I am in a discussion on LinkedIn with some very capable people. We are discussing the Gold Standard debate and why we are debating a return to this standard. 70% of people in an opinion poll felt the need for this. But what they really want is a simpler economic model that works. Here is how we might get there:
We have agreed in my discussion group, that Central Banks should try just releasing new money on a drip-drip basis as a rate that supplies enough funds for the GDP that it services. They should not be interventionist - they usually just create more problems when they intervene.
I have said that the new money should reach everyone as a gift as a reduction in VAT. This kind of stimulus will keep the economy in balance.
For an economy that has a sustainable real economic growth rate of 3% p.a. and wants an inflation rate of 1% the rate of growth of nominal GDP should be around 4% p.a. (1% + 3%); or should we target National Income rather than GDP?
OR should we target AEG - see my Blogs and the Glossary - AEG = Average earnings / Incomes Growth. It matters little - we will find the best rate by trial and error. See below for damage mitigation if we get it wrong:
After that we need to take out everything that prevents Adam Smith's pricing adjustment from functioning properly.
I list eight of those in my main Blog. One is interventionist Central Banks, another is capital movements across currencies and another is the Housing Finance System.
With those eight amended structures in place the theory is this: leave it to the now undistorted pricing mechanism and that will minimise our problems. Everything will adjust to rising demand and demand will undulate but not run out of control. If a stimulus does prove to be needed there is a Keynesian way to do that by reducing VAT and borrowing unborrowed money on a temporary basis using my Wealth Bonds as the vehicle. These wealth bonds are indexed to rising average incomes and preserve the wealth lent to the fiscuss at no wealth cost to the tax payer. Ideal to remove investment risk from portfolios to any desired level.
The outcome of too much money supply injection will be a faster rate of AEG% p.a. and a correspondingly high rate of growth of rentals, property prices, savings, mortgage payments, growth of debt, growth of all wealth assets and all debts and growth of all spending - ALL in direct proportion to the raised level of AEG% p.a.
If Nominal GDP rises faster than target as a result of too fast a drip-feed by the Central Bank, wait to see if it is temporary. Waiting will not damage the economy. Everything will adjust in proportion, spending and wealth. If this too fast rate persists, reduce the rate of drip feed.
The problem with the present structures is that the spending and wealth responses are not proportionate and that creates a huge volume of instabilities which have endless knock-on effects causing our educational institutions to have a field day and causing enormous confusion to everyone else.
My Blogs explain, and will continue to explain these processes in considerable detail, as well as the practical steps that people can take to defend themselves and their businesses right now.
The sooner we put the right structures in place, the sooner our economies will recover.
After reading my Blogs, please send me your questions.