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Skip to content. This amount of paper would probably be worth more than the banknotes printed on it. Have you ever seen so much money? Empty shelves in a Venezuelan supermarket. You might need legal or accounting or other specialist advice.
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Inflation is the price rise of things we buy over time. Why does the RBA need to keep an eye on inflation? Some of them are: Government regulation Tax cuts Trade Higher production costs for businesses Adding to all this, printing money and the actual causes of inflation are hotly contested! Learn more about the RBA, the cash rate, how inflation is factored in and why you should care.
Making cruelty-free, environmentally-friendly sunscreen. How does credit card interest work? The ultimate B Corp holiday gift guide. But it means that a private-sector debt crisis can morph into a public-sector debt crisis. Even in countries where the stricken banks eventually repaid most or all of their bailouts, such as the United States and the United Kingdom, the debt burden rose sharply as governments adopted stimulus programs to ameliorate the broader consequences of lending busts.
In the advanced economies as a whole between and , Turner reports, public debt as a proportion of G. To break free from this ruinous debt cycle, Turner advocates strict limits on how much credit banks can issue. In addition to forcing banks to hold more capital and thereby crimp their lending, he says, governments should regulate mortgage lending by imposing maximum loan-to-value ratios e. He also thinks that rising land values should be taxed more aggressively.
But what would provide the fuel for economic expansion? By keeping the cost of borrowing at ultra-low levels, and boosting the price of houses and other assets, it could end up triggering another credit boom. In parts of Britain, where house prices and mortgage issuances are now rising sharply, a credit boom may already be developing.
The best alternative, Turner thinks, is his radical proposal—creating money and handing it out to entities that can spend it. The key point is that the government would be stimulating the economy without issuing any new debt. Of course, creating money does pose other dangers, like an alarming jump in inflation. During the U. Civil War, the Union government printed greenbacks to pay for its military buildup without any disastrous consequences.
And in Japan, during the nineteen-thirties, the militarist government used the central bank to finance deficit spending and pull the country out of recession. But Turner acknowledges the counterexamples—like the hyperinflation experienced by the Confederate states, Weimar Germany, and modern Zimbabwe. To head off this danger, Turner says, money financing should be used sparingly, and for specific reasons: to pull an economy out of a lengthy slump, to pay for the recapitalization of too-big-to-fail banks, or to write off excessive public debts.
As a way of preventing elected politicians from overusing the electronic printing presses, Turner proposes putting money finance exclusively in the hands of independent central bankers. Skeptics may wonder if this really solves the problem, though. If a central bank adopted money finance for one purpose, such as avoiding a recession, and it proved successful, there would be enormous pressure to use it for others, such as debt reduction.
And the very hint of such a policy being enacted could sour the markets. These countries should still have the room to adopt debt-financed stimulus packages. And, since we know its pluses and minuses pretty well, it may be wise to stick to it where possible. Indeed, a strong argument can be made that the entire eurozone could do with a dose of money finance.
Less overt forms of money finance could be more palatable. For example, the E. Japan, whose public debts are equivalent to about two hundred and forty per cent of G. Like the Fed, it currently insists that it will eventually sell its bond portfolio back to private investors, and the Japanese Treasury Department says it intends to repay all its debts.
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