Keynesians are always claiming that the solution for the crisis is inflation (well, its the solution for everything…) so why not give them inflation: repeal the legal tender laws and allow for competing currencies to inflate the money supply…
Its more of a publicity proposal because we know that if not even an audit the Fed bill was aproved, aproving this is even harder, but think about it. How can keynesians say no to this without admiting that they want the money to be monopolized arround the government created banking cartel? From a populist point of view they can only loose: Repealing legal tender laws would allow for local communities to fund their projects and develop their own economy, creating local jobs… How can they be against this? (we know they are, but they just wont say it)
From a publicity and educational point of view is a win-win.
And from an economic point of view I think its solid. This idea came to me while thinking about the debate inflation vs deflation during the Great Depression. I oppose inflating away the problems, but the market actually tried to inflate by creating local competing currencies during that depression. So it got me thinking that the problem is not really the inflation but where the inflation appears. If inflation is not used to save the broken banks and companies and monetize government debt, but to fund new productive projects then its not bad inflation. But the fiat currency is blocked to do this during a recession because the banks are in trouble and the banks are the monopoly of the fiat credit. So competing currencies are the perfect solution to solve the crisis, because they bypass the lock that the broke banking system becomes. Its actually what the market tried to do during the Great Depression with the local competing currencies.
Abolishing legal tender might not create inflation at all. Because people will just refuse to accept certain types of money as payment [like useless paper money]. So it may very well create deflation. [Though perhaps the very concepts of inflation and deflation don’t apply when there are no legal tender laws. Not sure about this last.]
“If inflation is not used to save the broken banks and companies and monetize government debt, but to fund new productive projects then its not bad inflation.” I don’t think this is right at all. Where did you get this idea from? How is making everything more expensive good?
Well, it would make things more expensive in terms of dollars, but not in the other currencies necessarily. The probable outcome would be the dollar depreciating as other currencies arise. It has happened always this way when a central banks looses its charter, its notes depreciate.
Now, why would this be a good thing? Think about the situation. In a very short way, the problem is that the economy has gone into “hibernation” (thanks to the government turning the short deflationary correction into a long depression), new projects can not start because of 1) the Fed is keeping interest rates near 0%, stopping the natural rates from coordinating investment with consumer demand (and if new projects are started they have a big chance of being malinvestments). Also, 2) the banking system is broke and its blocking, slowing and/or distorting the capital allocation process, and they can only do it because they have the monopoly on credit granted by the government.
Removing legal tender laws and allowing competing currencies will unblock this situation. Capital allocation will happen correctly because new sane (not broke) capital allocation institutions will appear in the new currencies system, channeling resources to where they are needed, starting the projects that people is demanding. This is actually what happened during the Great Depression when a lot of regions developed their own currencies. It was the market reacting to the crisis, trying to find a way to allocate the resources in the best possible way. And the debts in dollars will devaluate making the debts less burdensome and allowing the people that got misled by the false price signals to have a new start, and usually this devaluations are a progressive process (as the new currencies appear and start gaining market space) allowing for a nice transition.
Ron Paul has proposed competing currencies, both in congress and tv.
What I propose is to market this solution towards keynesians. Keynesians always talk about inflating the money supply, because, they claim, they want to help the people get out of debt and also because it will bring jobs and all the mambo jambo. The more conspirational places (or in Krugman’s articles comments) are starting to talk about how austerity is in the benefit of the banks because they have the money and deflation benefits them. I know its false. I know banks and governments are the most interested in inflation, but people dont get it. So my idea is that when someone says or insinuates something along those lines, we should answer that if they want inflation they should abolish the legal tender laws and allow for competing currencies to create the inflation. You can add some anti-bank populism like: that way the big banks wont channel the credit into society and people will be able to handle themselves (which is actually true). Lets see how keynesians answer to that. They claim to be for the people, but we know they support the government money monopoly and the central bank charter. Lets see if they can twist this one when we are using their own rhetoric.
I am proposing it as a marketing solution, not because I think its economically unsound. I believe is 100% sound and it would work. In fact, its what the market tried to do during the Great Depression. But I dont think its realistic to expect the government to abolish legal tender laws when we can not even get an Audit the Fed act approved. But as an easy to get argument against keynesian demagoguery its very powerful. And if you and your friends dont like the idea of inflation (I dont neither) or they are goldbugs you can sell it as a way of going away from the government fiat monopoly (which again its true). Its the beauty of the idea, it pleases everybody. In fact this is the beauty of the market, and since this is a market solution it has that quality.