Tapering called off

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Gumby
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Re: Tapering called off

Post by Gumby » Wed Sep 18, 2013 5:48 pm

Mdraf wrote:One is cash the other is debt.  They can't be just "swapped".
That's weird, because cash is created by monetizing debt.
Wikipedia.org wrote:The primary tool of monetary policy is open market operations: the central bank buys and sells financial assets such as treasury bills, government bonds, or foreign currencies. Purchases of these assets result in currency entering market circulation, while sales of these assets remove currency.

Source: http://en.wikipedia.org/wiki/Money_creation
The crazy thing about all this is that even Austrians are supposed to understand that money is credit...
Wikipedia.org wrote:Advocates from an Austrian School or Libertarian perspective often hold that money is equivalent to debt in our current monetary system, but that it need not be in one where money has inherent value, such as a gold standard. They have frequently used this view point to support arguments that it would be best to return to a gold standard, to other forms of commodity money, or at least to a monetary system where money has positive value. Similar views are also occasionally expressed by Conservatives.

Source: http://en.wikipedia.org/wiki/Credit_theory_of_money
So, if you don't subscribe to the Austrian definition of "Credit Money," then I guess that just makes you a pure Metallist who subscribes to Monetarism!
Wikipedia.org wrote: Metallism is the economic principle that money derives its value from the purchasing power of the commodity upon which it is based. The currency in a metallist monetary system may be made from the commodity itself (commodity money) or use tokens such as national banknotes redeemable in that commodity.

Source: http://en.wikipedia.org/wiki/Metallism
But, once again, the problem is that we don't use commodity money anymore! Metallism is no longer relevant in our society!
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Re: Tapering called off

Post by Kshartle » Wed Sep 18, 2013 5:53 pm

Mdraf wrote:
TennPaGa wrote: And, again, you've not explained how the assessment of QE as an asset swap that has no effect on inflation is flawed.
Geez I spent all day explaining how all assets are not the same thing.  An "asset swap" as you describe it is a misnomer. It is not a "swap". One is cash the other is debt.  They can't be just "swapped".  I am not addressing inflation (in this thread). You bring up a new subject. Kshartle is dealing with that.
I've wasted too much of my life explaining these concepts over and over in increasingly simple terms here. When the cumulative weight of propping up ridiculous non-counter points crushes some people the subject is either changed or the electronic equivalent of sticking their fingers in their ears and say "na na na na na" goes on.

Je suis tres fatigue. J'ai fini aussi.

Can we discuss the merits of QE without this magical nonsense about it not having an impact?

Look at the markets for Christ's sake. Clearly there is an impact.

The US stock market dropped in Gold terms, Euro terms, Aussie dollar terms, foreign stock terms, just about everything but dollar terms. Anyone want to venture a guess as to why?
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Re: Tapering called off

Post by Gumby » Wed Sep 18, 2013 5:56 pm

Kshartle wrote:I've wasted too much of my life explaining these concepts over and over in increasingly simple terms here. When the cumulative weight of propping up ridiculous non-counter points crushes some people the subject is either changed or the electronic equivalent of sticking their fingers in their ears and say "na na na na na" goes on.
We aren't sticking our fingers in our ears. You are telling us the definition of Metallism — which we are well aware of — and we are telling you that Metallism might make a little sense if we had commodity money, but our society is based on Credit Money. That's all there is to it.

Come on Kshartle/Mdraf... even the Austrians don't agree with your denial of Credit Money.
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Re: Tapering called off

Post by MediumTex » Wed Sep 18, 2013 6:08 pm

Gumby wrote:
Kshartle wrote:I've wasted too much of my life explaining these concepts over and over in increasingly simple terms here. When the cumulative weight of propping up ridiculous non-counter points crushes some people the subject is either changed or the electronic equivalent of sticking their fingers in their ears and say "na na na na na" goes on.
We aren't sticking our fingers in our ears. You are telling us the definition of Metallism — which we are well aware of — and we are telling you that would all make sense if we had commodity money, but our society is based on Credit Money. That's all there is to it.
If private sector credit were to start rapidly expanding, under current policies we might have a problem with high inflation.

If and when that happens, I hope that Congress and the Fed will take measures to help prevent such inflation from occurring, perhaps by raising taxes and/or interest rates.

For now, though, private sector credit isn't rapidly expanding, and it's therefore not a great surprise that the Fed's policies are not translating into high inflation.

