Re:Fiat is Effective: fiat for the crypto crowd [pdf]
by guelo on Monday October 16, 2017 @09:54AM
(#15483185)
Economists talk about having two main tools: monetary and fiscal policies. Traditionally monetary policy is driven by the Fed and fiscal policy is driven by the government, this disconnect means that the two can work at cross-purposes, such as when the Fed is raising rates while the government is talking about boosting the economy with business tax cuts.
In reality the state has basically unlimited power to affect the economy, but it chooses to limit what levers are allowed to be used in order to provide stability and confidence. And also out of morality-driven ideology of the same sort the that gave rise to Bitcoin.
You are misinterpreting me. To be more explicit : cryptocurrencies suck for the exact reason you explained (if you look around in this discussion, that's exactly the point I'm making against any cryptocurrency fan) yet saying that current system is working properly is foolish. The recent history (since the 80s) is a good illustration that interest rate isn't a good enough tool for money supply control. And actually it should have been predicted: you have two independent things you want to control (consumer price inflation and asset price inflation) then you can't control them with only one variable. The fed's policy ignored the asset price, and it had the bad consequences I was talking about, but if you chose to control the asset price you'll probably cause deflation and kill economic growth. My take: because it's a system with 2 degrees of freedom, we should have at least two variables to adjust. If the first one is the interest rate, what should the second one be ? I don't know, but probably taxes (On savings ? On capital held maybe ?).