Continuing in the fight for a 100% reserve banking system (or at least a system closer to that than the one we have), I just sent the following message to the Board of Governors.
Naturally, feel free to copy-paste, or send them your own comments here.
To the Board of Governors: As you know, recent PPI data shows a marked increase in Final Goods prices – and generally CPI follows PPI somewhat closely. With this increase in prices it is imperative that we prevent further increases in the broader money supply while at the same time maintaining the integrity of the financial system.
To that end, I recommend that the Board consider a substantial increase in the reserve requirement ratio. Such a move will prevent the historically enormous monetary base from leading to increases in the broader monetary aggregates. Also, it will encourage banks to continue to hold a large quantity of excess reserves which will keep their balance sheets relatively strong in this unsteady time.
As a final point, I would like to remind the Board that focusing on interest rates in a time when very high inflation threatens, and the government has adopted a policy of large deficits is a bad idea. A focus on keeping interest rates low in this fiscal environment is essentially equivalent to handing monetary authority to the federal government, which has historically been the recipe for starting high inflation and/or hyperinflation. Though allowing interest rates to rise may be temporarily painful, the early 1980s shows that the sacrifice necessary to stop or prevent inflation is generally far smaller than many estimate. When given the choice between stagflation with a risk of hyperinflation or an inflation-fighting recession, the latter is most certainly better for the economy in the long run, and the short run costs are just that – short.
No response necessary.
Lucas M. Engelhardt, ABD
PhD Candidate and GTA
Department of Economics
The Ohio State University