Larry Kazdan on the Dangers of Printing Too Much Money – LTE – May 7, 2015

Larry Kazdan on the Dangers of Printing Too Much Money – LTE – May 7, 2015

LTERe: Federal parties start to play their economic cards, Jason Fekete, May 5, 2015
http://ottawacitizen.com/news/politics/federal-parties-start-to-play-their-economic-cards

The conventional wisdom is that whichever party forms government will not have much financial breathing room, especially with the collapse of world oil prices. In fact, while there are ideological and eventual real resource restraints, there is no financial constraint for a federal government that owns a central bank issuing a floating, non-convertible fiat currency such as the Canadian dollar.

Would anyone dispute that the money supply fluctuates? Two entities provide the monies that Canadians generally use to settle transactions. The federal government creates high-powered money in the form of coins, bank notes and bank reserves (deposits held by commercial banks at the central bank). Commercial banks leverage these reserves in the form of bank deposits (promises to pay government money) when loans are made to businesses and individuals. The coins, bank notes and commercial bank deposits constitute the money in circulation whose everyday volume changes.

The federal government can always make Canadian dollar payments simply by creating more high-powered money without paying any interest to private banks. The only practical limit to new money is the resource capability of the economy, beyond which lies inflation. However, since Canada has 1.3 million unemployed people and a large output gap, inflation risk is currently very low. So nothing should stop the federal government from spending on vital infrastructure renewal and targeted large-scale job creation, no matter the quantum of funds required.

Media and investigative reporters must reveal these facts to the Canadian public because our financial and economic elites definitely will not.

Larry Kazdan,
Vancouver, B.C.

Footnotes:
1. Where will the money come from?

http://neweconomicperspectives.org/2014/04/reality-present-challenge-future-fagg-foster-21st-century.html

“Whatever is technically feasible is financially possible. To the perpetual question ‘Where is the money coming from?’ the answer is now clear. It comes from the only two institutions we permit to create money funds: the treasury of the sovereign government and commercial banks. And the rate at which we permit either to create funds is pretty much a matter of public policy.”

…….. there is no theoretical limit to the ability to create funding, so “the only question is should they be made available.” Finance is not a scarce resource. The state cannot run out of its own money (currency).

2. Alan Greenspan, U.S. Federal Reserve Chairman, 1997
http://www.federalreserve.gov/boarddocs/speeches/1997/19970114.htm

“[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.”

3. What is Modern Monetary Theory, or “MMT”?
http://neweconomicperspectives.org/2013/03/what-is-modern-monetary-theory-or-mmt.html

The essential insight of Modern Monetary Theory (or “MMT”) is that sovereign, currency-issuing countries are only constrained by real limits. They are not constrained, and cannot be constrained, by purely financial limits because, as issuers of their respective fiat-currencies, they can never “run out of money.” This doesn’t mean that governments can spend without limit, or overspend without causing inflation, or that government should spend any sum unwisely. What it emphatically does mean is that no such sovereign government can be forced to tolerate mass unemployment because of the state of its finances – no matter what that state happens to be.

Larry Kazdan CGA,

Vancouver, B.C

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6 Comments on "Larry Kazdan on the Dangers of Printing Too Much Money – LTE – May 7, 2015"

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David Oldham
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So lets take the suggestion above and ask a simple question….Why does Greece not simply withdraw from the European Union declare its sovereignty and issue its own currency paying off its massive debt thereby continuing to permit its citizens to continue a path of entitlement and self indulgence? This would put an end to the civil unrest and dissatisfaction with unpopular austerity measures would it not? Any guesses or do you accept the suggestion above as having merit or credibility or is it merely furthering the concept of never having to pay the piper.

jules
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Mr. Oldham and folks I forgot to add so as to explain why Greece cannot come out so easily and like I said about the world being divided into 10 regions is all true. The European Union is already formed, next is the North American Union (you can look under SPP.gov) which is an American government site and the US would head it. There will be the Asian Union, the Mediterranean Union, the South American Union, the African Union and I forget what the others would be. Not only that Mr. Oldham but inside of countries they would be divided.… Read more »
Hugger1
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Jules, Jules, Jules….plans are subject to change and to not coming to fruition. I love the crystal ball.

jules
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In the words of former US president George H.W. Bush (father of monkey G.W.) read my lips New World Order. It is in the Book of Daniel in the Bible.

Hugger1
Guest

Your crystal ball is getting foggy.

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