Subject: | |
From: | |
Date: | Fri Mar 31 17:18:50 2006 |
Content-Type: | text/plain |
Parts/Attachments: |
|
|
Kevin Hoover said:
> First, I don't deny that a checking account
> is an asset to me and a liability to the bank; the issue concerns only fiat
> money issued by the government. Nor do I deny that the Federal Reserve
> records banknotes as its liability. The question is whether this has any
> real significance. It doesn't.
I would disagree with Professor Hoover: It is significant. The history of fiat
money shows that central bank liabilities are backed by a primary asset:
government securities. We all know all too well that central banks can greatly
damage fiat money by engaging the central bank in an inflationary dance where
the latter creates liabilities to purchase its assets and the former creates
liabilities to get cash to pursue political agendas.
I would also add to this discussion that everyone must distinguish between
tangible and intangible assets. The "leverage revolution" that has occurred
over the past 4 centuries is based on the discovery that one can issue an
intangible asset based on the value of tangibles. Now we issue intangibles
based on intangibles. Since alchemy failed to create tangibles, government
succeeded by creating intangibles. No less a person than Isaac Newton worked
on creating tangibles. If he'd succeeded we'd still be on the gold standard,
especially given that war is one of the main functions of government.
Scot Stradley
|
|
|