You have to look at the whole picture, including private sector credit.  If all you look at is what the Fed and Treasury are doing, you can't possibly get a clear picture of what is going on through the whole monetary system.

The time to do something about out current system will be when the economy has completely healed and private sector credit is expanding at a healthy rate.  At that point, the Fed should aggressively raise rates to make sure that credit expansion doesn't begin to fuel more speculative asset bubbles.
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Re: Tapering called off

Post by Gumby » Wed Sep 18, 2013 6:10 pm

Kshartle wrote:Can we discuss the merits of QE without this magical nonsense about it not having an impact?

Look at the markets for Christ's sake. Clearly there is an impact.

The US stock market dropped in Gold terms, Euro terms, Aussie dollar terms, foreign stock terms, just about everything but dollar terms. Anyone want to venture a guess as to why?
We explained this already (literally a few hours before the market's reaction). QE increases excess reserves (while removing other financial assets) and those excess reserves are used to bid up asset prices in an attempt to get a return on those reserves that are no longer invested in bonds and to counteract negative real interest rates (i..e. from a paltry IOR). The jump in the markets are speculators front-running the asset bidding.
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Re: Tapering called off

Post by Libertarian666 » Wed Sep 18, 2013 8:30 pm

As I've already explained, the Fed can never stop buying bonds, because if they do, the markets will crash.
Again I have been shown to be correct, but of course no one will ever admit it.
That's the fate of all Cassandras: always right, never acknowledged.
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Re: Tapering called off

Post by Pointedstick » Wed Sep 18, 2013 9:50 pm

Libertarian666 wrote: As I've already explained, the Fed can never stop buying bonds, because if they do, the markets will crash.
Again I have been shown to be correct, but of course no one will ever admit it.
That's the fate of all Cassandras: always right, never acknowledged.
I actually do agree with you. I just don't think an end to QE would cause the economy to crash. The markets, sure. QE has clearly blown up a bunch of asset price bubbles.
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Re: Tapering called off

Post by moda0306 » Wed Sep 18, 2013 10:06 pm

Libertarian666 wrote: As I've already explained, the Fed can never stop buying bonds, because if they do, the markets will crash.
Again I have been shown to be correct, but of course no one will ever admit it.
That's the fate of all Cassandras: always right, never acknowledged.
This is no different than gold in a growing economy.  Eventually there won't be enough gold to pay off all the debt plus the outstanding interest payments.  The lack of the growth of the gold supply would create a market crash, eventually.

So yes, tech, any fixed-supply monetary arrangement is bound to collapse.  If you tried to turn the dollar into such an arrangement, it's no different.
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 8:01 am

Libertarian666 wrote: As I've already explained, the Fed can never stop buying bonds, because if they do, the markets will crash.
Again I have been shown to be correct, but of course no one will ever admit it.
That's the fate of all Cassandras: always right, never acknowledged.
I will acknowledge it. I've been saying the same thing for a long time. Since I understand what QE is, what it does, and how it hurts the economy it's been clear to me that the economy will continue to deteriorate. Price fixing and counterfitting interferes with the distribution of capital. If it was small the economy could shrug it off. Now it's so large we probably need a full scale depression to repair the damage.

Don't worry, we'll get it eventually (Depression). Let's hope they don't don't nuke the economy by accelerating the printing beyond what can be deflated.

That being said, I think after a period of calm now that taper talk will go away, eventually the bad reports will give the FED cover to up the ante over 100 billion per month. I hope you have gold, silver, foreign stocks and foreign bonds in your VP.
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 8:20 am

Gumby wrote:
Kshartle wrote:I've wasted too much of my life explaining these concepts over and over in increasingly simple terms here. When the cumulative weight of propping up ridiculous non-counter points crushes some people the subject is either changed or the electronic equivalent of sticking their fingers in their ears and say "na na na na na" goes on.
We aren't sticking our fingers in our ears. You are telling us the definition of Metallism — which we are well aware of — and we are telling you that Metallism might make a little sense if we had commodity money, but our society is based on Credit Money. That's all there is to it.

Come on Kshartle/Mdraf... even the Austrians don't agree with your denial of Credit Money.
This is what I'm talking about. 

