Szittyakürt, 1982 (21. évfolyam, 1-12. szám)

1982-12-01 / 12. szám

Page 4 EIGHTEX MARCH 1982 Page sixty-four Grainews, November 1981 Straightening out our thinking on the mysterious relationship between inflation, the Bank of Canada and interest rates. BY JOHN EGOLF The USSR and her allies owed 800 billion, 400 million dollars to the West in 1981 out of which Hun­gary’s share was 8.5 billion. The Socialist world needs the money to buy Western grain and technology! Poland recently was unable pay her share of the interests and was on the verge of collapse but again the U.S. and West Germany bailed her out. The USSR just received a credit payment extension from Japan. The Soviets owe Japan for textile goods. In 1982 the Soviets and her sattelites will owe $100 billion and the Western nations will supply that with more fiat money. This is what troubles the Canadian economy too f most Canadians I are very confused by [the news and com­mentary on inflation, banks, in­terest rates, treasury bills, and deficits, it’s small wonder. Very few people understand these terms and the relationships among them. In far too many editorials and news commen­taries, some of these terms are not even defined accurately. The word “inflation” is seldom defined accurately by news people or by those who have access to the news media, such as politicians, union leaders, professors, and even bankers. Inflation is the in­crease in the quantity of money. And only governments have the legal authority to increase the quantity of money. All you have to do is consult an older text on economics on money and banking, and you’ll see in­flation defined as the creation of new money. The popular definition of in­flation as “rising prices” is in­correct. General price rises are merely a symptom of inflation. It should also be noted, if you simply change the definition of inflation (as governments at­tempt to do), the responsibility for the “inflationary spiral” is deflected from the government to others and, of course, this makes correct analysis difficult or impossible. For instance, too often big business, labor unions, “greedy” speculators, and multinational corporations are blamed for causing infla­tion. Here again, what are too often being criticized are the ef­fects of inflation — rising prices and rising wage rates. How does inflation cause rising prices? That’s an important first question. When newly created money enters the economy, it is por­tioned out to certain individuals and groups. These are people like government workers, civil servants, welfare recipients, government contractors, teachers, and other beneficiaries. Newly created money is never introduced into the whole economy at one time. As these special recipients receive the newly created money, they value each unit less and are more apt to spend it. Since these special recipients have more money, they can bid more in the market for scarce goods and services. They may buy cars, homes, take trips, or receive other benefits. In sum­mary: as the demands for the goods and services of these reci­pients increase, prices must also increase to meet these new claims for goods and services. Unfortunately, as the increas­ed quantity of money is passed through the economy, there are those who do not receive the newly created money or receive it after their costs of living and doing business have increased. G KJ d Irainews readers may rask, ‘‘Exactly how does the Canadian government increase the quanti­ty of money?” There are basically three ways in which the Bank of Canada, and its chartered banks which are under the authority of Parlia­ment, can increase the quantity of money. All three of these ways are related to interest rates. First, though, let’s briefly ex­amine how interest rates are set in the free market. In the free market, interest rates are determined by savers and borrowers, and banks ac­ting as middlemen. As in­dividuals tend to save more and spend less, the banks will have more money for lending and in­vestment. To attract borrowers, interest rates will tend to be lower. The opposite is also true, of course. If individuals are saving less and spending more, the banks will have fewer funds available, and this will be reflected in higher interest rates. Increased savings and lending will not cause a general rise in prices. Savers have simply transferred some of their pur­chasing power to the future when the loans are paid back. Interest rates are not deter­mined by the free market in Canada. One means that can be used to set interest rates is the setting of the bank rate. The bank rate is the rate of interest at which the chartered banks can borrow from the Bank of Canada. By setting the bank rate lower than the free-market interest rate, the chartered banks can profit from the dif­ference in interest rates. Question: Where do the chartered banks get the money to make new loans? The Bank of Canada creates it, either by printing it or establishing an ac­count. This is inflation. If there is ever a need for more cash, a chartered bank could present some of its loans with the Bank of Canada for this cash. Presently, the chartered banks are discouraged from borrowing from the Bank of Canada. The banking system uses two other methods of monetary expansion. The