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Digital Subscriptions > iScot Magazine > July/August > Modern Monetary Theory Part 1

Modern Monetary Theory Part 1

Plan A-cubed

It is now more than a decade since the onset of the financial crisis which rumbled through the US and European banking systems. Over that decade the long held principles of monetary policy and central banking have been turned on their heads. ‘Price stability’ has been abandoned for the false god of ‘2% inflation’. Lenders of Last Resort have transformed into Sources of Free Money. The financial system, as a result, is widely seen as the most protected and privileged part of Western economies, to the detriment of all other parts of the economy. It is hard to mount an effective counterargument to this perception.

The Left has connected to the popular discontent focused on the Fat Cats and Bankers that almost brought the system down but were then rewarded with zero interest rates, quantitative easing, soaring asset prices and even bigger bonuses. “Now we see the ugly face of Capitalism.” “They are all in it for themselves.” “It is time for them to be put back in their place.” These are the rallying cries of the populist political forces that have swept America, the UK and other parts of the European landmass.

For those of us on the libertarian fringe it is an understandable, if not welcome, reaction. There is no doubt that the prevailing political elite has been guilty of arrogant, institutionalised theft. There has been no balance in policy between bailout (for failures) and austerity (for everyone else). The best response to the financial crisis would have been widespread failures of financial institutions, the imposition of unlimited liability on bank, investment and commercial, shareholders and a reboot of monetary policy centred on a hard asset or, better still, free banking.

But governments were never going to let that happen. Politicians only think in terms of ameliorating short-term pain to their keenest interests, not in terms of long-term gain for the system or ordinary people.

They all believe that government or government institutions such as central banks are the solution

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