INFLATION internecine among the financial centrat plan- ners of Canada is heat- ing up. We have a deputy minis- ter nudging the finance min- ister to pressure the Central Bank nor to raise interest rates; the economy has room to grow and a hike is prema- ture, is his claim. Clearly, this mandarin is not in the least gearing up to bust inflation. On its record, nei- ther can the Bank of Canada be accused of waging the good fight, with the result that amidst an ostensible economic boom the Canadian dollar continues to flail. While plumping for yet more inflation leeway, the aforementioned deputy min- ister, a previous employee of the Bank of Canada (Financial Post editorial, Aug. 30), is now preparing to negotiate new inflation targets with the bank. The entire inbred crowd is also set to select the new gover- nor of the Bank of Canada. To float questions about the alleged independence of the bank is to shght the reader, so [Il refrain. Clearly, the campaign for governor of the Bank of Canada is marked by an emphasis on maintaining or letting inflation edge up. And why not? Contrary to well propagated opinion, inflation originates in an increase in the money supply by the government and its handmaid, the Central Bank. It’s a complicated process, facilitated largely by the COU banking svstem known as fractional reserve banking. The Central Bank and the banks, ves, with government imprimatur, are engaged in a process of issuing: paper notes uncovered by zeal assets (moncy). This enables the banks and the Central Bank to enter the market with fictive credit, and bring about initially low interest rates and a boom. What flows from these jumbled marker signals is investment —— jobs included — that should not always have hap- pened. It’s as economist Roger Garrison cautions, “growth rates and unemployment rates by themselves don’t tell the whole story,” since they don’t distinguish between genuine growth and unsustainable boom. In other words, who is to tell if the growth toured by gov- ernment is propelled by gen- uine savings and investment or by the bank’s injecting of new money into credit mar- kets? The political corollary for the Canadian Federal gov- ernment is not hard te divine. A credit-induced boom flaunts rosy, often misleading, employment fig- ures. And what government on the eve of elections wants Co tamper even in the slightest with those? Make ho mistake, Canadian finan- cial politicas are neo- Keynesians to the core; credit expansion in the ser- vice of labour demands is all in a day’s work, Bottom line: “sufficient inflation” nets a politician the optics of high employment, to say nothing of license to conzin- uc inflating the money sup- ply. Economists are mostly silent on the rickety moral scaffolding that undergirds fractional reserve banking. Some, however, refuse to slip benween the sheets with the kleptucracy. Posted on the office door of economics professor Tom DiLorenzo of Loyola College, US., is a newspaper article about nwo college students who were arrested for counterfeiting. A standing, and as yet unmet, challenge DiLorenzo issues to his students is to explain how those actions ditfer from the Central Bank’s “money creation.” The prize, a large pizza, ts still up for grabs. Bereft of similar instruc- tion, most of us would be hard pressed to query the form of commercial banking we identify with deposit banking. We are vaguely — if only intuitively — aware that the contract between bank and client constitutes a bailment contract, to wit, we expect the bank to ware- house our money and it to be fully redeemable like the Chippendale chair we entrust into storage. In real- ity, a run on the bank by every client — and the bank would collapse. I repeat, with fractional reserve banking, the bank is only good for a fraction of the money, since the Central Bank increases the reserves it gives to banks, and the Ganks, in turn, pyramid their respective lending capabili- ties. Unbacked by money (real assets), paper notes then flood the market, diminishing purchasing power, and benefiting those “in proximity to power. The jurisprudence that has evolved to finesse this fraud accords the fractional reserve banker the status of a “good faith” debtor rather than a custodian of his client’s money. Legally, the money is the banker’s asset. The logic of the law thus has the money belonging to client and bank simultane- ously. On flooding the mar- ket with additional money substitutes when the quanti- ty of money is unchanged, economists Hans H. Hoppe, Jorg G. 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