Friday, May 19, 2017

Robert Pringle - "We Remain Stuck in the Money Trap - Do We Not?"

Former Group of 30 Executive Director Robert Pringle has two new articles posted on this blog, The Money Trap. Mr. Pringle is also the author a book by the same name which analyzed the problems that led up to the major financial crisis of 2008 and offered ideas on how to deal with the problems going forward. Mr. Pringle has also kindly provided input for blog articles here sharing his decades of insight and experience into central banking. 

In his two new blog articles, he makes the case that the problems which led up to the last major financial crisis have really not been solved in any permanent way. Below are links to the articles and a couple of excerpts from each.


"Central bankers, who were by and large not responsible for supervision pre-crisis , immediately sought to pin the blame for it on regulators, diverting attention from monetary policies – stoking the credit boom, failing to sound the alarm for what they were responsible for, which often included a duty to monitor the system."

. . . . . 

"Given the diagnosis, the official effort since 2008 has gone into strengthening capital, regulation etc etc with adverse implications for growth but little effort to recast monetary policies. Basically they have had to resort to increasing debt further because they had no alternative, partly for political reasons; but there was also an intellectual vacuum, plus encouraging borrowing and debt by negative rates which risk undermining the entire capitalist system."

. . . . . 

"Is there really more confidence in the system, in money itself? Central bankers say there is, but how do they know? People like Professor Kevin Dowd have raised serious doubts about their so-called tough stress tests. Trust has not recovered. Without trust, money can’t work its magic. The quality of money declines as the central banks resort to desperate measures to maintain its quantity."

. . . . . 

"European and North American economies may be doing a bit better, after 10 years of painful effort post crisis. But that is despite, not because of, the banks and financial sector.

We remain stuck in The Money Trap, do we not?"


"When did the culture of ‘money mania’ start? When did people first set out to grab as much money as possible at whatever cost?  When did the momentum for credit creation —paper money calling for more money — become unstoppable?"

Let us contrast the past 30 years with the years 1880-1910. Under the classical gold standard gold was money and money was gold, the mark of a civilised society. Thus when people say that going back to gold was a mistake in the 1920s, they are correct but unhistorical: almost everybody believed it had to be tried, even Keynes’s disagreement was practical, to do with the price rather than the principle (he wanted a somewhat lower exchange rate).

It was seen as the key to restoring stability.

That went also with a certain set of attitudes and ethics towards money. Our problem is, when society rejected gold (or, as some would have it, grew out of it) it also lost the sense of what nasty things money, let loose, can do."

. . . . .


My added comment: These new articles are an important reminder that despite the general feeling that the 2008 crisis is behind us and the US stock market reaching new highs, we need to keep in mind that we are by no means out of the woods yet in terms of the problems that led up to that crisis. Global debt is much higher now, derivatives remain at record high levels, and monetary policies that may have staved off a severe global deflation have not been successfully unwound yet. We still don't know what the final results will be from all this.

When we see experts like Robert Pringle reminding us of this, we need to pay attention. People like Robert Pringle, Dr. Warren Coats, Jim Rickards and others have decades of experience dealing with these issues and also the wisdom acquired from that experience. We will continue to feature that wisdom and experience here as we monitor future events and see how things unfold in regards to the monetary system. 

Added note: Here is a clickable link from the reader comment just below:

1 comment:

  1. FF to the 1hour28min mark when Scurci lays out gold's true function.