"The paper system being founded on public confidence and having of itself no intrinsic value, it is liable to great and sudden fluctuations, thereby rendering property insecure and the wages of labor unsteady and uncertain.
The corporations which create the paper money can not be relied upon to keep the circulating medium uniform in amount. In times of prosperity, when confidence is high, they are tempted by the prospect of gain or by the influence of those who hope to profit by it to extend their issues of paper beyond the bounds of discretion and the reasonable demands of business; and when these issues have been pushed on from day to day, until public confidence is at length shaken, then a reaction takes place, and they immediately withdraw the credits they have given, suddenly curtail their issues, and produce an unexpected and ruinous contraction of the circulating medium, which is felt by the whole community.
The banks by this means save themselves, and the mischievous consequences of their imprudence or cupidity are visited upon the public. Nor does the evil stop here. These ebbs and flows in the currency and these indiscreet extensions of credit naturally engender a spirit of speculation injurious to the habits and character of the people. We have already seen its effects in the wild spirit of speculation in the public lands and various kinds of stock which within the last year or two seized upon such a multitude of our citizens and threatened to pervade all classes of society and to withdraw their attention from the sober pursuits of honest industry. (its where a career in banking inevitably leads)
It is not by encouraging this spirit that we shall best preserve public virtue and promote the true interests of our country; but if your currency continues as exclusively paper as it now is, it will foster this eager desire to amass wealth without labor; it will multiply the number of dependents on bank accommodations and bank favors; the temptation to obtain money at any sacrifice will become stronger and stronger, and inevitably lead to corruption, which will find its way into your public councils and destroy at no distant day the purity of your Government."
How prophetic these words sound today even after some 100's of years.
American president Andrew Jackson
For a change I wanted to start with something said more than 100 year back and how relevant it has become today. This 'Quantitative easing' , "Toilet economics' as far as i would like to describe it will lead to balance sheet recession. In that scenario corporates would look to retire debt rather than have focus on profits even if the interest rate continues to hover around 0%. They will not borrow money for expansion but use the cash flow for retiring debt and make the balance sheet healthy. Such is the nature of beast leading to the slowdown in economic activity (that is happening in West).
For months the Fed purchased hundreds of billions of dollars of Treasury debt, enabling the US government to fund its profligate deficit spending, push the national debt to its limit, and further devalue the dollar. Confidence in the dollar is plummeting, confidence in the euro has been shattered by the European bond crisis, and beleaguered consumers and investors are slowly but surely awakening to the fact that government-issued currencies do not hold their value.
Currency is sound only when it is recognized and accepted as such by individuals, through the actions of the market, without coercion. Throughout history, gold and silver have been the two commodities that have most fully satisfied the requirements of sound money. This is why people around the world are flocking once again to gold and silver as a store of value to replace their rapidly depreciating paper currencies. Even central banks have come to their senses and have begun to stock up on gold once again.
With a burning inflation of 10% + in India, we are already shafted. I refuse to believe this CONgress theory of supply side issues. It is largely driven by the failure of Indian government to control profiteering and breakdown of governance. The government monopoly on the issuance of money is purely a method of central control over the economy. If you can be forced to accept the government's increasingly devalued rupee, there is no limit to how far the government will go to debauch the currency. Anyone who attempts to create a market based currency – meaning a currency with real value as determined by markets – threatens to embarrass the federal government and expose the folly of our fiat monetary system. So the government will destroy competition through its usual tools of arrest, confiscation, and incarceration but the time has to come to create local currnecies - Village, Town level.
At the end the currency works on the principal of trust and without coercion
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