Wednesday, April 22, 2015

Critiquing a Monetary Reform for Iceland

The Prime Minister of Iceland recently commissioned a report by Frosti Sigurjonsson (henceforth referred to as "Mr. S") to recommend a better money and banking system for Iceland. (I'm sorry, but isn't Frosti a great first name for someone from Iceland!) The recently released report recaps Iceland's sorry history of money and banking disasters and lays the majority of the blame for the 2008 collapse on the institution of fractional reserve banking, which caused an out of control increase in the money supply. Mr. S recommends its abolition. For this I applaud Mr. S and hope that the prime minister accepts the report and urges the Icelandic legislature to act upon it.

My endorsement of the report's primary recommendation does not mean that I believe that Mr. S fully understands money and banking from an Austrian perspective. Nevertheless, his recommendation, limited as it is, is a huge step in the right direction. To this extent it is compatible with my recommendations, delivered at the recent Mises Canada's "Prices and Markets" conference, that called for the abolition of fractional reserve banking, the separation of deposit and loan services, and an end to deposit insurance. Mr. S recommends the same for Iceland.

Mr. S is correct that the central bank lost control of the money supply in the years leading up to 2008 as the banks leveraged their excess reserves into new loans, which created new deposit money out of thin air. Sounding very much like Weimar Republic and Zimbabwean central bankers, he states that it was the duty of the Central Bank of Iceland (CBI) to "provide banks with reserves as needed in order to not lose control of interest rates or even trigger a liquidity crisis between banks." He accuses the banks of lending for speculative rather than worthwhile purposes, whereas he has no such concern over government control over this powerful economic lever. He is confident that the central bank would expand and contract the money supply in a fashion that would be beneficial to all society and that government would spend new monies only for purposes that would benefit the nation. Whew!

The resultant monetary regime in Iceland would be very similar to that of America during our Civil War (1861-65), when the North introduced fiat paper money. The Greenbacks--so named due to their color on one side--were pure irredeemable fiat monies issued by the Treasury Department. At that time America had no central bank, thanks to the foresight and courage of President Andrew Jackson, who was able to block the renewal of the charter of the Second Bank of the United States in 1837. When the North won the war, it did eventually buy back the Greenbacks for gold. The lesson here is clear--one of the main reasons that governments debase money is to fight wars. The North found it impossible to finance the war with taxes and honest debt, so it resorted to confiscation via the monetary printing press. Are Iceland's leaders any different? They may not want to fight a war, although they did get into a naval shoving match with Great  Britain in the 1950s through 1970s over fishing rights, the so-called "Cod Wars". So one never knows.

Mr. S believes that government needs the power to introduce new money to meet the needs of an expanding economy and that the central bank and government will do so for the good of the nation as a whole and not for private purposes. At a minimum he believes that the money supply must expand in order for the economy to expand. In this regard he is a full-fledged Friedmanite, who little understands the adverse impact of even a low level of money growth on the structure of production. On the contrary, he sees money growth as necessary for economic growth and has full confidence that government will spend any newly created money only for good. It is obvious that either he's never heard of public choice theory or does not subscribe to its conclusions. Really, who today believes that government, which after all is manned by some of the most fallible humans in society, can (1) be completely altruistic in its spending decisions and (2) would know what is best anyway? I refer Mr. S. to F. A. Hayek's wonderful Nobel speech in which he clearly articulates his theory of the pretence of knowledge.

Mr. S concludes his proposal with a call for what he terms the "sovereign money system". Right away we know that he is not an Austrian when he states "The CBI will create enough money to promote the non-inflationary growth of the economy." He would separate money creation from money allocation. A money creation committee would decide how much money to create and then the parliament would decide how to spend it. New money would serve five purposes--fund new government spending, reduce taxes, pay off the public debt, provide a citizen bonus, and increase lending to business. Money would not be backed by debt, but would be a sovereign asset created at will. The proposal does remove the ability of banks to increase the money supply through the lending process. All to the good so far. But it transfers this power to government. It allows government to spend what it wishes, as long as the money creation committee goes along, by counterfeiting whatever amount is desired. Government would not be required to increase taxes or issue new debt. Halleluja! A counterfeiter's dream! Also a government dream. Somehow I have little confidence that the money creation committee will not go along with whatever spending plans the parliament desires, a sure path to hyperinflation.


Be that as it may, I hope that Iceland implements that aspect of Mr. S's proposal that requires banks to maintain one hundred percent fiat reserves on checking accounts. Then separating deposit banking from loan banking would negate the need for deposit insurance. Perhaps Iceland's central bank and government will exercise their money printing power with discretion long enough for the rest of the world to see the benefits of abolishing fractional reserve banking and moving to a one hundred percent fiat reserve system. After that we can fight the next battle--prohibiting central banks from expanding the fiat money supply and then finally tying money to specie at a legally enforceable ratio. At that point money production can be turned over completely to private hands and the central bank abolished.

