More on Money
Ballooning budget deficits requiring inevitable expenditure cuts and these cuts in turn causing a downturn in growth present the developed as well as developing economies with the challenge to understand the fact that money must be backed by physical supply of goods and services, that money alone by itself can not provide the supply of these goods and services and therefore monetary management must essentially be accompanied by good management of the economy itself in all its sectors as well as individual economic entities which will further require the support of well managed other institutions.
Having said that, we shall have to inevitably manage the short term equilibrium as good management of production and supply resources is a prolonged process. The short term management of the economy will be mostly through monetary measures including fiscal exercises that affect the demand and supply of money and can be painful sometimes for the marginal individuals.
Due to peculiar situations economic contraction sometimes may become a reality but such contraction should not be used to create further economic gloom even though this may be a classic bear strategy. A limited group of bears need not be allowed to turn the overall economic sentiment negative.
Speculation is not contributing to economic growth in any way. Just the freedom of activity can not justify the huge negative impact that speculation has on the economy.
Speculation causes artificial price hike eroding the value of money leading to economic hardship to all people; more to the less privileged sections of any society. This has very often seen the stock markets booming while the economy has been largely in the doldrums. Yet Governments all over the world have shown little inclination to curb speculation because the vested interests benefitting from speculation are a strong lobby.Speculative money entering the economy from abroad is even more harmful for the local economy as its flight from the local stream further erodes the value of local currency more sharply.
Speculative activity in commodities is further worse than in the money or stock markets. It leads to hoarding of essential commodities causing artificial shortages, while the exposure of the speculator to monetary loss is very limited. While the cost of money must remain low the only option is legal sanction to curb speculation.