central banking system of Canada, or the Bank of Canada and its chartered banks, system. This means the banks may keep a fraction of the money that depositors may withdraw. To be more specific, let’s assume a bank keeps only 10 per cent of all deposits subject to withdrawal. Then, for every $10,000 held in reserve, a bank may have $100,000 on deposit. The bank can, then, create $90,000 which is available for loans. In short, for every $1 held in reserve, a bank may have $10 on deposit, $9 of which is newly created money available for len­ding. The fractional reserve system will work as long as all the depositors do not demand their money at one time. A second method keeps the open-market operations. This is the principal means by which the Bank of Canada finances the Canadian government’s deficits. The Bank of Canada issues cheques to buy government obligations on the open market. When these cheques are deposited in chartered banks, they add to the banks’ reserves. The banks can, then, create more quantities of money by conforming to the fractional reserve concept. If the Bank of Canada sells treasury obligations, the reserves of the chartered banks will dwindle. The cheques are written on the chartered banks’ accounts and deplete the amount of money available for The federal government and nobody else causes inflation. It does so by in­creasing the quantity of money. Here’s how the Bank of Canada af­fects inflation and interest rates. bills. All chartered banks are re­quired by law to keep a primary reserve and a secondary reserve. The primary reserve is a percen­tage of demand deposits and usually a lower percentage of other deposits. The main com­ponent of the secondary reserve is 90-day treasury bills. If the Bank of Canada buys treasury bills, it pays by writing cheques. These cheques are, then, presented to the chartered banks and, in turn, add to the primary reserves. This means the banks have more funds for lending. There will now be a tendency for lower interest rates. This process is inflation. If the Bank of Canada sells treasury bills, the chartered banks or their clients pay by cheque and lower the primary reserve, and banks restrict their loans. Interest rates will tend to rise. T: tl fractional reserve system “working.” The banks cancel each other’s cheques. So, if Bank A receives a cheque from Bank B, and Bank B receives a cheque from Bank A for the same amount, the two banks cancel each other’s cheques. There is no need for cash or transfers of cash. To repeat, a bank operating on a fractional system, assum­ing a 10 per cent reserve require­ment, can increase its deposits up to $100,000 for every $10,000 held in reserve. The $90,000 difference may be loan­ed out. Now, suppose the reserve re­quirement is reduced to only 5 per cent. Then, for every $10,000 added to a chartered bank’s reserve, it can increase deposits up to $200,000. And $190,000 of this may be available for lending. The monetary expansion in the loan market will tend to lower in­terest rates and raise prices. The third method to increase the quantity of money and manipulate interest rates is lending. However, the Bank of Canada has usually bought large amounts of government securities since World War II. An example of purchasing government securities will il­lustrate the potential for monetary expansion. Suppose a chartered bank has $1,000,000 on reserve and is obligated to keep a 10 per cent reserve. It can loan $9,000,000 to borrowers. Let’s now assume the Bank of Canada purchases another $1,000,000 in treasury obliga­tions. When the $1,000,000 are deposited in a chartered bank, the bank can expand its deposits by another $10,000,000 and loan out another $9,000,000. The addition of new money into the bank’s reserves will tend to lower interest rates, since more money is available for lending. E* : xactly how does the Bank of Canada and [its chartered banks handle government obligations? The usual government securities that the Bank of Canada buys and sells are 90-day treasury lo conclude, it cannot be stressed too often that present methods of banking and inflation in Canada are not a feature of free-enterprise. The economic and monetary troubles that are now plaguing Canada are the logical outcome of illogical policies. The first action that the Canadian government can take to correct many of our economic problems is to stop in­flation. This means stop in­creasing the quantity of money. If this is not done, it will mean the ruin of the monetary system which, in turn, will result in the ruin of the economy. The great free-market economist, Ludwig von Mises, in describing the terrible infla­tion in Germany in 1923, warn­ed: “In the long run, the infla­tion comes to an end with the breakdown of the currency — to a catastrophe, to a situation like the one in Germany in 1923. On August 1, 1914 the value of the dollar was four marks and twenty pfennigs. Nine years and three months later, in November, 1923,.the dollar was pegged at 4.2 billion marks. In other words, the mark was worth nothing. It no longer had any value.”