[quote]BostonBarrister wrote:
We didn’t have a Fed during the 1800s. Somehow there was still inflation, deflation, bubbles, burst bubbles, and bank runs.[/quote]
The Fed makes these phenomena worse because they have to first understand the signals in order to act upon them – often its too late. In a free market it happens naturally and no one really notices it.
Every financial crises we have ever seen in this country is attributed to intervention in the money supply. Incidentally, the downfall of every empire is also attributed to the same reason.
There was no inflation in this country until Lincoln decided to go to war. He printed money to pay for it. Remember greenbacks? There were two previous attempts to create central banking in this country. Both of them were put down because they were seen as destructive to the currency. Once we went back to a proper gold standard currency stabilized until WWI – guess why.
The Federal Reserve creates an atmosphere of false euphoria. It incentivizes bad decision making and disincentivizes personal saving (what you refer to as a creating a money shortage). Once people lose confidence in the Fed it’s over.
Saving is good. It lowers interest rates naturally which allows for increased productivity. When money is “taken out of the system” (which will never happen again thanks to computers) it lowers prices and people begin to spend once again. These are fluctuations that should be allowed to happen naturally. In the modern day with the technology we have there is no reason for bank runs to happen. It’s time to let the Fed die a slow death.
[quote]Headhunter wrote:
You gents are ignoring the bigger picture: Britain was no longer able to secure international investments. South American countries, for ex, began defaulting on their bonds because they knew no one would come calling.
Capital fled to the ‘center’ leading in part to a speculative boom in advanced capitalist societies, a bubble. This was not helped by the USA agreeing to inflate its own currency to help protect the British gold supply.
When the bubble burst, even the newly instituted Federal Reserve was unable to stop it.
Bernanke is wrong about gold. All countries were inflating and putting up trade barriers. If each country inflates about the same way (we did), there won’t be much demand from overseas for your gold. Further, FDR raised the price of gold from $20 to $35 in 1933. The Depression kept on in its merry way.
This also shows why we can’t leave Iraq: if we pull back, governments around the globe will default on their bonds, perceiving that we are wimps. Great Depression 2 would follow.[/quote]
A gold standard does not prevent a government from running a budget deficit. The British government piled up impressive amounts of debt in the 18th and 19th centuries under a gold standard - and it didn’t have any problems raising money. Those problems started after the Victorian years and WWI, and continued through WWII.
The U.S. piled up deficits in the 19th century on a gold standard - though back then they actually seemed to want to pay it back eventually. A gold standard does not prevent a current account deficit either. The United States ran a current account deficit in every single year of the 19th century, with a gold standard, as European capital flowed to the New World.
[quote]
BostonBarrister wrote:
We didn’t have a Fed during the 1800s. Somehow there was still inflation, deflation, bubbles, burst bubbles, and bank runs.
LIFTICVSMAXIMVS wrote:
The Fed makes these phenomena worse because they have to first understand the signals in order to act upon them – often its too late. In a free market it happens naturally and no one really notices it.
Every financial crises we have ever seen in this country is attributed to intervention in the money supply. Incidentally, the downfall of every empire is also attributed to the same reason.
There was no inflation in this country until Lincoln decided to go to war. He printed money to pay for it. Remember greenbacks? There were two previous attempts to create central banking in this country. Both of them were put down because they were seen as destructive to the currency. Once we went back to a proper gold standard currency stabilized until WWI – guess why.
The Federal Reserve creates an atmosphere of false euphoria. It incentivizes bad decision making and disincentivizes personal saving (what you refer to as a creating a money shortage). Once people lose confidence in the Fed it’s over.
Saving is good. It lowers interest rates naturally which allows for increased productivity. When money is “taken out of the system” (which will never happen again thanks to computers) it lowers prices and people begin to spend once again. These are fluctuations that should be allowed to happen naturally. In the modern day with the technology we have there is no reason for bank runs to happen. It’s time to let the Fed die a slow death.[/quote]
The Fed CAN make these problems worse - it did during the Great Depression. However, it can also smooth things out considerably - which it has done since Volcker’s Fed. Targeting price stability is a key matter - if the Fed does that, it can be successful. If it strays from that, there can be great consequences.
No one is arguing saving isn’t good - put it in a bank or money market account, and it is good. Put it in a mattress, that’s bad.
