All Currencies will gain or lose Value over a period of Zeit (Time). Any increase in the Value is called “Appreciation” whereas any decrease in the Value is “Depreciation.” How the Value changes is dependent on the Currency being Liberal Capitalist Kapital or Socialist Geld (Gift). For the sake of illustrating the differences between the Liberal Capitalist version and the one employed under the Work-Standard, this entry will be split into two parts.
The Value of Kapital is affected by its “Scarcity/Availability” under the “Inflation/Deflation Rate.” Inflation leads to Currency Depreciation by increasing its Price. Deflation yields Currency Appreciation by lowering its Price.
Excessive Inflation Rates from Availability of Kapital results in shortages and hoarding, resulting in a concurring Scarcity in most goods and services at higher Prices. Kapital thrives through cheaper exports and more expensive imports.
Excessive Deflation Rates from Scarcity of Kapital results in Recessions and Depression, resulting in greater Availability of goods and services at lower Prices. Kapital thrives through more expensive exports and cheaper imports.
To strike a balance between Inflation and Deflation, Financial Regimes rely on a combination of monetary and fiscal policies. For monetary policy, four methods have been employed:
Most Central Banks determine the rate at which the Value of Kapital change through “Inflationary Targeting,” with the median set at around 2%. The Financial Regime offsets Deflation by expanding the Money Supply or the amount of Kapital that is in circulation. This is done by increasing the “Liquidity” [Read: Kapital] held at privatized commercial banks and lowering Interest Rates to encourage more borrowing. Conversely, the Financial Regime offsets Inflation by contracting the Money Supply, which is done by decreasing Liquidity at privatized commercial banks and increasing Interest Rates to encourage less borrowing.
Every privatized commercial bank maintains a “Reserve Requirement,” which is the amount of Kapital they are allowed to borrow from the Financial Regime. Increasing Liquidity allows them to borrow more Kapital for their reserves; decreasing Liquidity does the opposite by having the banks borrow less Kapital. The banks rely on their own Interest Rates called “Discount Rates.”
Financial Regimes may conduct “Open Market Operations,” which involves the lending and borrowing of LCFIs (Liberal Capitalist Financial Instruments). Securities such as government bonds are bought by the Central Bank, the Kapital created from those Securities are given to the privatized banks for them to lend to potential borrowers. When the Securities are sold by the Central Bank, the Kapital is removed from the banks’ balance sheets, leaving them with less Kapital in their reserves. Open Market Operations rely on a long-term variant known as “Quantitative Easing” (QE), where long-term bonds are purchased by the Central Bank to lower Interest Rates on borrowing.
The Great Recession has also resulted in the creation of a new variation of Interest Rate called the “Interest Rate on Excess Reserves” (IRER) held by privatized banks. The Central Bank pays Interest if there is a higher than normal amount of Kapital in the banks’ reserves. It can lower the IRER to let the banks lend more or increase the IRER to have the banks lend less.
Fiscal policy relies on two methods. Both will always be propagated by the political parties of any Parliamentarian Democracy prior to an election or else enacted through legislative motions in the event of a looming Recession. The tendency at which a parliamentary body decides depends on the political parties serving as Members of Parliament:
Policies involving “Spending Cuts/Increases” will involve manipulating the rate of governmental spending. Examples include, but never limited to, subsidies to privatized firms, investments in infrastructure, converting Kapital into “social welfare,” and nationalization/privatization of enterprises.
Those involving “Taxation Cuts/Increases” are intended for manipulating the tax rates. Corporate, Progressive/Regressive Income, Value-Added, ‘Capital-Gains’ and Dividends (for LCFIs only), and Fuel Taxes are all examples of such policies.
Due to the ideological orientation of Liberal Capitalism and the nature of Parliamentarian Democracy, there is no guaranteed Synchronicity between monetary and fiscal policies. MPs have a vested interest in keeping their seats and political parties are trying to enter or stay in power. This results in MPs trying to pursue high government spending and low taxation, preferably before an upcoming election, to increase their electoral changes. The problem with this approach is the ramifications of what happens after the election.
Overall, the methodology for monetary and fiscal policies under Liberal Capitalism operates according to the Incentives of Supply and Demand. Everything revolves around Kapital first and foremost before the Scarcity/Availability of everyday goods and services. Kapital cannot be simply ‘printed’ and allocated to the State and its people. In its simplest form, it has to be distributed from the Central Bank to the banks to the borrowers.
Note that any Price increases or decreases in individual everyday goods and services may be affected by their Scarcity/Availability alone. To find whether Prices in general are changing due to Currency Depreciation/Appreciation, pay attention to the “Consumer Price Index” (CPI).