Tuesday, March 24, 2009

Quote of the day...

In December 1934 and January 1935 the United States printed and distributed $100,000 gold certificates (just like a dollar bill, but with lots more zeros and exchangeable for gold - most appropriately, Woodrow Wilson was pictured on the bills) for use only between Federal Reserve Banks. Until 1969 the United States distributed for public use $10,000, $5,000, $1,000 and $500 bills that were last produced during World War II. Jack Benny famously collected the $10,000 bills. All this is nice trivia, but unless the geniuses now fiddling with the levers of United States economic power have some idea how they are going to stuff back into the bottle the very nasty inflation genie they are creating with the rillions of dollars of fiat money they are creating out of thin air as portrayed in this graphic, we are going to see these classic denomination of U.S. currency come back into widespread daily use. Think Zimbabwe’s economic problems on a slightly smaller scale.

- A comment by Dilbertnomore on an article posted at T-19.

1 comment:

orrologion said...

From what I have gathered, the plan seems to be to quickly and significantly raise interest rates once the economy stabilizes and shows signs of healthy growth. This is supposed to curtail the inflationary pressures that normally accompany increases in the money supply.

The case many economists are making from Left to Right - real economists rather than politicians with economic theories or economists on the bankroll of politically funded think tanks and institutes - is that Depression economics work differently than do everyday economics in a relatively healthy economy. Think nanotechnology and quantum vs. basic chemistry and Newton.

I'm not smart enough to know otherwise, but there does seem to be a broad consensus on this general point. This is sort of Economic 401 for all of us - maybe even some post-doc citations.

If quantitative easing simply adds money to the system by a few keystrokes, I wonder if there is a similar mechanism to simply take away money in a similar way.