[quote]BostonBarrister wrote:
BTW, are you kidding as to no inflation prior to Lincoln? Do some sample calculations here: http://www.measuringworth.com/uscompare/
[/quote]
Boston, you’ll notice that prices actually went down from 1800 to about 1920; then there was a sharp increase in prices – there was no inflation during the 19th Century – you must have mis-read it.
Put in a starting year of 1800 and amount of $1. Enter a date 1810 and keep adding 10 years and look at the trend. You’ll notice CPI actually goes down and begins to fluctuate at about 1860. For example, a good that costs $1 in 1800 actually costs $.62 in 1850. Prices begin to start fluctuating back up once Lincoln introduces the Greenback.
[quote]LIFTICVSMAXIMVS wrote:
BostonBarrister wrote:
BTW, are you kidding as to no inflation prior to Lincoln? Do some sample calculations here: http://www.measuringworth.com/uscompare/
Boston, you’ll notice that prices actually went down from 1800 to about 1920; then there was a sharp increase in prices – there was no inflation during the 19th Century – you must have mis-read it.
Put in a starting year of 1800 and amount of $1. Enter a date 1810 and keep adding 10 years and look at the trend. You’ll notice CPI actually goes down and begins to fluctuate at about 1860. For example, a good that costs $1 in 1800 actually costs $.62 in 1850. Prices begin to start fluctuating back up once Lincoln introduces the Greenback.[/quote]
[quote]Zap Branigan wrote:
Boy I wish we had what we had in 1850.[/quote]
I can’t help but think this is sarcasm.
You cannot judge the quality of life then with now. Technology would still have made the advances we have seen possible without inflation. Surely, there were technological advances from 1800 to 1850.
I can’t understand why if technology has gotten better, for example, a shovel that might have cost $1 then would cost more than that today without inflation. After all, technology has made it possible to mass produce those kinds of implements. If producing a greater quantity does not lead to cheaper prices the market won’t let it happen.
Given advances in technology and the factory system, a shovel that cost $1 in 1850 should cost probably about 18 cents, assuming a 3% annual increase in GDP reflects buying power.
The difference between that 18 cents and the price you pay in dollars for the shovel today is the amount of LOOTING that has taken place of the American people and their earnings, all to create a goliath government and fight wars for profit and power.
[quote]Headhunter wrote:
Given advances in technology and the factory system, a shovel that cost $1 in 1850 should cost probably about 18 cents, assuming a 3% annual increase in GDP reflects buying power.
The difference between that 18 cents and the price you pay in dollars for the shovel today is the amount of LOOTING that has taken place of the American people and their earnings, all to create a goliath government and fight wars for profit and power.[/quote]
How much would you earn today with no inflation? Just enough to buy a shovel? Without a strong US government would you have clean drinking water? Clean air?
Would you be posting in German? Would you be posting from a work camp? Would you already be dead in a ditch for expressing anti-government views?
Here is a better picture of the CPI trend with 5 year intervals from 1800 to 1900. Notice inflations coincide with times of war (Wars of 1812 and Northern Aggression).
[quote]Zap Branigan wrote:
How much would you earn today with no inflation? Just enough to buy a shovel? Without a strong US government would you have clean drinking water? Clean air?
Would you be posting in German? Would you be posting from a work camp? Would you already be dead in a ditch for expressing anti-government views?[/quote]
You have a point about wages but you must also remember that without inflation if one receives a 3% annual wage increase you are actually better off. Today, wages do not match inflation.
Technology is independent of the government. Einstein didn’t develop relativity by gov’t proxy. Clean drinking water doesn’t necessarily require government intervention. Thank you Evian.
Zap, do you worship at the Alter of the State? You don’t have to be anti-State to have a healthy dose of skepticism – especially if the information you receive comes from the government.
[quote]Zap Branigan wrote:
Headhunter wrote:
Given advances in technology and the factory system, a shovel that cost $1 in 1850 should cost probably about 18 cents, assuming a 3% annual increase in GDP reflects buying power.
The difference between that 18 cents and the price you pay in dollars for the shovel today is the amount of LOOTING that has taken place of the American people and their earnings, all to create a goliath government and fight wars for profit and power.
How much would you earn today with no inflation? Just enough to buy a shovel? Without a strong US government would you have clean drinking water? Clean air?
