web analytics
November 23, 2014 / 1 Kislev, 5775
At a Glance
Blogs
Sponsored Post
IDC Herzliya Campus A Day on Campus

To mark IDC Herzliya’s 20th anniversary, we spent a day following Prof. Uriel Reichman, IDC’s founder and president, and Jonathan Davis, VP for External Relations, around its delightful campus.



Enough with the Praise for Stanley Fischer and Israel’s Central Bank

There should be no central bank which regulates the supply of money.
Stanley Fischer

Stanley Fischer
Photo Credit: Yori Yanover, based on image by Miriam Alster/Flash90

Meanwhile, regardless of whether Stanley Shoemaker creates a shoe shortage or a shoe surplus in the country with his inaccurate divining of the appropriate shoe price and supply, people will have no choice but to buy shoes from him alone, and he will get richer selling them regardless of how crappy the shoes are. Nobody wants to be arrested for being a shoe counterfeiter after all.

Having one man in charge of the shoe supply in a country is bad enough. But it is infinitely worse to have one man in charge of the money supply in an entire country, because the supply and demand for money controls the entire economy, shoes included.

I know that the concept “demand for money” and “price of money” is hard to wrap your head around. Doesn’t everyone demand money all the time? How can it change? How can money itself have a price? Isn’t money money? Bear with me here.

It is difficult for people to understand these concepts these days because fiat government currencies have ruled the world since 1971, and governments the world over have taken upon themselves the exclusive right to produce money, forbidding anything else from entering the market as money. But in reality, money, just like shoes, is a good like any other. The only difference is that money is more easily trade-able than shoes for other goods. In fact, money is the most easily trade-able good that exists. That’s why it’s used as money.

Now, the “price of money” and the “demand for money” are reflected in many different ways. They are reflected in how much money money lenders (AKA banks) charge to borrow money, otherwise known as interest rates. If interest rates are high, then money is “expensive”. If money is expensive and money lenders can charge high interest rates, the “demand for money” must be high too. Otherwise, people would not be willing to pay such high rates in order to borrow money. If interest rates are low, then money is “cheap.” If money is cheap and money lenders are forced to lower interest rates in order to attract borrowers, then the “demand for money” must be low.

The price and demand for money is also reflected in the general economy in terms of the money prices of all other goods and services. At times when the demand for money is high, forcing interest rates up, that means people want to hold more of their money (AKA save) rather than spend it. If people want to save more money, the consequence is that the money-prices of goods and services will go down. Things will get cheaper to buy, because in order to attract sales, merchants will have to lower prices in order to entice more money out of savings.

The high interest rates, or high price of money, will in turn serve to bring the money market back into equilibrium at times when the demand for money is high and prices low, as money-savers (lenders) will earn higher rates of return. This will earn savers more money on their savings, and in that way they will be enticed to spend the money they earned from their saving, bringing prices back up, money out of savings, and interest rates back down as lenders are forced to settle for lower interest rates in order to attract more borrowers again. The demand for money is thus lowered, enabling merchants to raise the money-prices of other goods and services, prices go up, demand for money down, and interest rates down.

A short recap:

Demand for money up = interest rates up = prices down

Demand for money down = interest rates down = prices up

Eventually, this entire process reaches an equilibrium point where relative prices of goods and services in terms of money will stay more or less stable along with interest rates.

Now what about the supply of money? This is the cool part. In a free market, the supply of money will be controlled NOT by Stan the Shekel Man, but by gold and silver mining companies teaming up with private money coiners who in turn team up with private banks. Here’s how it works:

  1. Mining Company A has mined 100 kilos of silver, but needs them coined by a recognized and respected money coiner so he can buy stuff. Merchants don’t accept uncoined blobs of silver because there is no way to tell how pure the silver is. So he goes to Money Coiner B and gives him 100 kilos of silver.
  2. Money Coiner B puts the silver through his coining machine, checks its purity, and stamps it with his stamp of approval by coining it into little circles with his certification on it. He keeps 2 kilos of newly minted silver coins as a commission for his services.
  3. Mining Company A and Money Coiner B then go to Money Bank C and say, “Do me a favor Money Bank C. We have these coins here. They’re too heavy. Could you please put them in your vault and give us paper receipts that the silver is sitting here? Please give the silver to whoever presents you with the receipt.” Money Bank C takes the silver coins, provides them with receipts, and charges Mining Company A and Money Coiner B a small fee for storing the coins and providing the receipts.
  4. All parties go out and spend the paper receipts, AKA “money” in the economy and buy stuff.

