Friday, August 12, 2011

Zero Growth in France and Its Implications

I take GDP numbers with a large dose of salt. But,, they can be a very rough indicator of changes in an economy. Given the slow money growth in the eurozone, which is intensifying problems for the PIIGS (Soon the be the F'PIIGS), the GDP numbers out of France this morning should come as no surprise.

France’s economy, the second largest in the euro zone after Germany, recorded no growth in the second quarter. The French GDP grew 0.9% in the January-March quarter.

Bottom line: Given  the current tight  ECB monetary posture, the eurozone is headed for a depression, if the ECB does not reverse its tight monetary policy.

As an advocate of a fixed money supply policy, I have no problem with such a policy if it also coincides with a non-interventionist government policy with regard to the economy. This being Europe, any slowdown will likely result in catastrophic government interventions.

That said, the ECB is most likely to reverse ab adopt a money growth posture, which will result in major price inflation. Indeed, the prospect for near global price inflation is a very real and very scary possibility.

9 comments:

  1. As an advocate of a fixed money supply policy, I have no problem with such a policy if it also coincides with a non-interventionist government policy with regard to the economy.

    Isn't government intervention required to generate a fixed money supply, since a free market would result in a changing money supply?

    ReplyDelete
  2. Major_Freedom said, "Isn't government intervention required to generate a fixed money supply, since a free market would result in a changing money supply?"

    The amount of gold in the world is a fixed amount. The amount of gold in the world cannot be changed.
    The amount of salt or seashells or whatever real asset takes the form of a currency is fixed.
    Under a free market banking system, the money supply would be fixed without goberment intervention.

    ReplyDelete
  3. @Major_Freedom

    You're right ... However, I think Mr. Wenzel probably wrote a bit quickly and one should infer that he meant a free market money supply, which would likely result in a nearly fixed money supply based on gold and/or silver and/or (perhaps) another PM

    ReplyDelete
  4. @anon

    "The amount of gold in the world is a fixed amount. The amount of gold in the world cannot be changed."

    I mean ... this is just untrue ... annual gold mining production is ~2500 tonnes per year ... meaning the above-ground gold supply increases by that amount each year. It is not fixed

    ReplyDelete
  5. @Danger

    The amount of gold in the world *is* a fixed amount. The amount "above ground" of course depends on mining.

    ReplyDelete
  6. Danger,

    I think "untrue" is a bit too kind. Absurd would be more appropriate.

    I'm not sure if Anon is aware that in a free-market money supply is determined the same as any other commodity; supply and demand.

    ReplyDelete
  7. Danger Pioneer, you're not getting it.

    The amount of gold IN the world is a fixed amount.

    The above and below ground amounts together are fixed amounts, whereas Dollars are endlessly created effortlessly at the push of a button,... there is no limit.

    Gold and other assets have a cost to produce

    ReplyDelete
  8. @anons

    Fair enough - I suppose that's a semantic argument

    However, the amount of gold not yet mined cannot, as currently situated, be used in the money supply ... therefore the amount of money in circulation (assuming only a gold standard) DOES fluctuate, since gold still in the ground cannot be in the money supply until it is mined and processed into some form of coin, bar, etc. Once an ounce of gold is mined and put into circulation, the money supply has increased by 1 oz and, by definition, is not fixed

    ReplyDelete
  9. Anon;

    Yes, I concede also, that the total amount of gold is fixed (barring some alchemist learning how to make gold, but then that would be natural gold vs manufactured gold).

    ReplyDelete