Would you be posting in German? Would you be posting from a work camp? Would you already be dead in a ditch for expressing anti-government views?[/quote]
Earnings generally reflect productivity gains. If we didn’t have the huge burden of supporting a massive government, I suspect we’d all be far richer.
Since you like to quote myself back at me, you WILL remember that I view the legitimate functions of government to be circa 1830, with defense as a primary concern. However, as we’ve seen, there is little profit to be had from a defensive military establishment.
JP Morgan made millions by getting his buddy Winston to allow the Lusitania be sunk (Churchill admits this in his writings) and leading to WWI — lots of juicy bond sales for the Powers. JP was also their purchasing agent for supplies. And, I LIKE America being the hegemon, though it won’t be for much longer.
No, there’s little profit to be made in small government, low taxes, and a defensive military. Why would anyone want those?
I hope China does a better job than we did. We fucked up.
[quote]
Zap Branigan wrote:
Boy I wish we had what we had in 1850.
LIFTICVSMAXIMVS wrote:
I can’t help but think this is sarcasm.
You cannot judge the quality of life then with now. Technology would still have made the advances we have seen possible without inflation. Surely, there were technological advances from 1800 to 1850.
I can’t understand why if technology has gotten better, for example, a shovel that might have cost $1 then would cost more than that today without inflation. After all, technology has made it possible to mass produce those kinds of implements. If producing a greater quantity does not lead to cheaper prices the market won’t let it happen.[/quote]
However, deflation is a disincentive to investment and risk taking because it greatly increases the cost of a loss. It’s also a disincentive to borrowing. A whole lot of innovation and economic growth this century has been driven by entrepreneurs borrowing to take risks and investors willing to fund start-up ventures.
[quote]Headhunter wrote:
…If we didn’t have the huge burden of supporting a massive government, I suspect we’d all be far richer.
…
[/quote]
I don’t think anyone is arguing that big government is a good thing. I think the argument is that there is nothing magic about a commodity-based currency - currency regimes need to be based on trust or you have large problems. Going to a gold standard now could have catastrophic consequences without changes to the government structure about which you’re rightly complaining - you can’t just go to a gold standard unless you want to engender economic chaos.
Fiat currency allows for greater flexibility for the government to respond to various economic situations or defense needs. With greater flexibility comes greater opportunity for problems - which can hopefully be counterbalanced by market forces on the currency as well as the independent Federal Reserve, which theoretically has different motivations than elected officials.
Zap Branigan wrote:
Boy I wish we had what we had in 1850.
LIFTICVSMAXIMVS wrote:
I can’t help but think this is sarcasm.
You cannot judge the quality of life then with now. Technology would still have made the advances we have seen possible without inflation. Surely, there were technological advances from 1800 to 1850.
I can’t understand why if technology has gotten better, for example, a shovel that might have cost $1 then would cost more than that today without inflation. After all, technology has made it possible to mass produce those kinds of implements. If producing a greater quantity does not lead to cheaper prices the market won’t let it happen.
However, deflation is a disincentive to investment and risk taking because it greatly increases the cost of a loss. It’s also a disincentive to borrowing. A whole lot of innovation and economic growth this century has been driven by entrepreneurs borrowing to take risks and investors willing to fund start-up ventures.[/quote]
[quote]BostonBarrister wrote:
Headhunter wrote:
…If we didn’t have the huge burden of supporting a massive government, I suspect we’d all be far richer.
…
I don’t think anyone is arguing that big government is a good thing. I think the argument is that there is nothing magic about a commodity-based currency - currency regimes need to be based on trust or you have large problems. Going to a gold standard now could have catastrophic consequences without changes to the government structure about which you’re rightly complaining - you can’t just go to a gold standard unless you want to engender economic chaos.
Fiat currency allows for greater flexibility for the government to respond to various economic situations or defense needs. With greater flexibility comes greater opportunity for problems - which can hopefully be counterbalanced by market forces on the currency as well as the independent Federal Reserve, which theoretically has different motivations than elected officials.[/quote]
You are right that todays political structures depend on fiat money.
The flexibility you mentioned though is the flexibility of a common thief.
Since there are laws against simply disowning people and political resistance to tax increases diluting their money is an attractive option.
I could handle my finances more flexible by stealing and yet this is universally seen as wrong.
How come this “moral” flexibility is a plus when it comes to governments and does it not set a dangerous precedent?