How is the supply of money regulated in a free market? In the following way: When the demand for money goes up and the prices of other goods go down, mining companies will make higher profits on the gold and silver that they mine for two reasons:

  1. Since the prices of everything are going down, it will become cheaper for them to do the mining itself, increasing profit margins.
  2. Since the prices of everything are going down, the mining companies will be able to buy more stuff with the gold and silver they produce.

These two factors will entice them to increase production of gold and silver, increasing the supply, bringing interest rates down and prices of other goods and services back up. When prices of other goods and services go back up, it will cost the mining companies more money to mine gold and silver, and they will be able to buy less with the gold and silver they mine. Eventually, profit margins for the gold and silver they mine will go down to a point where they will be forced to lower production. The supply of money will go down and the prices of goods and services back down again with it.

About the Author: Rafi Farber blogs at SettlersofSamaria.org.


If you don't see your comment after publishing it, refresh the page.

Our comments section is intended for meaningful responses and debates in a civilized manner. We ask that you respect the fact that we are a religious Jewish website and avoid inappropriate language at all cost.

If you promote any foreign religions, gods or messiahs, lies about Israel, anti-Semitism, or advocate violence (except against terrorists), your permission to comment may be revoked.

4 Responses to “Enough with the Praise for Stanley Fischer and Israel’s Central Bank”

  1. Charlie Hall says:

    "maybe he’s just some guy who has no idea what he’s doing".

    It is this blogger who has no idea what he is doing. Using only precious metals for currency was a disaster worldwide, producing financial panic after financial panic, ruining the lives of millions each time. Winston Churchill later admitted that putting the UK back on the gold standard was one of his worst mistakes, as it helped to precipitate the Great Depression — which helped to precipitate the rise of the Nazis. And the ideas here are more extreme than any proponent of gold standards; he would eliminate government involvement completely and allow private interests — think George Soros — to make a killing by controlling the supply. Small countries in particular, such as Israel, would be at the mercy of such.

    Stanley Fischer justifiably gets a significant part of the credit for saving Israel from the consequences of the 2008 Crash, a crash caused largely by the removal of government involvement in financial regulation in most countries — but not Israel. Furthermore, the author shows his ignorance through this statement:

    " government controlled money to continually lose value".

    In fact the Shekel is worth more now than eight years ago when Fischer took over.

    Can't the *Jewish Press* do better?

  2. Charlie Hall says:

    "maybe he’s just some guy who has no idea what he’s doing".

    It is this blogger who has no idea what he is doing. Using only precious metals for currency was a disaster worldwide, producing financial panic after financial panic, ruining the lives of millions each time. Winston Churchill later admitted that putting the UK back on the gold standard was one of his worst mistakes, as it helped to precipitate the Great Depression — which helped to precipitate the rise of the Nazis. And the ideas here are more extreme than any proponent of gold standards; he would eliminate government involvement completely and allow private interests — think George Soros — to make a killing by controlling the supply. Small countries in particular, such as Israel, would be at the mercy of such.

    Stanley Fischer justifiably gets a significant part of the credit for saving Israel from the consequences of the 2008 Crash, a crash caused largely by the removal of government involvement in financial regulation in most countries — but not Israel. Furthermore, the author shows his ignorance through this statement:

    " government controlled money to continually lose value".

    In fact the Shekel is worth more now than eight years ago when Fischer took over.

    Can't the *Jewish Press* do better?

