The Collapse of Monetarism

Monetarism is an economy model originated by John Maynard Keynes and Milton Friedman. Since the collapse of Bretton woods system on 1971, Monetarism had prevailed in our today economy world. In the concept of monetarism, it stated that, the stability of economy system can be controlled by regulating the money supply. By controlling the money supply, government is believed to be able to react effectively to the condition of the economy. A overheated market or depress market, government can mitigate its negative repercussion by controlling the money supply valve - interest rate & taxes.

The problem now, is there are too much money being supply into the market since the break down of Bretton Woods system. Statistic had shown a 2000% increase of money supply throughout the world from 1969 to 2002. The market flooded with cheap credit will create a huge assets bubble that will ultimately burst. Such phenomenal is not a "what if" scenario but "when" and "how big" scenario. Many implication can be seen throughout the 1990 to 2010, as property bubble and systemic failure of banking system in United state and Japan. Both country are been trying to use money supply to fix the current economy problem, but for more than 2 decade, the economy problem only to become bigger. Such form of keep pumping cheap credit to the market to stimulate the market will not only increase the debt burden of most government including the wealthiest G7 countries, but will ultimately making the government unable to pay the debt. For that, confident of the market toward the government will fall. Panic will occur. The money printed will become worthless. Commodities and intrinsic value items such as gold and silver will soar in price, turn the market of deflation to hyperinflation, such as happen during Wiemar Republic of German during 1910s.

It is true you may fight fire with fire, but it is impossible to fight water by water. Economy is all about liquidity. The world is trying to fight the liquidity with liquidity. It is no difference by making a drunken person to drink more, hoping, he might get better. Doing the same thing hoping for different result is what insanity all about.