Irredeemable Currency Session 1, 1/2
Keith Weiner Economist and Objectivists talks about our monetary system - video.
SOURCE URL: https://www.youtube.com/watch?v=Qrsbr8HQLGY
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According to this site, the dollar is now worth $0.04 compared to 1913. http://www.comparegoldandsilverprices.co...
So if the spot price of gold is prox. $1193.00 http://www.kitco.com/charts/livegold.htm...
and I take my one dollar to the Mint, and one troy ounce contains 31.103 grams, will they really give me $1/$1193 X 31.103 = 0.02607 grams of gold? I guess if you cannot dazzle them with your brilliance, you will have to baffle them with your bullshit. Minus 1 for you Mike.
While I agree that inflation makes the value of a later sum of currency less than a current sum this has been relatively modest as of the past several years. And in the past year or so, the value of gold compared to the dollar has gone down. Thus, your hard currency has "inflated" more than has the actual dollar lately.
The money supply needs to increase at the rate of the economic activity. If it increases more, that will lead to inflation. That's not good. If it does not increase at the rate of economic activity, then further growth will be stymied. The benefit of a hard currency like gold is that it is relatively stable, and as it increases in value, it incentivizes the mining of more, and as it decreases, it disincentivizes mining. This is natural regulation. What the Fed does is artificial and is used to benefit those who don't deserve it, and punish those who don't deserve to be punished.
I don't know whether MM feels this is not a problem or that it is. What I know is that this isn't an easy issue and there isn't a clear cut course to take to unravel this without extreme pain.
"...So there's a vicious circle at work here: people hoard money in difficult times, but times become more difficult when people hoard money.
The cure for this, Keynes said, was for the central bank to expand the money supply. By putting more bills in people's hands, consumer confidence would return, people would spend, and the circular flow of money would be reestablished. Just that simple! Too simple, in fact, for the policy-makers of that time.
If this is the proposed definition and cure for recessions, then what about depressions? Keynes believed that depressions were recessions that had fallen into a "liquidity trap." A liquidity trap is when people hoard money and refuse to spend no matter how much the government tries to expand the money supply. In these dire circumstances, Keynes believed that the government should do what individuals were not, namely, spend. In his memorable phrase, Keynes called this "priming the pump" of the economy, a final government effort to reestablish the circular flow of money... "
http://www.huppi.com/kangaroo/Keynesiani...
The ability to expand the money supply without limits or any discipline coupled with unpayable runaway debt means that this will unravel with great pain. Its only a question of when and how bad.
1) Could the debt be holding down the inflation rate?
2) If the central bankers conspire to increase their money supplies at the same rate and keep their interest rates near zero, might that have a dampening effect on inflation? And might this also be keeping gold and silver trading in a narrow range?
2) Unknown. Not sure why?
His idea for getting out of the debt dollar sounds interesting.
In point of fact, in 2009, I had a graduate class in international economics taught by a committed Marxist. He put up a graph of the Bush-Obama Bailouts. The money supply was tripling! He asked me and another (and better) conservative about the consequences and in 25 words or less we said that prices would triple. Here we are in 2014. Have prices tripled versus 2008?
The fact that the US Dollar is accepted makes it good. That is the unplanned order of the free market. If you want to refuse dollars, you can. If you want me to document your software for your users, you can pay me in hard money. But I also take FRNs.
(I also do most of the daily housework from cooking and dishes to vacuuming and ironing, and have for 38 years. My wife does a lot of things well. I fetched and carried for her when we built a deck on one house. We are building a home security system now. She likes to bake breads and desserts. She just does not find housework and homemaking satisfying. I do.)
So...inflation doesn't devalue the dollar?
trust anything from the liars in this administration??? -- j
As for gold. If you could trade your dollars for a hard currency, then you would be protecting your purchasing power into the future, so why wouldn't you do so? A $20 gold coin from the 1800's could buy you a very nice suit. That same coin would still buy you a very nice suit today. Value has been retained, regardless of the exchange rate into our fiat currency.
If all that printed money actually had hit the open market, you can bet you would have seen prices triple.
But the central theme is wrong, -that- if you know inflation will happen you can plan for it. You can predict inflation, but not quantify it. My experience in corporate/economic planning is ok if it is very low, say under 1%. Inflation is a sort of animal with a life of its own, it is inevitable that people plan conservatively so anticipate high inflation, the outcome is that the inflation rate escalates and there is then the danger of currency and economic collapse. So, government takes some action, the public panic the other way, the economy swings into depression.
