Thursday, March 05, 2009

Debasing The Currency

One of economics' more astonishing aspects is how many of those who believe themselves to be rational actors are prepared to place similar belief in the value represented by small pieces of coloured paper.
A fiat currency is precisely that - its value does not actually exist, but is proclaimed. Of course a fiver is worth five pounds - it says so on the front!
A fiat currency can be debased as easily as a gold coin; while the gold coin can be tampered with and the volume of gold reduced, the paper currency only needs more paper to be introduced into the system. The resulting loss of confidence in each usually results in spectacularly damaging inflation, and a subsequent loss of political liberty.
The current crisis seems to have spawned a new euphemism for debasing the currency - 'quantitative easing'. It would perhaps be gravely hurtful to the self-image of those of our titans who sit on the Bank of England's Monetary Policy Committee to be thought of as just another gang of coin clippers - but that's what they just might yet prove to be.
The urgent need for coin clipping has apparently arisen for one policy reason or another; the real reason is the terror that those in command of policy are now feeling. Debasing the currency, whether it be by coin clipping, printing money or 'quantitative easing', is, at all times and under all circumstances, an act of desperation. Those who do it really do believe that nobody will notice that their money is worth less, and that they will get away with it. But they never do. They never, never do.
An independent Bank of England has proved to be as unsuccessful at preventing recession as a state-controlled one. It should be brought back under state control forthwith; then it will at least be more accountable to the people, through the Treasury - if the Treasury is accountable to anyone, of course. In the meantime, it's time to stock up on cheap bread (Sunday afternoons in Somerfields is recommended) and toilet rolls. You never know; you might soon be able to print you own currency on it, and nobody will know the difference.

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