't run an economy unless that's what you've got.
PS: Scotland, please note.
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Agreed on the limitless (save for the in / de – flations).
However – money “a commodity”… no, it’s a social construct. Check out Ann Pettifor book “Just Money” – full details on page 17 about this… well worth a read.
I use the term for convenience
Broadly agree with Ann
I don’t mean this as a provocative question, but why do you think a country is the right size of entity to have a currency?
I find local currencies an interesting idea, but I’m not sure how well they really work. Maybe just simple and useful local credit is a better plan than a local currency — I’ve certainly heard it claimed that it’s worked wonders in places where banks will not lend and so local businesses have arranged for credit settlement between themselves without a charge on members. So is a country the smallest size where a currency works?
The dollar seem to work (?) but given the last 8 years, the Euro seems like a terrible plan and I thank Gordon Brown’s cotton socks that we’re not part of it. So, a country seems also the largest entity where a currency works.
Maybe it’s not a size thing, but an identity and a parliamentary thing? When you have a representative place of power, it makes sense to have a currency at the same level?
What about bit coin?
*shrugs* It seems interesting to me, anyway 🙂
It seems pretty unlikely that the Euro members are going to decide overnight to disband the Euro, and help each other, and Greece, to jump start their local currencies again.
So, while my tendency is that Richard’s bang on with this: Greece is better off out of the Euro; I wonder if the short term pain of returning to their own currency will be awful.
That local currencies can work seems to me to be indisputable
BUT if transactions in them are to be taxed (and they have to be ) then exchange rates have to be agreed and are often fixed
So, they achieve a local multiplier effect but are not true currencies as such
If they are alternative currencies then they lack government support to ratify their value – meaning they are unstable and so unsuitable for many purposes
Money is sovereignty issue at the end of the day
Stupid woman in Leeds “the way Labour were going we’d have run out of money”
Makes as much sense as “aren’t teenagers big these days, soon we’re going to run out of inches”.
Did any of the top economists point out she was a moron? Oh no, we don’t do that do we bro?
Generally right-wing, but occasionally left-wing people misunderstand money entirely.
Money has 2 valuable functions it is
1) a way of measuring value &
2) a means of exchange
L-wing people often mis-understand for their purposes. They will say “the average person in Liberia has to scrape by on the equivalent of $2 a week”. This is meant to bring home to us their poverty but is fairly meaningless & ignores the obvious point that you could probably llive extremely well in Liberia, with comfortable accommodation, beer, spliff, pizza on $10 per week.
The R-wing mis use it far more, however. Firstly they’ll say “the GDP has gone up so we’re all better off”. Are we? Bollox. Everytjhing costs more – how does that help anyone? If we were to go back to the 1970s, if you had a couple that were both teachers, they would easily have afforded a house close to the school they taught in in inner-city London. That’s now inconceivable. They are worse off BECAUSE others are better off, Of course because money is purely a means of exchange.
Saying that growing the economy will benefit us all makes no more sense than saying I can take you on in anything from a boxing match to a chess game & if we keep playing we can both benefit. NO WE CAN’T! One wins, one loses, end of.
The third, worst, way the Right don’t, as american feminists might say “get it”.
We’re actually going to despoil our air & our water. The fundamental things we need for life. It sounds insane but DC is all for it because fracking will lead to a boom.
This really isn’t difficult. Do you want a boom? Print more money. How hard is that?
What’ll mo-fuggas do with it? Buy cars, buy houses, buy drugs, buy tulips ? Who knows, who cares
You won’t ruin our water supply, you won;t make our air unbreathable if you just print a shed-load of currency
Here in Lancashire we await the county council decision on fracking. Boom for the markets, not the UK. There is NO safe fracking and no one will say where the flow back toxic waste will be deposited, injected back into our land, dumped in the sea, stored where.
Well integrity, leaks through fissures into the Aqua system, venting and flaring into the atmosphere. Would Mr Cameron be happy for his family to live within 10 miles of a well. Sorry have not commented on money per se, just so angry and upset
May I sneak this in Mr Murphy. Lancashire County Council, thank you. I know it is not the end of the matter, mountains to climb.
But it’s good, isn’t it?
DC is actually saying that money, which is entirely a man-made invention, a toy which helps us measure, has become more important to him than clean water, clean air, which are the elemental qualities given us by, for want of a better expression, God’s creation.
That can’t make sense in any religion can it ?
