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The Gold standard is the practice of Governments to fix their currency to the price of Gold, and to offer to exchange their currency for an equivalent amount of it.

For example, if the price of the currency was set at $100 per ounce of gold, then $1 would be worth and exchanged for 1/100th of an oz. of gold.

Other commodities or a basket of commodities could also be used to set the price of the currency.

The United States officially went off the Gold Standard in 1971.

Sound money is the concept of the Government balancing it’s budget over the business cycle  (Typically represented as one year).

In Austrian economics, sound money is tied to a commodity money regime, such as the gold standard.  When used this way, Government spending is limited by the amount of gold in the world (and held by the Government) which prevents runaway spending and inflation.

In a fiat money regime (absent the gold standard), there is no such limitation. Governments are operationally unconstrained in their spending, so political, social and ideological constraints are placed upon Governments to prevent profligate spending.

Nearly all modern Governments profess a goal toward sound money.  In addition, nearly all economists, conservative and progressive alike, profess sound money principles to be a natural law of economics.

Very few Governments actually achieve it in practice.  The reason for this is simple: a growing economy requires a growing supply of money.  The only other way  for the money supply to grow is for entrepreneurs to spend bank credit.   When sound money principles are put into use, recession, depression and volatile business cycles are the result.

 

An ELR (employer of last resort) program is a government jobs program to employ labor for which there is no bid in the private market. An ELR program would provide a “buffer stock” of jobs to ready, willing and able labor; typically at some minimum wage.

Proponents of a job guarantee argue five primary points:

1.  The job guarantee would allow unused labor resources in the economy to match up with needed infrastructure improvements such as building bridges, roads and levees.  This would provide greater infrastructure for private sector activity.

2.  The job guarantee would allow for greater price stability in the economy.  As there is effectively “no bid” for the labor, government could spend modestly on a program without causing inflation.  Furthermore, as the economy improved and workers transitioned back to the private sector, the job guarantee program would employ fewer workers and result in less government spending.

3.  The job guarantee would allow for a greater level of economic activity in the economy, increased spending on other goods and services and cushion against downturns; preventing many personal bankruptcies and foreclosures.

4.  The job guarantee would enable the government to spend less on other “welfare” type transfer payments and keep the skills of employed workers sharp, enabling them to more easily transition to private sector employment when growth resumes.  In addition, “need” based crime would be reduced.

Finally, proponents argue, a job guarantee is the only way to to fully close the spending gap (resulting from government taxes and private savings) and eliminate unemployment.

Warren Mosler, a former candidate for Senate in Connecticut, proposes an $8 per hour wage here.

For more information on how a job guarantee could be implemented, see  here and here.

 

 

You won’t hear this phrase uttered by the mainstream media, but a balance sheet recession is economist Richard Koo’s term for an economic condition of private sector over-indebtedness. Koo termed this phrase based on his experiences during the still-ongoing Japanese malaise which began over 20 years ago, resulting in low government bond rates, minimal economic growth and fits of deflation.

The Japanese event was triggered by a Real Estate boom and bust.  It resulted in corporate balance sheets being over-leveraged. As firms paid back debt (destroying money), it resulted in lower incomes and decreased economic activity.

This is the exact scenario we find ourselves in today in the US, although it is households which are experiencing the balance sheet recession, more so than firms. Our financial institutions, the largest of which were propped up by government support in 2008-2009 are also still experiencing a balance sheet crisis.

During the 1990’s and early 2000’s, households increased their debt as confidence in new technology companies and portfolio wealth exploded. Unfortunately, President Clinton then exacerbated the private-debt explosion by running government surpluses in the late 90’s. This meant that, as the US was running an account deficit (importing more than exporting), Private Sector savings necessarily had to turn negative. The tech bubble then popped, only to be propped up by the housing bubble of the early 2000’s.   All of this reinforced the private debt explosion, ultimately reaching heights greater than the Great Depression, which then reversed course in late 2008.

As a result, housing prices have plummeted, incomes have been reduced and households find themselves servicing a greater amount of debt on smaller income. This is a balance sheet recession, and only when private debt levels return to a sustainable level will significant economic growth resume.