>From: Daniel Davies <d_squared_2002 at yahoo.co.uk>
>Reply-To: lbo-talk at lists.panix.com
>To: lbo-talk at lists.panix.com
>Subject: Re: Jude, gold, etc.
>Date: Wed, 10 Jan 2001 08:17:21 +0000 (GMT)
>
>
>--- jan carowan <jancarowan at hotmail.com> wrote: >
>Don't know if I am welcome here. We'll see.
> >
> > So as more
> > money becomes interest bearing electronic money,
> > there is less inflation
> > risk since there is no incentive for private banks
> > or other financial
> > institutions to over issue interest bearing currency
> > since it increases
> > their own liabilities.
>
>The history of banking would suggest otherwise.
Well, the history of the banking industry may become not as relevant as we move to newer forms of interest bearing electronic money which will enjoy every greater liquidity. At any rate, banks and their ilk may be history: the primary issuers of electronic money in the future will be mutual funds. By having diverse and liquid assets, mutual funds can offer less risk than traditional banks. With a mutual fund, holders can cash in all or part of their ownership of the fund at any time, but not a fixed price of course. thus the mutual fund account is as liquid as a demand account deposit at a bank. In some countries of course mutual fund shareholders already can write checks and request electronic transfers to third parties against their share holders. For those who want to avoid the risks, there are already money market mutual funds (which hold highly rated government and corporate debt obligations); these are available for those seeking litle risk but still higher returns than normal demand accounts.
My point is that with the around-the-corner emergence of such private monies, the preference for government money can only be sustained by a very tough anti-inflation policy.
>
> > (This is so because the
> > issuance of interest bearing
> > 'money' makes the issuer not only liable for the
> > principal, but also for the
> > interest).
>
>But if that interest is less than the return which can
>be earned on an alternative asset, the incentive is to
>multiply liabilities without limit. You might want to
>leaf through Bagehot's "Lombard Street".
Again banks will now face greater competition if they keep interest that low.
How strong do you think the deflationary forces are in the world economy today?
Yours, Jan Carowan
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