  3. Rafi Farber says:

    Charlie, you seem to attack most things I write. First, you should understand that I am a anarcho-capitalist libertarian. I do not believe in the right of States qua States to exist, so obviously they should not run the monetary system. Just to clear up you facts a bit, the biggest financial panics ever (great depression, great recession, the soon to be great economic explosion and collapse of all currencies) have all occurred under Federal Reserve Hashgacha, the epicenter of fiat money. Winston Churchill's mistake was not putting Britain back on the gold standard. It was putting Britain back on the gold standard at 4.86 per pound instead of 3.5 per pound in an attempt to deny that they had been inflating the pound. This meant they were back on a gold standard with more pounds than gold. As for George Soros, there is no man who hounds for fiat currency and inflation more than him. When the Fed prints garbage, he's the first one that gets it, because it all goes to Wall Street first.

  4. Rafi Farber says:

    And the Shekel is certainly not worth more now than 8 years ago by any stretch of the imagination. It is stronger relative to the dollar, which is weakening even faster, yes, but in terms of what one can buy with 100 shekels, the purchasing power in terms of actual goods and services continually erodes and will keep doing so as long as governments are in charge of printing them.

Comments are closed.

SocialTwist Tell-a-Friend

Current Top Story
What, me incite terror? Abba: "The Jews must be barred by any means possible."
Ex-Senior Justice Official Asks Homeland Security to Ban Abbas from US
Latest Blogs Stories
Doug Goldstein

Today”s discussion: “The effects of current geopolitical situation around the world on investing.”

jerusalem_flag

According to PM Netanyahu, the bill would enshrine full equality under law to all Israeli citizens.

Funeral for Druze policeman Zidan Saif, slain in a gun battle Tuesday with the murderers of Jews praying in a Jerusalem synagogue.

Master Sergeant Zidan Saif (Zt”L) a Druze from the Galilee, was shot and killed saving Jewish lives.

President Ruby Rivlin

President Rivlin’s recent statements are only half right, and that’s why he’s completely wrong.

This is our song “Learn to Love;” May joy and light be restored to Jerusalem speedily in our days.

I have a dream…President Obama will go to that prison, Pardon Jonathan Pollard and set him free

The burden of proof that a person is against Israel but not anti-Semitic rests on that person.

Bibi’s promising a good battle, not a victory in the war; We need to WIN the war against terrorism!

For 1000s of years it was perfectly OK for Jews to pray on Herod’s Extension of the Temple Mount.

The focus on the “Occupation” since 1967 is yet another invention to justify hatred and murder.

It should be clear Israel’s existence is not the real issue; the issue is Islamic fundamentalism.

But I am not afraid.I know this is Jewish land, not because of UN/foreign gov’ts saying we can exist

A grassroots initiative of hundreds of Chareidim from Har Nof is underway to attend the funeral of Zidan Saif and to pay their respects to the fallen policeman and to the Druze community in the village of Yanuch-Jat in Northern Israel.

Discover the world of NY high society and its intrigue.

A Jew is no more exempt in this war by living in the US or UK than I am enlisted by living in Efrat

Officer Zidan Sayif saved lives in the Har Nof Massacre, but was shot in the head and is now fighting for his life.

More Articles from Rafi Farber
investing-in-gold_4548807_lrg

We would see a massive transfer of wealth away from the banks and the government and the stock market and real estate which will all crash and back to the wage earning middle class who would then be earning gold.

Ron-Paul

People, we are being hoodwinked. No matter what the government says, the government does not define marriage, nor can it.

The finance minister will be me and only me, and I will cut everyone’s budget by 100% and return all the money to the taxpayers who it was stolen from.

In an interview with Galei Yisrael radio station, Likud MK Moshe Feiglin hinted he has a secret plan to help free Jonathan Pollard.

All Feiglin really should say is that the gay community should do whatever it wants, raise its own money, and stop trying to legislate laws which cost money and force unwilling people to pay for something they don’t believe in.

There should be no central bank which regulates the supply of money.

Bibi wants the smallest Likud possible while still maintaining his PM seat.

There is nothing qualitatively different between a trillion dollar coin, and a one dollar bill.

Printed from: http://www.jewishpress.com/blogs/settlers-of-samaria/enough-with-the-praise-for-stanley-fischer-and-israels-central-bank/2013/02/03/

Scan this QR code to visit this page online: