MONETARY POLICIES


FX


over 10 trillion yuan to 80 trillion yuan ($11.6T), a nearly 800% increase. Yet the inflation rate of its Consumer Price Index (CPI) remains a modest 2.2%.


Why has all that excess money not driven prices up? Te answer is that China’s Gross Domestic Product has grown at the same fast clip as its money supply. When supply (GDP) and demand (money) increase together, prices remain stable.


Whether or not the Chinese government would approve of a UBI, it does recognize that to stimulate productivity, the money must get out there first; and since the government owns 80% of China’s banks, it is in a position to borrow money into existence as needed. For “self-funding” loans – those that generate income (fees rents


for rail for


extinguishes travel and electricity,


real estate) – repayment the debt along with


the money it created, leaving the net money


supply unchanged. When


In 2017, the US Gross Domestic Product was $19.4 trillion. If the economy is running at 10% below full capacity, $2 trillion could be injected into the economy every year without creating price inflation. It would just generate the demand needed to stimulate an additional $2 trillion in GDP. In fact a UBI might pay for itself, just as the G.I. Bill produced


a sevenfold return from increased productivity aſter World War II.


The Evidence of China


Tat new money can be injected year aſter year without triggering price inflation is evident from a look at China. In the last 20 years, its M2 money supply has grown from just


Without demand, producers will not produce and workers will not get hired, leaving them without the funds to generate supply, in a vicious cycle that leads to recession and depression. And that cycle is what our own central


FX TRADER MAGAZINE January - March 2019 73


loans are not repaid, the money they created is not extinguished; but if it goes to consumers and businesses that then buy goods and services with it, demand will still stimulate the production of supply, so that supply and demand rise together and prices remain stable.


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