But fractional reserve is a funny money scheme for another reason. It is a hidden tax, because it leads to general price inflation. It probably is more responsible for the increase in money supply than low interest rates. As banks create new money through creating credit out of thin air, the value of every dollar is decreased. It then takes more dollars to purchase the same goods, if the supply of those goods has not increased. More research would be needed, but the Bank of North Dakota’s inflationary policies are probably being offset by the high market prices of their two main industries: food and petroleum. In any event, besides Alan Greenspan’s artificially low interest rates of the early 2000s, fractional reserve banking also contributed to the housing bubble and will be a contributing factor to the inflation the U.S. will face in the future.
Statists are good at devising schemes to prolong their wasteful policies. Ellen Brown’s funny money scheme is just the latest. It won’t work for California because it hasn’t worked for America. A bailout of the state should be out of the question. The voters have spoken and they have said no new taxes! The only thing left for the benevolent politicians in Sacramento to do is to free thousands of non-violent drug offenders, lay off thousands of state workers, and end welfare as they know it. Maybe then California can again be known as the Golden State.
Article comments
1 - Dave Nalle
Kenn, you're confusing me. I thought you opposed fed-style banking?
Dave
2 - Clavos
Dave,
Are you being ironic?
3 - Dave Nalle
Possibly.
Dave
4 - El Senor
I don't know about that. But one thing that might save California.
5 - Kenn Jacobine
Dave,
I do - where is the confusion?
Kenn
6 - Bliffle
A shallow analysis of inflation. It ignores the justifiable source of inflationary pressure caused by increasing population and productivity, which means that policy revolves around who benefits from inflation.
Anyway, CA doesn't have very high welfare and tax sources are throttled by the old prop 13 law which flagrantly misallocates tax sources and the ability of the a small minority to hold up any budget.
Also, prison costs are high because of the prosecution of marijuana users and handlers.
7 - Bliffle
"As was mentioned in this column last week, given the defeat of tax hike propositions in California..."
There is considerable opinion around here (admittedly, the liberal SF area) that rejection was not over the (tepid) tax proposals but rather the cowardice and laziness of the legislature and governor in pushing this problem onto the voters instead of solving this themselves and thus earning their pay.
Who needs a government body like that?
8 - Kenn Jacobine
Bliffle,
How does increasing population and productivity cause inflation? Increased productivity and a stable money supply would actually cause deflation. Population growth has nothing to do with inflation. Inflation is caused by too many dollars chasing too few goods. Under our current fiat money system any inflation is always the fault of the Federal Reserve which prints the money. They either miscalculate the need for new dollars or don't care (like is currently happening).