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  65. We are an exclusive agent to direct providers of Fresh Cut BG, SBLC, and MTN, which we have specifically for lease and

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  66. We are authorized Financial consulting firm that work directly with
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  67. We are able to finance your signatory
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  71. Private Lender Bentex Funding Group Ltd.
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    Looking forward hearing from you soonest.
    Yours truly,
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    Bentex Funding Group Ltd(BFGL)
    509 Rue Jacques Coeur,75008 Paris-France
    Paris-France.Bentex Funding Group Ltd (BFGL)

    ReplyDelete

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  75. Hello Everyone I want to quickly use this medium to share a testimony on how i was directed to a Legit and real illuminati member who have transformed my life from grass to grace, from being poor to a rich woman who can now boast of a healthy and wealthy life without stress or financial difficulties. After so many months of trying to to be a member of the illuminati and was scammed the sum of $3,000 i became so desperate in being a member online who will not add to my pains, then i decided to contact a friend of mine who recently became a member, we discussed about the issue and to our conclusion she told me about a man called Ryan Wyatt who is the grand master in the whole of America. So i applied to become a member of illuminati easily without stress and all the preparations where made concerning how to become a member in two(2) days i became a member and the sum of $250,000.00 dollars was deposited into my bank account so i want to advice any one who wants to become a member should call him,+ or WhatsApp him +16282363086 or email (info.illuminatialtar666@gmail.com) he does not know am doing this i pray that baphomet will bless him for the good things he has done in my life.

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  76. Hello Everyone I want to quickly use this medium to share a testimony on how i was directed to a Legit and real illuminati member who have transformed my life from grass to grace, from being poor to a rich woman who can now boast of a healthy and wealthy life without stress or financial difficulties. After so many months of trying to to be a member of the illuminati and was scammed the sum of $3,000 i became so desperate in being a member online who will not add to my pains, then i decided to contact a friend of mine who recently became a member, we discussed about the issue and to our conclusion she told me about a man called Ryan Wyatt who is the grand master in the whole of America. So i applied to become a member of illuminati easily without stress and all the preparations where made concerning how to become a member in two(2) days i became a member and the sum of $250,000.00 dollars was deposited into my bank account so i want to advice any one who wants to become a member should call him,+ or WhatsApp him +16282363086 or email (info.illuminatialtar666@gmail.com) he does not know am doing this i pray that baphomet will bless him for the good things he has done in my life.

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  77. Do you have a business that needs financing, or you need money for personal reasons such as; Debt consolidation, school fees, to buy a property such as car, house, to get medical care, etc? We offer a wide range of financing to companies and individuals who need financial aid or support for different legal purposes.

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  78. PLEASE READ PLEASE READ PLEASE READ
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  81. Good Day,

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  82. Ég hef verið að heyra um þetta auða hraðbankakort í nokkurn tíma og hef aldrei raunverulega borgað neinn áhuga vegna þess að ég efað. Þar til einn daginn ég uppgötvaði reiðhestur hóp sem kallast dark web, þeir eru mjög góðir í því sem þeir eru að gera. Aftur að málinu spurði ég um The Blank ATM Card. Ef það virkar eða jafnvel er til. Þeir sögðu mér já og að kort þess sem er forritað fyrir handahófi dregur út án þess að tekið sé eftir því og einnig er hægt að nota það til ókeypis kaupa á netinu af einhverju tagi. Þetta var átakanlegt og ég hafði ennþá efasemdir mínar. Síðan prófaði ég það og bað um kortið og samþykkti skilmála þeirra. Vona og biðja. Nokkrum dögum seinna fékk ég kortið mitt og prófaði með næstum hraðbanka vél nálægt mér, það virkaði eins og töfrabragð. Mér tókst að taka út allt að $ 5.000. Þetta var ótrúlegur og hamingjusamasti dagur lífs míns með fjölskyldu minni. Enn sem komið er hef ég getað tekið út allt að $ 50.000 án þess að vera stressaður. Ég veit ekki af hverju ég er að senda þetta hér, mér fannst þetta bara geta hjálpað okkur sem þurfa á fjárhagslegum stöðugleika að halda. sendu Mr Rex tölvupóst í gegnum rexwalkerhacker@gmail.com

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  84. We have a direct genuine provider for BG/SBLC specifically for lease, at leasing price of 4+2 of face value, Issuance by HSBC London/Hong Kong or any other AA rated Bank in Europe, Middle East or USA.

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  86. We offer real estate loans, commercial loans, Investment Loans, business loans, personal loans, education loans, medical emergency loans, wedding loans debt-free agricultural loans, mortgage loans, debt consolidation loans and many more of all sizes ranging from individuals, companies and trader's globally. Have you been turned down by your Bank or other Lender's online? Here is a place were you can get QUICK and EASY LOAN without any delay. To apply send an email to: triumphantfinanceltd@gmail.com and get funded asap.

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