Tuesday, February 10, 2009

Post-Keynesians

Yves Smith and Steve Keen go after Marx's "Cavaliers of Credit". Warning: This is extremely long, but necessary if you want to truly understand what is going on.

"A sound model of how money and debt are created makes it obvious that we should never have fallen for the insane notion that the financial system should be self-regulating. All that did was give the Cavaliers a licence to run amok".

Credit money, then fiat money?? We don't operate under a fractional reserve system?? Someone needs to reprint all of those macro textbooks.

I suffered physical pain when Keen stated that the only way to inflate the economy (to get it kick started again) was to increase the money supply (i.e., M0) by 25x. No wonder everyone at the Fed and the Treasury is so scared. They know what they need to do, but pulling the trigger is gonna take a much bigger set than they or I have.

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