Clearly I'm defining Metalism even though I've never heard of it and denying the credit theory of money even though I've never heard of it. Ohhh yeah, and I really don't care what Austrians think. Or Germans, or Lebanese, or Hutus or Tootsies.

What I'm stunned by is the inability of MR/MMT devotees and Cullen Roche acolytes to answer simple economic questions:

For Example I asked the following: If I print one trillion dollars (perfect counterfeits) do I have more purchasing power?

Several MR/MMT students responded:

1. Are you the Fed?
2. Depends on what you do with that $1 trillion. If the Fed were to buy a bag of dirt with that $1 trillion, that would be the equivalent of a helicopter drop (since the bag of dirt has no value) and it would be highly inflationary.
3. What if you built a bonfire with it and burned it all up?
4. I don't understand the question.. YOU don't have the power to print $1 trillion.
5. No. Your purchasing power doesn't change if you lost a financial asset of equal value — which is what would happen if a Primary Dealer got that money from the Fed.
6. You don't have more purchasing power after a POMO transaction
7. Then you are probably going to jail.
8. A counterfeiter is creating a fake financial asset that defrauds people into believing he has purchasing power. It's known as fraud. What's your point?
9. If private sector credit is contracting on your island, people might not even notice the extra money you are printing.

Now this is a question even a child can easily answer. Cleary I have more purchasing power. And since it can't be created by printing it had to be stolen from it's rightful owners.

There are other examples. Such as If A has zero money and B has $100, if B loans the $100 to A and gets an IOU in return, has their respective purchasing power changed?

If you explain to a child that purchasing power is the ability to buy stuff they will answer this easily.

The MR/MMT students really struggled with this one. Yes, no, I don't get it, I don't understand, A has more but B has the same, A doesn't have more etc.

No one got it right. A now has the purchasing power that B had. He has borrowed it. They cannot by loaning create purchasing power.

My question is, how does studying MR/MMT turn very simple economic questions into such mind-benders that getting the right answer would seemingly have to happen by accident?
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Re: Tapering called off

Post by Gumby » Thu Sep 19, 2013 8:26 am

Kshartle wrote:The MR/MMT students really struggled with this one.
KShartle... It's simply because you've asked a question that doesn't happen in reality. There are no perfect counterfeiters. Counterfeiters commit fraud. You can't expect a descriptive framework — based on reality — to answer a question about hypothetical fantasylands where counterfeiters are causing moral issues. It just ain't going to happen.

But, hey... Keep it up with the bedtime stories. I'm sure you'll figure something useful out from them.
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 8:31 am

Gumby wrote:
Kshartle wrote:The MR/MMT students really struggled with this one.
KShartle... It's simply because you've asked a question that doesn't happen in reality. You can't expect a descriptive framework — based on reality — to answer a question about hypothetical fantasylands where counterfeiters are causing moral issues. It just ain't going to happen.

But, hey... Keep it up with the bedtime stories. I'm sure you'll figure something out from them.
Which one doesn't happen in reality? People don't counterfeit or people don't borrow money? What alternate reality are you talking about?
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Re: Tapering called off

Post by Gumby » Thu Sep 19, 2013 8:33 am

Kshartle wrote:
Gumby wrote:
Kshartle wrote:The MR/MMT students really struggled with this one.
KShartle... It's simply because you've asked a question that doesn't happen in reality. You can't expect a descriptive framework — based on reality — to answer a question about hypothetical fantasylands where counterfeiters are causing moral issues. It just ain't going to happen.

But, hey... Keep it up with the bedtime stories. I'm sure you'll figure something out from them.
Which one doesn't happen in reality? People don't counterfeit or people don't borrow money? What alternate reality are you talking about?
There are no "perfect" counterfeiters. Counterfeiters commit fraud. You are basically talking about a crime and MR is simply a manual for the banking system.

For instance, your descriptive car manual doesn't cover crimes of car theft. That doesn't make the manual incorrect. It simply means that the manual isn't interested in discussing crime.

You have this desire to turn every conversation into a political one. And I just don't care about political conversations that much.
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 8:59 am

Gumby wrote:
Kshartle wrote:
Gumby wrote: KShartle... It's simply because you've asked a question that doesn't happen in reality. You can't expect a descriptive framework — based on reality — to answer a question about hypothetical fantasylands where counterfeiters are causing moral issues. It just ain't going to happen.

