The Guardian reports that the Bank of England, having exhausted lowering interest rates to the point of 0.5% (the lowest rate in the Bank’s 315-year history), has been authorized by chancellor Alistair Darling to increase the money supply to the tune of roughly 10% of the nation’s annual economic output, £150 billion ($211bn USD).
Not wanting to repeat the mistakes that created Japan’s “Lost Decade”, both the US and UK governments have been moving quickly, first lowering interest rates and now pushing government dollars into the economy via special projects, in the hopes of the money making its way to businesses and consumers.
The major concern with pumping government money into the economy is always inflation. Given that we are potentially facing serious deflation in the US in the near future, this is primarily a long-term concern. Governments appear to be counting on the economy turning around quickly, allowing a quick return to a smaller money supply to restore balance and stave off inflation.
Of particular interest to America is the fact that the Bank of England, the counterpart of our Federal Reserve, was nationalized in 1946. Our Federal Reserve, however, is not completely state-owned. With all the discussion of nationalizing private banks, perhaps we should be looking first at the necessity of completely nationalizing or even eliminating the Federal Reserve.
Section 8 of the United States Constitution authorizes Congress:
“To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”
When the Federal Reserve was established in 1913, it was decided that a nice little loophole there meant that a quasi-public entity could control the creation and value of paper money, and since then electronic money, since these aren’t “coin”.
Shouldn’t creating and regulating the value of paper and electronic money be just as much considered to be “coin[ing] Money” and therefore be as much under the control of Congress and the Treasury? It might be beneficial to be able to increase the money supply in the US without having to pay interest to private banks.
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