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It's time of money supply, you idiot!

money supply

The biggest impact on the economy still remains to come from the contraction of informality, which is the main customer of the formal economy. However, informality can be considered a certainty for the government, as much as can be a guarantee the developing of oil reserves in developing countries.

Measures and development programs have been announced and are under the action plan. Attempts to model the economy being carried out correctly according to advice from outside and within the country. Developing and strengthening the management capacity is presented in every possible environment to the public. Budgetary consolidation is on his routine, where nothing unexpected can wait to occur.

And yet, something is missing. We must find it and use it to turn strong economic recovery.

For capital needed money. For money needed reserves. For reserves required time.

While there was always enough time in this country, the decisions and important actions has resolved at the last moment.

In a period when the inflation rate varies between 0.7% at the end of 2014 to 1.7% in December 2019, the Albanian government has more than any time the necessity to look with eyes in the future to respond to economic and social dilemmas of today and those who inherited. The situation of foreign investment, but also domestic ones still free space.

Aggregate demand is a positive indicator, but not at levels that promise security for the medium term. Although consumption of citizens has increased slightly, it comes only as a reaction fiscal incentive last year, and of facilitating the fall in the cost of fuel.

The risk of deflation is at the gate of our economy.

While interest rates have gone down and down, the credit with liquidity pumped still not as expected.

But what is missing then, that the engines to push the economy from the 'gravity' of the Albanian transition excruciating?

I say that it is missing the necessary parts that capitalism in Albania finally can be installed to be functional, as we see in countries, from where we hire the advices. So, as in socialism we still lack property rights and as long as capital is not traded in its rightful place, on the stock exchange he misses us in his functional form. To meet the conditions of a functional capitalism, we need a lot from the basic ingredient of it, but irreplaceable and called MONEY.

In this global situation, where economic desperation of our southern neighbor is not alone in Southern Europe, a growing number of economists and financiers are bringing the attention of European governments to Friedman Nobel concept, about the free money supply of economy in such situations, the economic and social ones. Although this theory is in heated debate with theories of academics, who advocate safe ways, I find very interesting the theory that advocates money supply in self controlled and mutually way by monetary and fiscal policies is a very strong fiscal stimulus.

This stimulus should have a strong justification why he could be used (e.g. Settlement of invoices still outstanding for certain categories and problems). It should be intertwined with other forms of financing the budget deficit, as domestic and foreign borrowing.

It is appropriate to use in adaptable way the expression of former US President Clinton:

  • It is money supply, idiot!

Disposal of this new cash to consumption, or with other words directly to the accounts of businesses, landowners, citizens, namely those that the state owes, on the one hand would be the biggest step for government to close the account with them. On the other hand, would trigger a new confidence to the government, which has been lacking since time immemorial, but would give a very strong push for consumers. This increased consumption would create a chain reaction, as it will encourage more production and trade relations, more employment and therefore more budget revenues and economic growth.

Academics will tell us to stop a bit. And will begin to mention that the 'tsunami' of money will bring 'a flood' of inflation and interest rates. After this situation will remind us that comes chaos and financial mess.

But, I will say that supplying the new currency in circulation would be realized absolutely not in strange ways or abusive ones. All would be done by the Bank of Albania. The fresh money supply in circulation, according to the model introduced over 45 years ago by Friedman, would be a combination of actions of the Bank of Albania with treasury bills. This model is like a routine during the last years. The difference it is the inclusion of fiscal incentive policy by positioning both in an interactive approach.

Bank of Albania instead of using money to buy financial assets, it will pay off debts to citizens by using the money and giving directly to them. This action aims to double effects (a) immediate liquidation of debts and (b) direct push to consumption and investments. After this step can be inserted fiscal policy instruments to promote the consumption and increase investment.

That’s why both institutions should act in unison, monetary and fiscal policies together.

Instead the government to cut taxes and thereby increases the budget deficit and public debt, with the laying of new money it will not happen.

Meanwhile, the Bank will influence and monitor the market to maintain inflation targets being more active with the sale and purchase of financial assets and other assets. In this way, it will manage in a more interactive government public debt.

Neither the Bank, nor the Government can not do separately the monitoring and control of market and currency in circulation. Everyone should understand that the goal is not to increase inflation, but to complete the payment of debts with fiscal incentives. The latter relates to the uncertainty that has each of us for the future in relation to increasing fiscal burden.

- Start supplying money! The economy and consume need them.

- It's time of money supply, you idiot!