But, hey... Keep it up with the bedtime stories. I'm sure you'll figure something out from them.
Which one doesn't happen in reality? People don't counterfeit or people don't borrow money? What alternate reality are you talking about?
There are no "perfect" counterfeiters. Counterfeiters commit fraud. You are basically talking about a crime and MR is simply a manual for the banking system.

For instance, your descriptive car manual doesn't cover crimes of car theft. That doesn't make the manual incorrect. It simply means that the manual isn't interested in discussing crime.

You have this desire to turn every conversation into a political one. And I just don't care about political conversations that much.
When did I mention politics? Are you telling me if you study/believe MR you can no longer understand the effects of counterfeiting? That last question is really rhetorical.
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 9:06 am

MediumTex wrote: The time to do something about out current system will be when the economy has completely healed and private sector credit is expanding at a healthy rate.  At that point, the Fed should aggressively raise rates to make sure that credit expansion doesn't begin to fuel more speculative asset bubbles.
Do you think it's possible QE is actually hurting the economy? If it is in fact hurting it, will they ever stop and why in your opinion?
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Re: Tapering called off

Post by Gumby » Thu Sep 19, 2013 9:38 am

Kshartle wrote:When did I mention politics?
You always mention politics. Every question and retort is setting up another conversation about how bad the government is and how it steals from us and how we are all slaves, etc. Oh the government this and oh the government that. On and on... Who cares? This is an investment forum — we just want to know why the government is able to avoid nominal defaults on LTTs and we'll take care of the inflation with stocks and gold.
Kshartle wrote:Are you telling me if you study/believe MR you can no longer understand the effects of counterfeiting? That last question is really rhetorical.
Look. If this line of questioning about counterfeiting is somehow connected to inflation (what we are really interested in here), then please explain yourself with real data. Show us how massive counterfeiting is supposedly destroying our purchasing power with real data and then we can continue. But, if you'd rather stick to bedtime stories, fairytales and fantasyisland scenarios, then I'm afraid we're done here.

The entire credit-based monetary system is based upon the Credit Theory of Money. You need to learn that theory if you want to understand why everyone on the planet and $14 trillion in S&P 500 market cap can get by with only $3.4 Trillion in base money.

The real world of economics is complex. There is credit, there are banks, there are deposits, there are money market funds, there are Primary Dealers, there are Treasury auctions, there are direct bidders and indirect bidders, there are excess reserves, there's IOR, there's FFR, there's overnight lending, and there are contracts that hold all of those operations together, and so on. Those are our realities — not some silly island with "Pointedstick notes". Trying to boil our economic realities down to fairytales and island bedtime stories will miss the real complexity entirely. And it seems that you are hoping to avoid that complexity so that you can inject your political morals into the conversation.

But, I keep telling you that I don't care about politics. If you have evidence of significant inflationary effects from "counterfeiting," then get on it with already and show us.
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 10:18 am

TennPaGa wrote:
moda0306 wrote: Eventually there won't be enough gold to pay off all the debt plus the outstanding interest payments.  The lack of the growth of the gold supply would create a market crash, eventually.
The implication of this is that significant resources would have to be expended to dig more gold out of the ground.  This would be incredibly silly.  I can't decide if it would be less or more dumb than financial engineering, though.
Or the price of gold just has to go up. The price in relation to other stuff...if gold is functioning as money.
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Re: Tapering called off

Post by moda0306 » Thu Sep 19, 2013 1:37 pm

Kshartle wrote:
TennPaGa wrote:
moda0306 wrote: Eventually there won't be enough gold to pay off all the debt plus the outstanding interest payments.  The lack of the growth of the gold supply would create a market crash, eventually.
The implication of this is that significant resources would have to be expended to dig more gold out of the ground.  This would be incredibly silly.  I can't decide if it would be less or more dumb than financial engineering, though.
Or the price of gold just has to go up. The price in relation to other stuff...if gold is functioning as money.
There's still not enough gold to sustain the level of debt denominated in gold plus interest to be paid in gold. It's simple math.
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 1:50 pm

moda0306 wrote:
Kshartle wrote:
TennPaGa wrote: The implication of this is that significant resources would have to be expended to dig more gold out of the ground.  This would be incredibly silly.  I can't decide if it would be less or more dumb than financial engineering, though.
Or the price of gold just has to go up. The price in relation to other stuff...if gold is functioning as money.
There's still not enough gold to sustain the level of debt denominated in gold plus interest to be paid in gold. It's simple math.
All loans are not due at the same time. Every individual loan can still be paid off if the borrower can provide goods and services required to trade for the required amount. Some will not be able to do this. They will default just like they do in dollars. The total amount of money in circulation does not require expansion to accomodate new production. Prices will fall to adjust. Rapidly moving prices can cause additional confusion in the marketplace and difficulties in planning that reduces efficiency. I think falling prices because money is gaining value causes fewer problems than rising prices due to money losing value.

