With the Eurozone having being displaced from the financial headlines by the American presidential election, you might have briefly thought that its problems had gone away. They haven’t.
There is growing hope in some quarters that economic recovery is at last under way in the USA. Is this just an election-inspired pick-up in sentiment, now rapidly vanishing, or do we take it more seriously; and if it really is recovery, what are the inflationary consequences?
Quite a bit of media attention has been devoted recently to a working paper by two International Monetary Fund economists that re-examines the “Chicago Plan”. First put forward by University of Chicago economists in 1933, this proposal calls for the abolition of fractional reserve banking and the replacement of bank credit with government money in order to do away with credit-induced business cycles.
Earlier this month Eric Sprott circulated a paper, co-authored by him, which concluded that Western central banks have considerably less physical gold than they claim.
The first thing to note is that the Fed issues money because it deems it necessary. The hyperbolic trend increase in the quantity of money is a reflection of this necessity, implying that if the Fed’s money issuance is at a slower rate than required, then strains will appear in the financial system.
Germany has no option left but to exit the Eurozone. This fact is becoming increasingly clear, especially to the German people themselves, who now fear remaining in the Eurozone (and having their remaining national savings syphoned away by their profligate neighbors) more than than the pain of leaving it.
There was yet another European Union summit at the end of June, which (like all the others) was little more than bluff. Read the official communiqué and you will discover that there were some fine words and intentions, but not a lot actually happened.
The ECB is meant to be independent of politics and political pressures. But the reality facing any central banker is that s/he cannot stand by and let politicians drown in their own mess. The politicians know this, and it's what is behind current attempts to move away from austerity towards Keynesian growth.
