September 04, 2019 Wednesday
Bedtime Story
Wizardry of Money Creation
The wizardry and the sleight of hand played
by the central banks and the commercial banks in combination in introducing new
money into the economy by purchasing financial assets such as bonds, stocks,
loans and several other mean blows your mind!
The greatest trick that the monetary devils
play out all the time on us is the creation of money through the
fractional-reserve system.
The money that is circulating around us
comes from two sources, one is the central banks of our countries and the other
is the various commercial banks whose names you keep seeing as advertisements in
major sporting events.
The central bank is the banker of the
government and the government (meaning us the masses) its owners; scary isn’t
it?
Whenever I come across the word people,
masses or the majority shiver runs down my spine because masses don’t think,
they believe passionately with emotions, they react and can be programmed to
justify any action.
The central bank prints paper money for the
government while trying to figure out at the same time how much it should print
without causing alarming inflation, to facilitate job creation by the
government and to maintain the prospect of long term interests if people would
have to borrow money.
As I have told you earlier the amount of
money that the central bank prints or allocates to its master – the master
again being we the people or our representatives – falls always short to what
we or our representatives spend.
I chose to remind people again and again
that government is us and not some extra-corrupt crooks with ultra-low
morality.
If you feel that your government is made up
of people who are crooked thieves then it is time that you look upon yourself
and introspect your own character and how weak it is and how easily susceptible
it is to monetary inducements.
Now because the government or we people
always and consistently spends more than it receives in taxes and other
payments it ends up in deficit spending which is rather an odd name for a
spending that is in excess.
But guess what this deficit spending does
to the money supply?
Contrary to the expectations it actually
ends up increasing the money supply in the economy.
Deficit spending by the government which
any reasonable person would claim as a failure of the government of being
fiscally disciplined is a source of money creation!
Can the truth get any stranger?
If this is strange then what is even more
surprising is that there are some prominent economists – some of them even holding
Nobel Prizes – who defend deficit spending and make a case for it being both
desirable and necessary.
Just see what William Vickrey, a
Canadian-born professor of economist and a Nobel Laureate of Economics for the
year 1996 has to say about deficit spending:
Stay tuned to the voice of an
average story storytelling chimpanzee or login at http://panarrans.blogspot.com
Good night Mon Ami and my fellow cousin ape.
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Another great educator and a teacher that I am aware of is
Professor Subhashish Chattopadhyay in Bangalore, India.
While I narrate stories, Professor Subhashish an electronic
engineer and a former professor at BARC, does and teaches real mathematics and
physics.
He started the participation of Indian students at the
International Physics Olympiad.
Do visit him here:
All his books can be downloaded for free through this link:
For edutainment and English education of your children, I
recommend this large collection of Halloween Songs for Kids:
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