You are on page 1of 1

Great Contradictions in Economic Theory

by Santiago Sevilla Economist (University of Zurich)

Trouble of Economic Theory is a number of basic contradictions never solved, and
reigning supreme in FED's and govenment's statements. These can easily be
described, and pointed at:

1. Regarding public debt, it is utterly contradictory that the state can create
money, but must issue debt. It is illogical to create debt, if one can create
money. In the end debt will be paid with created money, the own national currency.
This is a remnant of times, when money was a gold certificate, and money, as well
as public debt, were a true obligation or bond. So, the discussion about public
debt causig the increase of the rate of interest is foolish in itself, because
public debt is superflous by definition.

2. Regarding the generally accepted rule that increasing interest rates helps to
control inflation, a most strikig contradiction appears. The interest rate itself
is the rate of growth of savings, time deposits, and it is the yield payed on
bonds, and Treasury Bills. The higher the rate of interest, the more money is
created for the economy to be able to pay its dues. The famous letter "e" in
financial mathematics is the proof of the growth of money, at compound interest
rate. Even worse, where there is galloping inflation, interest rates grow naturaly
to the highest levels, accelerating inflation by producing more and more,
exponential growth of money. These are hard facts, supported by logics.
Notwithstanding all this, the high priests of Central Banks, Mr. Ben Bernanke, and
others, carry on dogmatizing wrongly the opposite to logics. Wall Street and all
CEOs have accepted the foolish dogma, without giving it a second thought.

3. Another creation of wrong logics is the principle of independence of Central
Banks. Government by the people, or democracy, is based on elections and
accountability. Central Banks want to be independent from elected government, they
pretend autarchy. But they are the creators of money, a sovereign attribute of the
state, of the elected government.
So Central Banks should obey the head of state, the President. The state is not
bicephalous or a two-headed Cerberus, one head elected, the other omnipotently
independent, and not accountable to the people. Furthermore, accounting money as
debt of he Central Bank lacks substance and is false, since dollars are not gold
certificates any more. The exchange of FED's money against Treasury Bills is an
excercice in futility, because of the sencelessness of creating debt, when the
state can create money.
The enourmous cost of interest could be spared. The Central Bank is indeed a
spectre or shadow of the state itself, and it is but a piece of logical confusion
or mystification.
(The eventual inflation caused by the executive government creating money, is not
worse than war. So perhaps the Pentagon should also be declared independent, with
another
Mr. Ben Bernanke on top.)
These contradictions must be addressed by economists,if Economics wants to be
called a science, which now it is not.
The cause of the actual crisis in the world economy is the result of a vicious
economic theory, and its enforcement by the FED and other Central Banks, applying
a rather wrong interest rate policy.