Money and Government: Economist's Insights on Economics and Finance

Paul Sheer empowers economic citizens, explaining government debt, money, and fiscal policy. Central bank independence remains crucial.

### Paul Sheard on "The Power of Money: How Governments and Banks Create Money and Help Us All Prosper"
* 📚 Paul Sheard, a noted Australian-American economist, wrote a book titled "The Power of Money" to empower people to understand **how monetary and fiscal policies work** and **how they are interrelated**.
* 💰 Sheard argues that government debt is better viewed as a form of money, as the government creates money by **running budget deficits** and **issuing treasury securities**.
* The most important reason to worry about debt and deficits is that **excessive money printing by the government can lead to inflation**.
* 🌏 The book mainly focuses on developed economies, but South Korea's experience with a **fast fiscal correction during a recession in 1997** is relevant in the context of financial crises.
* 🏦 Sheard devotes a significant chapter to quantitative easing (QE), which he views as an **asset swap** and a way for the central bank to **manage the composition of money in the economy**.
* 📈 Sheard was a big defender of QE, as it helped **push down interest rates** and had **limited inflationary effects**.
* 📉 However, he also acknowledges that **too much government debt and money printing can have negative consequences**, and there are political debates about the **size of government and the distribution of wealth**.

### Central Bank Policies, Cryptocurrencies, and the Future of Money
* 🏦 "Shar's theorem" suggests that when a central bank resorts to quantitative easing, it's a sign that **fiscal policy should become more expansionary** to support monetary policy.
* 💰 Cryptocurrencies like Bitcoin and Ethereum are considered major innovations, but they are seen more as **digital assets** than actual money due to their limitations in serving as a **unit of account, medium of exchange, and store of value**.
* 🪙 Central bank digital currencies (CBDCs) are becoming increasingly popular, with many central banks exploring the idea of **issuing their own digital currencies**.
* 🤝 While central bank independence is crucial for preventing government interference in monetary policy, there is a growing recognition of the need for **coordination between monetary and fiscal authorities** in certain economic circumstances.
* 💸 During the COVID-19 pandemic, both the US Congress and the Federal Reserve injected **trillions of dollars into the economy** through fiscal and monetary stimulus measures.
* 🇰🇷 South Korea, like many other countries, is facing the challenge of a declining population, and potential policy responses include **increasing fertility rates** or **accepting more immigrants**.
* 📈 The risks to long-term Treasury bonds have been a topic of discussion, but the Treasury market is generally considered to be a **large, liquid, and functional market** that is **unlikely to experience severe disruptions**.

The Power of Money: How Governments and Banks Create Money and Help Us All Prosper

The Korea Society is a nonprofit, nonpartisan, 501(c)(3) organization with individual and corporate members that is dedicated solely to the promotion of greater awareness, understanding and cooperation between the people of the United States and Korea. In pursuit of its mission, the Society arranges programs that facilitate discussion, exchanges and research on topics of vital interest to both countries in the areas of public policy, business, education, intercultural relations and the arts. Funding for these programs is derived from contributions, endowments, grants, membership dues and program fees. From its base in New York City, the Society serves audiences across the country through its own outreach efforts and by forging strategic alliances with counterpart organizations in other cities throughout the United States as well as in Korea.

The Korea Society

The Power of Money: Unveiling the Truth About Government Debt and Monetary Policy

Paul Sheer, a renowned economist, discusses the origins of money, the impact of government debt, and the role of cryptocurrencies in his book "The Power of Money.

" Sheer aims to empower people with a better understanding of complex economic concepts and policy debates.

The book challenges the traditional notion of government debt as a burden on future generations, offering thought-provoking perspectives on fiscal and monetary policies.

Government debt, often seen as a burden, is actually a sophisticated form of money in the modern financial system.

The amount of government debt is closely related to the budget deficit, which is essentially the creation of money by the government.

Treasury securities, while structured as debt, actually function as a financial asset for transferring purchasing power through time, rather than a debt to be repaid.

The Impact of Government Debt and Modern Monetary Theory

Excessive government debt and money printing can lead to inflation, which is a major economic concern.

The debate over government deficits is also influenced by political views on the size of government intervention in the economy.

The book's lessons on financial crises and the role of money in the economy are relevant to South Korea, as it has experienced its own economic challenges.

The Impact of Overnight Repo Finance and Quantitative Easing

The mismatch between the illiquidity of assets and easy access to liquidity can lead to financial trouble, as seen in the 1997 crisis in Korea.

The wealth of billionaires is often tied to stock market value, which reflects the market's expectation of future consumer spending.

Quantitative easing, pioneered by the Bank of Japan, involves the central bank setting short-term interest rates to stimulate the economy, but its long-term impact is complex and can be challenging.

Paul Vul's Impact on Inflation and Quantitative Easing

Paul Vul played a crucial role in combating high inflation by raising interest rates significantly in the 1980s.

Quantitative easing, as a tool used by central banks to stimulate the economy, is essentially an asset swap and a way to change the composition of government debt.

Shar's theorem, proposed by Vul, suggests that when quantitative easing is necessary, it's a sign that fiscal policy should also become more proactive in supporting monetary policy.

The Role of Cryptocurrencies in the Modern Economy

Cryptocurrencies like Bitcoin and Ethereum are an incredible technological innovation, but they function more as digital assets than actual money.

Their role as a stable store of value and a widely accepted medium of exchange is questionable due to their volatile nature and limited use in everyday transactions.

However, they have the potential to disrupt central banks and governments, as seen in the growing interest and development of central bank digital currencies (CBDC).

These CBDCs are being explored by central banks around the world as a way to introduce real digital versions of their currencies and revolutionize the payment system.

The Debate Over Central Bank Digital Currency

Central banks are hesitant to provide digital currency to the public, citing concerns about financial stability and the potential impact on monetary policy.

The independence of central banks is considered crucial in preventing government interference in money creation and inflation.

There is a growing argument for more coordination between central banks and fiscal authorities, challenging the traditional concept of independent central banking.

The Impact of Government Policies on the Economy

Politicians' public statements have less impact on the economy than the actual fiscal and monetary policies implemented.

The Federal Reserve's response to COVID-19 included not only cutting interest rates and quantitative easing but also credit easing to maintain the flow of credit in the economy.

The excessive fiscal and monetary stimulus, without considering the long-term effects on the economy and inflation, was a significant policy error.

Strategies for Addressing Population Decline and the Use of Bitcoin in Small Economies

South Korea and Japan are facing population decline due to low fertility rates, and the possible solutions include increasing the fertility rate and accepting more immigration.

The other track for addressing population decline is to have a more proactive immigration program, drawing on the young population of the Asian Hinterland.

In small economies like El Salvador, there is a discussion about potentially dollarizing the economy or using Bitcoin to import monetary and fiscal credibility, and the use of cryptocurrencies may offer an effective solution for international money transfers, especially for migrant workers.

The Potential Impact of Cryptocurrencies on Smaller Economies

Smaller economies may benefit from piggybacking on cryptocurrencies, offering innovative solutions to their problems.

There is a lack of concern about the dysfunction in the Treasury market, with the belief that there are bigger global issues to worry about.

The discussion also touches on the creation of money and ends with an invitation to consider membership in the K Society.