Printing money: the Zimbabwean solution

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printing-money-the-zimbabwean-solution

It

seems

that Gordon Brown may be planning to resort to a Zimbabwean policy to get himself and us out of the credit crunch – simply printing more money. It will probably have the same effect – stagflation. Like we had in the 1970s under Brown's predecessors Harold Wilson and James Callaghan.

Printing money is supposed to make us all feel richer, so we go out and spend. But money is like anything else. When there is more of it about, it loses its value. People may not notice this immediately. They just see they have more money in their pockets, and feel better off. But then prices start to rise again, and they realize that they're actually no better off at all. They've just spent their savings, so they're actually worse off, or they've invested in new business ventures that will come to grief because eventually people will see that their new riches were illusory.

Money is a very powerful economic tool – it runs through every bit of the economy. You shouldn't use it to try to correct temporary ups and downs in economic performance. It should grow at a constant rate, reflecting growth in the economy. If you try to adjust it in fits and starts, you will just make things worse.

Frankly, this is a time for sound money that we can trust. And it's a time for investment decisions to be driven by market rates of return – not by politicians taking our money with one hand and giving it out with the other in the attempt to create high-profile jobs. Only from a solid, market foundation will the economy recover.

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