Sacred Cods and Holy Mackerals

Policy wonk alert!
November 28, 2008, 7:23 pm
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One of this blog’s readers, who possibly may be the Boston Globe commenter I gave the public fist-bump to last week, posted a link to this interesting and completely nerdy essay on the possibility of the US seeing inflation and deflation at the same time. It’s a concept that I’ve been fascinated by for the past two days now, kinda like when I think how much more interesting the Electoral College would be if we had four quality candidates, or if, like a scene out of a movie, the Massachusetts State Legislature threw their hands up in the air, and allowed all of their seats to be taken over by Howie Carr listerners and watched to see how fast these these listeners realized that being a public official is a much tougher job with many more shades of gray than they ever knew existed.

Anyway, the premise of this essay was that we could see a situation where the demand for paper money, which has the perception, at least, of being guaranteed, starts to rise, while the demand for electronic credit, which is essentially just an erasable number on a piece of electronic tape, drops. This is due to  the fact that the Fed keeps on injecting lines of credit into the banking system, but because it’s not backed by gold, or anything else tangiable, it’s value is less secure than that of a dollar bill, T-note, etc. It’s a bizarre idea where banks (and their customers) for that matter, would start to insist that all transactions be done using hard currency, rather than transfers of electronic credit, resulting in a premium being placed upon paper money.

I still don’t fully understand it, and it may not even be a plausible premise, but still, it was a notion that has had me fascinated for a couple of days.


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