You are obviously right that any amount of fiat currency can be produced by the authorities in theory. But to act as a medium of exchange money must be scarce. And in order for it to be scarce it must be possible for people to run out of it. So how do we square this circle? The explanation is that money is only desirable because it has purchasing power. Thus, whilst the number of the moneys is not scarce, its purchasing power is. Which basically means devaluation can occur. Now, when you say ‘we’ can’t run out of money, I presume you mean purchasing power, I presume you mean the government? This is also true, but only through an act of force – because it can print money, the government can take the scarce purchasing power away from the private sector by printing more money. The purchasing power of each money unit falls, but the government has more, or the same, in spite of this. Whether we should draw comfort from this is another question. The histories of banana republics printing their way out of trouble is well documented.
Runs only happen because people believe cash will run out
When it us apparent they won’t runs stop
Then the cash can be withdrawn again
It’s reality rather easy
But you’ve got it completely wrong
You are not making it clear who you are talking about when you say the UK. Do you mean the government, the UK banks, private citizens? The government running out of cash isn’t the same as a bank run. It happens because they spend more than they receive in. So the shortfall can either be made up through borrowing a la Greece, or as you say printing money.
As for me being completely wrong…every statement I made is the basic economics of money, as applied to a state with a printing press. Which bits are wrong?
Only governments can ultimately print money: banks only do it under licence (albeit generous licences). It therefore follows who I am referring to
And because the UK government can always print money so long as it denominates its debt in sterling it can never run out of money and nor can UK banks if it so chooses
Your basic economics of money is, I think, the sort the BoE said was wrong in April 2014
Governments cannot run out of money because they are the issuer of the money. Simple as that. It’s use as a medium of exchange, so called “purchasing power” arises BECAUSE of the fact that the government cannot run out, so can always honour any liability in sterling.
The problem you allude to (inflation) only occurs when there is more money in the economy than the goods and services available to purchase, so governments cannot simply print money ad infinatum, but when you consider the unused resources in the UK right now (called unemployed and underemployed) it means that right now, there isn’t enough money to purchase those goods (unmade due to companies lacking buyers) and services (chiefly those not working as much as they would desire). And the Austerity lie is leading towards more of that situation, making money even more scarce.
Of course, this is an ideal situation for those with more than sufficient cash for their purposes. The scarcer money is, the more valuable it is to those who desire it, and the more wealthy the moneyed class becomes. Never mind the generations destroyed by unemployment as a result of this agenda, so long as those with wealth are appeased, no?
Oh, should have added, the current government’s desire to make it a law to run budget surpluses will do more to remove purchasing power from the private sector than any amount of printing money would, in the end, which if you really understood how fiat economies worked, you would be fully aware of!
Indeed
You’ve never heard of taxation then? To keep a currency stable, money can be withdrawn from circulation by taxation.
The obsession of “price stability” or staving off inflation is more to do with preserving the investments of the rich. In reality the idea of “too much money chasing too few goods” doesn’t really apply nowadays because of the enormous amount of goods produced. Money should be invested into the economy until full capacity is reached, then taxed back out of circulation again to keep the value of the currency.
It is wrong to say a printed currency is backed by nothing. It can be backed by future tax revenues or land and resources. As Richard pointed out recently, even cash printed interest free by the government has a liability.
Richard – your footnote “Scotland – please note”. Whilst I didn’t vote for independence I predicted that SNP would win virtually every seat. They have been a breath of fresh air [so far] in government terms and even their somewhat “communist” land ownership proposals do make some sense! However with financial/monetary systems globally in an utter mess it will be interesting to see how Iceland’s proposed new sovereign monetary system [supported by Adair Turner] emerges and I suspect Greece might follow suit with a dual currency including an unsupported Euro. If only half successful then I could see Scotland following that route and potentially helping to lead the world to a new era – it certainly won’t be the first time that Scotland’s enterprise has shown the way – telephones, televisions, penicillin, anaesthetics, steam engines and much more spring to mind!
Without its own currency Scotland could not, I suggest, go anywhere
I would suggest that the only reason SNP land reform proposals seem ‘communist’ is that major landholding in Scotland is colonialist. People may also have forgotten that it was previous Lib-Lab coalitions that started Scotland on a land reform path including ending feudal tenures in 2000.
I also wish people would stop praising Scotland for inventing things..it’s usually much more complicated. God knows how many myths we Scots have to deal with…why can’t people just let us be a normal boring country like others? I’m quite happy to monetize some of them i.e. Nessie but this passed into irony a long time ago. Also Scotland should not be a repository for the political desires of other countries’ citizens (all those people wanting to come and live in Scotland at the time of the referendum)…the debate in Scotland is actually mostly much more mundane.
(Finally removes great weight from chest!)