Karl Denninger on Caroline Baum

Denninger reports on Caroline Baum’s latest “evisceration” of Greenspan.


… and comments:

One place I do take issue with Caroline is that she asserts that monetary policy was the essence of the bubble. I disagree. The essence of the bubble was and is fraud, along with various deceptions that do not rise to the legal definition of fraudulent activity.  It always has been and this time was – and is – not different.

I will freely admit that the extent of my knowledge in economics and finance doesn’t even begin to approximate a fraction of that of Denninger’s but in my opinion the problem is the monetary system.

If you understand the dynamic and the logic of fiat money, then you must perforce conclude that an unchecked fiat monetary system must necessarily result in government becoming the largest actor in the economy. That’s because fiat money is predicated on inflation but inflation is an exponential dynamic thus its effect diminish over time. As the effects of inflation on GDP progression wane, government must initially tolerate practices that are border-line legal until, as the inflationary dynamic progresses to its logical conclusion, government must necessarily encourage and finally collude in practices that are against the letter of the law.

So the fraud Denninger talks about is a necessary outcome of the monetary system. In other words, the choice of monetary system is upstream of everything else… and the choice of monetary system is not ratified by society by the way… and, for that matter, the people don’t have a say in the management of that other tool that would enable us to maintain a fiat monetary system run at optimum for longer albeit at lower rates of economic expansion; interest rates.

… and talking about expansion… how come nobody has ever made the connection between unbridled inflation which brings about overconsumption and the devastation of our resources hence climate change… ?

Guido (rambling)


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One Response to “Karl Denninger on Caroline Baum”

  1. David W. Lincoln Says:

    Food for thought: http://network.nationalpost.com/NP/blogs/fpcomment/archive/2010/04/06/william-watson-banks-don-t-need-a-crtc.aspx

    Parts 1 & 2 of Inside the collapse found here:



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