Banking Trouble Not Done Yet

Not by a long way...

WHAT is the optimal annual increase to the annual monetary supply? asks Brian Maher at The Daily Reckoning.

Is it:

A: 2% growth
B: 1% growth
C: 0% growth
D: -1% growth
E: -2% growth

The answer you will have shortly. Let us first glance the doings on Wall Street...

"The new pressure on PacWest," reports The New York Times, by way of understatement, "is a reminder that two months into the banking crisis set off by the failure of Silicon Valley Bank, midsize lenders remain under pressure, largely because their battered share prices are leading to worries among customers."

In March Jim Rickards took to his rooftop and shouted that the banking unpleasantness could endure into next year.

Jim remains upon his rooftop yet. From there he shouts the identical warning. You should expect these bank failures to continue and morph into a full-blown banking crisis. Get ready.

As for the optimal annual increase to the monetary supply, the answer is F – none of the above.

That is, we have taken you for a sleigh ride. We even heaved forth negative growth figures to confound and astound you, to direct you down a false trail.

That is, there is no ideal rate of annual monetary expansion. It has no existence.

Economist Frank Shostak, he of the "Austrian" Mises Institute:

"It is widely held that a growing economy requires a growing money stock because economic growth increases demand for money. Many economists also believe that failing to accommodate the increase in the demand for money leads to a decline in consumer prices. This could destabilize the economy and produce an economic recession or even a depression...

"The idea that money must grow to support economic growth implies that money sustains economic activity. However, money's main job is to be a medium of exchange, not sustain economic activity.

"Can a free and open market yield a monetary dearth or a monetary excess?

"Within a free market, there cannot be 'too little' or 'too much' money. If the market is allowed to clear, no shortage or surplus of money can emerge. Once the market has chosen a particular commodity as money, the stock of this commodity will always be sufficient to secure what money provides. Hence, in a free market, the whole idea of an optimum growth rate of money is absurd."

We invite you to revisit the fellow's concluding line. It is the rock of the case against the monetary planners.