Stamps

It was Sergio Montoro who got me thinking about what the central banks were doing when he published a article titled The year in which the use of paper money was bannedin which he criticized the prohibition to pay in banknotes amounts greater than 5,000 euros.

I confess that I love to argue with Sergio and that he works a few tempting meters away from me. The fact is that Sergio blamed the prohibition on the large underground economy while I, without denying his argument, added as a cause the gigantic monetary mass we have in circulation.

In 2009 the Gurus Blog managed to shock me with an article, titled When the money supply is a druga. More than the article itself, what really struck me was a graph of the money supply growth in the United StatesHere is the same graph updated to February 2014.

Today there are three times as many dollars in circulation as there were three years ago, and I don't think the Euro will be any different. In inter-war Germany, between 1921 and 1923, there were hyper-inflationIn the early days, bills of one hundred billion marks were minted. So much money was put into circulation that it was worthless. As an anecdote it is said that when you ordered a beer in the bar you had to pay for it at the time, because when you had drunk it the beer already had a higher price.

We are on our way to turning banknotes into stamps.


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