Brexit and Infinite Money.

50 years from now historians will be debating what shaped Britain in 2016 and these factors will shape the aspirant leaders, not vice versa. History is nearly always bigger than the people in it. One of these factors is what money actually is and what social purpose it serves?

Only when there is a finite amount of money, can it fulfil its central social purpose of forcing choice. Infinite money is an odd concept given that it is so unevenly distributed, but central banks of the major global currencies have shown they can create money via Quantitative Easing, (QE) without negative consequence. This is new. Inflation, which normally the limits them, cannot occur unless there is a closed system in which too much money can chase too few goods. The US, UK and Euro are (currently!) very open systems so excess money leaks out into global assets or draws in cheaper goods (or labour) before consumer (or wage) inflation can occur.

Even the price rises that will arise from a drop in the pound is unlikely to create an inflationary wage spiral while there is so much extra labour undermining labour’s bargaining power. Admittedly, the de-liberalising of trade would change this by potentially creating a closed system within which inflation could re-occurr but that is not where UK is now. In the meantime certain governments, including UK, have access to an infinite supply of self-created money. QE has ceased to be a crisis management tool to become a intrustrument of routine macro economic management.

This is temporarrily highly convenient and almost certainly there will be more QE as the ECB tries to navigate through probable Italian and Greek debt crisis. Longer term, QE would help the EU admit an over indebted Scotland whose debt could be denominated into Euros and bought by the ECB using the QE mechanism. Mark Carney has already alluded to the use of QE in post Brexit UK. QE is now a mainstream macro economic policy tool. It is addictive and useful: but in the end fatal.

To be clear the problem is not immediate and not about the deficit or debt amount which will always be manageable whilst Central Banks can create money. It is deeper and more serious since infinite money has the same effect on governments that infinite pocket money has on children. They lose sight of the value which in turn becomes defined by short term wants. Finite money limits options and forces choices where as infinite money  leaves decision makers overwhelmed by choice and most likely leads to poor decisions.

In the end the European Union will founder because the Euro requires Germany and Greece/Italy to have an agreed cultural view on the nature of money. The German idea that money is finite, denies the ECB access to endless QE. Southern Europe has a more relaxed attitude and they are perplexed QE has not already been used more widely.

I suspect, historians will note that 2010 to 2020 was the decade when infinite money started to undermine rational government. Aspirant leaders in UK will be shaped both domestically and internationally by this. Is UK’s attitude to money going to be like Germany or Italy? Presently, the government talks like Germany but behaves like Italy. This is an odd political choice since it allows many to unite against austerity when there really has not been any.

(To follow Infinite Money and the effect in Start UP tech)

One thought on “Brexit and Infinite Money.

  1. Great article. I agree with many arguments. Yes, indeed USA is directly connected with UK and the former can “produce” as many banknotes as needed. The “world tipography” is owned by the English speaking dinasty. And, yes in after divorce it is difficult the first 6 months… After that, UK will get reinforced and more powerfull. While, EU is going to decline and will have more divorces.

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