Sunday, September 12, 2010

deflation, bring it on

Fix the money supply--this causes at least a mild deflation, as technology improves and population increases. It causes a rally in your currency, To be both specific and chauvinistic I will speak in terms of dollars. Mr. Kessler talked in terms of reducing leverage to one in five instead of one in ten giving oil back down to fifty dollars a barrell. My proposal might see oil dropping back to the single digits.

By fixing the money supply, that means each dollar is numbered and tracked in the global electronic fund transfer scomputer system. Thus, it cannot be created by people or individuals or the computer system itself, as done in Heinlein's Moon is a Harsh Mistress. I talked about a global XML EContracting and fund tracking system in my DailyKos blog.

What does this have to do with this blog:

  1. Deflation is bad for those who owe debts denominated in a fixed amount of money per month or year and which have to be paid back. Thus, don't do that! When one "borrows" morrow, one gives back a share of income, whether one is an individual or a corporation. If all prices go down, the amount given back to the lender goes down but it would have the same purchasing power. Of course, Dr. Weitzman proposed that workers be paid as a share of the companies gross reenues. Thus, we don't have to worry about the problem that it is hard to cut nominal wages.
  2. There are many people who wish to save, particularly for a short term goal. They don't want to be an investor, determining which individuals and business enterprises would succeed. Now we have a financial services industry to put these two together, so people can put their money in a bank, earn a modest short term return, e.g. money market account, and then spend the money. I propose they would simply hold the money as cash. (Not as dollar bills under the mattress, but a computer record that they owned dollars serial-numbered 123463412, 1345632345, 13423455, and 7824563124.)

If there is a real problem with people holding on to cash, simply give sortition juries the right to require individuals or businesses with cash balances to either spend the money or invest the money. (since all money is in one system, one can't hide one's dollars in one bank account or another or in one's mattress--if the dollar is not on the system, it simply does not exist.) They could consider if one's goals or reasons for holding on to the cash for a short term goal are legitimate. If the person refuses, the sortition jury would have the right to simply do it for them--perhaps considering social impact of the investment more than the person would.

Would it not be great if fifty years from now, when senior citizens are talking -- "when I was a youth, a subway ride was two dollars, now I pay twenty cents."

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