* 'Page 63, Economic Policy. ífii HuH<rMUA MOVtMiNT ié. 0, HFM President Tours The Reverend Sándor Patócs (of the First Hungarian Evangelic Re­formed Church) a cultural and spiritual leader for Hungarians in Los Angeles, California, will be the host for a meeting between some Hungarian cultural and social leaders and Prof. Andor Paposi- Jobb, the President of the Hun­garian Freedomfighter Movement on March 27. On March 28, Prof. Paposi-Jobb will speak in the First Hungarian Evangelic Reformed Church on the artistic, cultural and linguistic traditions of Transylvania and on current cultural develop­ments in that presently Rumanian controlled region. Prof. Paposi-Jobb teaches art and art history at Cla­rion State University at Clarion, Pennsylvania, U.S.A. and this is what Mr. John Egolf writes brilliantly about in the follow­ing article which we have permission to reprint here from the November, 1981 (pg. 64) issue of Grainnews. * Mr. Egolf started his higher education at Clarion State College of Clarion, Pa., U.S.A. He is pre­sently an outstanding teacher of economics at Ethelbert, Manitoba, Canada and is an avid student of the late Ludwig Von Mises. He is an author of numerous articles and is a protégée of Mr. Percy Greaves, an author and politician. Mr. Greaves ran for the presidency of the Ame­rican Party in 1980. MAGYAR KULTUR KÖZPONT — Hungarian Cultural Center — 1052 Geary Street, San Francisco California 94109 Telephone: (415) 775-8416 Joseph Szurcsik, a research en­gineer, poet, and cultural leader among Hungarians in San Fran­cisco, is instrumental in setting up cultural programs. He also closely works with The Alexander Kőrösi- Csoma Associations of the free world. Mr. Szurcsik will soon start a chapter in the Bay Area. Presently he helps to set up various cultural programs which are held at the St. Stephen House within the frame work of the Hungarian Cultural Center: March 14, 3 p.m. National Holiday Celebration March 20, 9 p.m. Hungarian Style Supper and Dance March 27, 5:30 p.m. Prof. J. F. Badiny speaks The A. K-CS Assoc, of Los Angeles will also host Prof. Badiny in the Hungarian House on March 20 at 7 p.m. Prof. Badiny is a historian, author, linguist, teacher, and founder and publisher of the daring Ősi Gyökér (Ancient Roots). He will speak about his research dealing with ancient Hungarian-Sumerian linguistic and cultural matters. “Life’s happenings are but echos of our thoughts. Those who react to or are moved only by the echo are the victims of circumstance.” —Mén-Apó— LETTING IT HAPPEN AND MAKING IT HAPPEN! (Continuation from Page 2) garians, if we are to survive the next one hundred years. The over-lords, both in Hungary and without, have only one problem with a two-fold character: How to apply active and passive euthanasia for the Hungarian nation, how to bring about “...an easy and painless death... act or method of causing death painlessly, so as to end suf­fering: advocated by some as a way to deal with victims of incureable diseases...” (Webster’s New World Dictionary of the American Lan­guage, World Publ. Co., Cleveland, 1959, pg. 502.) They wish to set up the road to death “inperceptable.” Those who want to pull the plug on the “sick” Hungarian nation are no different from those who allow the plug to be pulled! Dear Magyar brothers and sisters! Look around in your own family and do a head count. Is there anything wrong with the numbers? Check your math or check your head. Dear Magyar brothers and sisters! Look into your body and check the pills and the contracep­tives, and how they work. Again check you head! “Oh! But!” You say, “Check my bank account! Check out the circumstances of life around us!” Nothing will do! The trouble is with our heads and with our hearts! Only things can and will happen to us which we make or let happen to us! Brothers and sister! Tomorrow is another day, the first day of our Hungarian future! Is it not up to you and me to ensure that future? The enemy can only try! The Great God of the Magyars Will Decide! —The Editor— fIGHTEX English language publication of the HUNGÁRIA FREEDOM FIGHTER MOVEMENT Edited by the Revolutionary Council Please remit all correspondence to: P. O. Box 35245, Puritas Station, Cleveland, Ohio 44135, U.S.A. COPIES MAY BE OBTAINED FOR $1.00 Printed by Classic Printing Corporation, 9527 Madison Avenue. Cleveland. Ohio 44102 These are the victims of infla­tion. An example of the victims of inflation is the pensioners and other people living on relatively fixed incomes. During monetary expansion, there are always gainers and losers from inflation. Inflation transfers wealth from the losers (or vic­tims) to those receiving the new­ly created money first. Those who gain from inflation do so at the expense of those who do not receive newly created money or who only receive it after their costs have increased. The world’s economy is steadily sinking since 1913 as the U.S. Congress hastily brought into exist­ence the U.S. Federal Reserve Sys­tem and the Federal Income Tax through legislation and Constitu­tional Amendments (Jerome F. Smith, The Coming Currency Col­lapse and What You Can Do About It. Books In Focus, Inc., N.Y., N.Y. 1980, pg. 8). Heavy taxation and governmental overspending, a socialist practice, plagues more and more countries of the world today. The governments cannot pay their bills and the workers sweat more and eet less everv dav.

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