The libertarians say that only governments cause booms and busts, I doubt that, but they certainly make them more frequent and probably more severe.
The point about trading at the market price -yes but- consider Soros trading currency but government is bigger even than Soros, so the concept of market price with one enormous buyer/manipulator is hardly valid.
Maybe this is a mis-statement of the proposition from Lets Shrug- inflation must increase at the rate at which money is created, well there may be some manipulation in definition, but it does not happen as blarman etc explain, and remember technological productivity is still working to reduce prices, the question is, how long can inflationary governments expect that productivity will continue to enable them to pull these counter-inflationary rabbits out hats?
1) Arbitrage compresses the spread not as he says, but because as a seller agrees to a contract he then reestablishes a new Ask at the Bid price, and as a buyer agrees to a contract he then reestablishes a new Bid at the Ask price. The other buyers/sellers then see these new prices and adjust accordingly.
2) The cause of inflation relative to gold (or other commodity) is the relative amounts of each. It is because there are so many dollars compared to gold that the number of dollars required to purchase gold goes up. Yes, I agree with the mechanism of desirability of gold that causes the demand in the first place, but the amount of inflation will be dictated by the number of dollars available.
That story does not explain why fiduciary contracts for future delivery of commodities were invented 2000 years _before_ "money". It does not explain why coins were not invented until 2000 years after silver and wheat were declared to be "money" (equally) in the time of Hammurabi but gold was not. It does not explain why when silver was the preferred and common medium across the Greek matrix c. 400 BCE, the soldiers in The Anabasis were happy to be paid in Kyzikenes, artificial electrum "staters" (about 1/2 a modern ounce). Those Kyzikenes were modern to them, but echoic of a payment common to mercenaries for 200 years - again, even after silver (primarily) and gold (secondarily) were struck.
It is true that we live in a "winner take all" society where first place is valued disproportionately to second, third, etc. And it is true that societies have all manner of such norms in food, clothing, language, etc., which come and go in fashion.
However, if it is _absolutely_ true as Kurt Weimar claims, then the US Dollar has been rationally chosen by most people in most places today to be at least one of the leading forms of money, if not the top if the heap.
Everyone talks about Weimar and the man with the wheelbarrow. Germany's money was worthless because Germany's gold went to England, France, et alia, to pay for all the civilian damage of World War One. When that happened, the people fell back on the silver and gold coins they had hoarded, and communities and others created their own ad hoc "Notgeld".
On the other hand, Turkey just went to a "New Lira" (2005) at a million to one against the old. Unlike the other losers in World War One and then again in WW Two - and unlike modern Israel - Turkey did not demonetize its old currency. Inflation was a predictable factor in their economy. The same was true of Italy, Portugal, Spain, and some other poor nations. In Africa, many nations formed small currency associations and/or pegged their common issues to the French franc. The old Hong Kong Dollar was pegged to the US Dollar. And, of course, after losing World War Two big time, Japan kept its yen. Once equal in gold to a US gold dollar, the yen fell to more than 300 to the dollar. But Japan kept their "worthless" yen, honored their commitments, and worked their way out. It is now about 118 in the industrial nations and just under 100 in the "developing economies" where it is somewhat more highly valued. So, yes, the USA could do the same thing - and without the catastrophic and radical remedies advocated in the video.
If government money were not any good, no one would take it. We would fall back to silver and gold or to other kinds of alternative currencies. This happened several times in the past. It goes on now with Time Dollars and Bay Bucks and maybe a dozen more that come and go. Nice as they are, they are emotional expressions, economic curios.
As a numismatist I know quite well what money buys and bought -- and what forms money may have in the future. I have published on all of those topics. And I live in the USA. I mean, really, Halling, why should you care about the dollar? You do not even live here. You are an ex-patriot.
Inflation is a universally BAD idea. It devalues existing capital unnecessarily and the cascading effects only drive MORE inflation. It's also what leads to borrowing as an investment strategy, because you can use someone else's money more cheaply than your own!
For a free-market business, increased productivity allows more to be produced with the same resources which lowers the costs of goods. This allows the business to pay their more productive employees more without causing inflationary pressure.