[quote]orion wrote:
BostonBarrister wrote:
Headhunter wrote:
…If we didn’t have the huge burden of supporting a massive government, I suspect we’d all be far richer.
…
I don’t think anyone is arguing that big government is a good thing. I think the argument is that there is nothing magic about a commodity-based currency - currency regimes need to be based on trust or you have large problems. Going to a gold standard now could have catastrophic consequences without changes to the government structure about which you’re rightly complaining - you can’t just go to a gold standard unless you want to engender economic chaos.
Fiat currency allows for greater flexibility for the government to respond to various economic situations or defense needs. With greater flexibility comes greater opportunity for problems - which can hopefully be counterbalanced by market forces on the currency as well as the independent Federal Reserve, which theoretically has different motivations than elected officials.
You are right that todays political structures depend on fiat money.
The flexibility you mentioned though is the flexibility of a common thief.
Since there are laws against simply disowning people and political resistance to tax increases diluting their money is an attractive option.
I could handle my finances more flexible by stealing and yet this is universally seen as wrong.
How come this “moral” flexibility is a plus when it comes to governments and does it not set a dangerous precedent?[/quote]
Exactly. The value of fiat money lies in the trust that people have wrt their government. But the limitless spending crowd abuses that trust by continually running up debts and printing currency. Those very things destroy the trust. So, any society that seriously adopts a fiat currency must dissolve into chaos and slaughter. The populace then demands an authoritarian government to resore order.
[quote]BostonBarrister wrote:
Going to a gold standard now could have catastrophic consequences without changes to the government structure about which you’re rightly complaining - you can’t just go to a gold standard unless you want to engender economic chaos.
[/quote]
What about if competition between currencies was legalized? If gold currency truly can’t work it will fail and fiat will reign supreme; however, I can’t imagine that to be the case.
[quote]Zap Branigan wrote:
orion wrote:
Zap Branigan wrote:
I am done. No one has addressed my argument in the least.
You go ahead and think money and gold are some magical concept that violates all laws of nature. You obviously refuse to even give thought to it. You are merely regurgitating talking points.
Have fun in your fantasy land.
I prefer the real world and it seems like every other nation that uses fiat money agrees with me.
I have.
Several times.
You just choose to ignore it.
No you have not. You have tried to redefine money into a magical thing that violates the laws of nature.[/quote]
Abnsolutely not.
You have tried to redefine a social construct as a physical entity that is subject to entropy which is obviously nonsense.
To equal entropie to the prinitng of paper money is blatantly absurd, because here the social value goes down because the physical number of pieces of paper goes up.
Even the analogy is flawed.
Golds, and every precious metal, has the advantage of the lack of noticeable physical decay.
However I´d be perfectly with letting my wealth deteriorate at the rate of golds natural decay.
[quote]Zap Branigan wrote:
LIFTICVSMAXIMVS wrote:
…
Please define deflation and why you think it is a bad thing.
Today your house is worth $ 200,000. Next year it is worth $ 150,000. Five years from now it is worth $ 100,000. You would be a fool to keep paying $ 200,000 mortgage for a $ 100,000 house.
[quote]LIFTICVSMAXIMVS wrote:
Zap Branigan wrote:
Of course, but scarcity of money would make that a downward trend. It is currently an upward trend.
It would also lead jobs on a downward trend.
You are looking at this too simplistically.
Which jobs are affected when when? Not every industry is affected at the same time. Costs affect different industries differently. For example, in the housing industry, a high demand for homes increases the cost of building supplies – timber, brick, etc. Do you think this affects the auto industry and the cost for steel right away?
Money is not a resource like timber. It is only used to exchange goods indirectly. You may lack the necessary finances to afford what you need but overall the amount of money in the system is irrelevant because you can always borrow what you need if other people save. If no one saves it causes inflation because banks lend more than they keep on hand (fractional reserve banking).
The economy does not grow – it is what it is. Production grows or declines based on supply and demand which has nothing to do with the money supply. Lower prices do not mean a loss verses a profit. It means higher productivity which means more overall wealth. That is what is meant by “growing the economy”. It has absolutely zilch to do with the money supply.[/quote]
A growing money supply even consumes capital because you cannot figure in inflation when you write something off.
That makes it harder to replace capital or even grow your capital stock.
