Tuesday, 21 August 2012

Thoughts on how our economy works

Metaphors, if valid can be instructive.
£, $, € do not drive the economy, they lubricate it.

Into this engine, oil is circulated. Over many thousands of miles, the same oil circulates allowing the engine to better function. It does not drive the action, that is the fuel. But overall, useful work is done. If the engine suffered a significant oil leak, the first thing to do, if fundamental repair is not yet possible, is to replace the lost oil.

That remedial action at least will prevent the engine seizing up and maintain possibility that successful repair is possible.
In normal stable economy, the amount of money in circulation stays about the same, the same notes may change hands many time as each individual makes purchase decisions. In our present seriously dysfunctional economy, money is leaving the system. This threatens to freeze up market.

The central banks of the highly dysfunctional US and UK economies are printing money like crazy. This is because we have very serious problems and this abnormal monetary policy should continue until consensus on how best to turn to the left is achieved by our representatives, perhaps assisted by our brainstorming over the social media networks. :-)


Remembering that the reason why an 'ideal' market economy works is because it is supposed to be adaptive and self organising, it simply cannot function if money supply collapses. Without the printing of money to replace the leaky situation of money supply vanishing we risk doing immense and catastrophic damage to our industry.

Keep the printing presses printing.

Disqus for A New Red Dawn