Is Mark Carney a fool... Or just a liar (politician)...

The people like to save. They need this. And it is not a question of money. People have always saved - since the ancient times of living in caves. They saved meat, corn, wood, weapon, hide... And they do knew what they have and what they can rely on. Saving money is an evolution of saving. Money is an universal tool of obtaining anything else. It is small as weight and size, and can cover much future needs almost immediately. So money is an universal saving option. And then... Mark Carney said inflation must not be the only target of the Central Bank...

But do this mean people will decide not to save?

No.

They will just change the way of saving. And this means that Carney, Bernanke, Draghi, Shirakawa and all other pro-inflation central bankers are simply... fools. Or vile liars...

The idea of stimulating the economy via inflation and flooding the market with uncovered money, is based on the assumption that nothing else will change. I.e. economic players will continue their old behavior, while only the monetary base will be changed.

Theoretically this must work. If we have 1000 pounds and every pound means 1 piece of food, so if we print another 1000 pounds, the economy will react and produce the relevant quantity of food. So we will have an economic growth. The dream of current politicians and a mantra intended to replace the austerity. But in fact the reality is different. When monetary base is changed, much other things also change so the result is not the expected one. In fact we are testing this system for years up to now and the result is reversal :)

Generally there is a resource-based limit of growth. So we can not just print in an uncontrollable way. But this article is about other factors - human perception and change in economic behavior.

When you print 1000 pounds more, people will not continue accepting the old value of the pound. They will accept every pound with a half of its previous value. I.e. the change in value perception will compensate the effect of additional created money.

But what about the savings? Is it worth to save pounds when tomorrow much new pounds will be printed? May be it is worth doing this - if someone pays you a 100% interest and your pounds are doubled. But will you save in pounds, when the interest is much lower than the devaluation of the pound?

Obviously no...

But also obvious is that you will not stop saving generally. You will just search for another way of saving. You will buy gold, silver, oil, durable food, land, property. I.e. the savings will still exist, but in another form. And the result of this will be that pounds will simply lose value. Therefore pound will lose their ability to be a tool for economic influence.

But wasn't this the main purpose of diminishing the inflation target of the Central Bank? Mr Carney wants this to help the economy go up. So is Mr Carney a fool?

What the savings are? Savings are some quantities of goods or money that have some value usable in future. In the case with money, savings are a tool to persuade someone to work for you in future and provide you with the product of his working. I.e. you are working now, but you are not consuming the product you have created. Instead you are putting in a warehouse and keeping it for a future use. Or you are converting it into money by giving it to another person that likes to use it now. In future you will buy the needed with your money. I.e. savings are de facto a saved quantity of labor and producing efforts.  This quantity is the real value of savings. Savings are not money, they are working.

As we said, people will change their perception of money if money supply increases rapidly. If theoretically people continue asking the same money for the same work, even with increasing the money supply, then money-print would not undermine the savings. But as this perception change happens (due to natural market mechanism) so there will happen a change in saving in money. So everything else will change.

Economy is working, economy is not money. To become richer and wealthier, you must work. And making people work is the way to grow the economy. You can not make them work in exchange for something that is losing value. You can not make them save in devaluating money, i.e. losing their labor.

So what will be the result of missing the inflation target? The result will be moving savings to another currency, or another substitute. And people will start asking something different in exchange for their working. Therefore the monetary ease will not work.

May be this is the reason Mr Carney is talking also about "nominal GDP" and not about the real GDP. I.e. Mr Carney does not plan to increase the wealth, he does not plan to make people richer and the economy to produce more goods. He only plans a nominal increase in GDP. But what is the sense of this? Why just to change the price of goods? Why Mr Carney is bullshitting us?

It the "inflation tax". The government is trying to tax us secretly by the inflation tax. This is the way to repay its irresponsible debt.

This system will not work. It will not make the economy better. It will even harm seriously it by eroding the money and making people use alternative money and tools of exchange and saving. But this system will provide the government with more money to repay old debts and continue deficitting. The price of this foolishness will be paid by the most vulnerable - older people, retirees that depend on savings and on paper money. The loss will be higher than the one in austerity case when the value of money is being kept. It is much more honest to cut spending and explain this, that to rob the poorest people by inflation. And call this a "social policy"... :))))))))

Dobri
Feb 8th 2013

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