If you had an island with 100 people, and 10 of them have gold and loan in to the other 90, all payable in 30 days with interest, some will not be able to pay. Those lenders who lent more foolishly will lose. Having someone counterfeit the gold to ensure everyone can pay does not change the fact that there was a loss, it only spreads it around to everyone, rewarding the risky unprofitable lenders at the expense of the prudent intelligent lenders. In that way also it makes us poorer by missallocating resources towards less profitable ventures (guys borrowed gold and bought stuff that had value but combined them and ended with less value than required for the loan to be made good).

Ideally the amount of money in circulation would rise to meet exactly the value of new goods and services. Who on Earth can possibly be in charge of this monumental task and not abuse that power?
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Re: Tapering called off

Post by moda0306 » Thu Sep 19, 2013 2:17 pm

Kshartle,

There is some healthy level of debt given a certain amount of productive investment.  With the same amount of gold servicing an ever-growing nominal debt-base, it will eventually fail to meet those demands.

Unless you're arguing that our total aggregate debt plus interest to be paid should be limited to the amount of gold already in mined existence, which would significantly hamper investment.

Debt may appear an awful thing, but some amazing entrepreneurs depend heavily on debt early on, and never would have been able to bring their innovation to market without that tool.

I'm surprised that people so supportive of "businessmen" want to limit their access to economic tools to bring their ideas to market by limiting our growth to the quantity of a shiny yellow metal.
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Re: Tapering called off

Post by Libertarian666 » Thu Sep 19, 2013 2:24 pm

moda0306 wrote: Kshartle,

There is some healthy level of debt given a certain amount of productive investment.  With the same amount of gold servicing an ever-growing nominal debt-base, it will eventually fail to meet those demands.

Unless you're arguing that our total aggregate debt plus interest to be paid should be limited to the amount of gold already in mined existence, which would significantly hamper investment.

Debt may appear an awful thing, but some amazing entrepreneurs depend heavily on debt early on, and never would have been able to bring their innovation to market without that tool.

I'm surprised that people so supportive of "businessmen" want to limit their access to economic tools to bring their ideas to market by limiting our growth to the quantity of a shiny yellow metal.
One more time: No, limiting debt to the amount of gold in existences would NOT hamper investment. The total amount of goods in existence is NOT increased by printing money. All printing money can do is to REARRANGE existing goods. Thus, there is no increase in REAL investment available by printing money.

Of course NOMINAL investment can be increased by printing money; that is one of the effects of the "money illusion". But real investment cannot be increased other than by saving (spending less than one earns).

This is elementary, people.
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Re: Tapering called off

Post by moda0306 » Thu Sep 19, 2013 2:37 pm

Libertarian666 wrote:
moda0306 wrote: Kshartle,

There is some healthy level of debt given a certain amount of productive investment.  With the same amount of gold servicing an ever-growing nominal debt-base, it will eventually fail to meet those demands.

Unless you're arguing that our total aggregate debt plus interest to be paid should be limited to the amount of gold already in mined existence, which would significantly hamper investment.

Debt may appear an awful thing, but some amazing entrepreneurs depend heavily on debt early on, and never would have been able to bring their innovation to market without that tool.

I'm surprised that people so supportive of "businessmen" want to limit their access to economic tools to bring their ideas to market by limiting our growth to the quantity of a shiny yellow metal.
One more time: No, limiting debt to the amount of gold in existences would NOT hamper investment. The total amount of goods in existence is NOT increased by printing money. All printing money can do is to REARRANGE existing goods. Thus, there is no increase in REAL investment available by printing money.

Of course NOMINAL investment can be increased by printing money; that is one of the effects of the "money illusion". But real investment cannot be increased other than by saving (spending less than one earns).

This is elementary, people.
Generally, entrepreneurs can't build a widget factory unless there is debt to help them pay for the cost of it. Lack of credit prevents investment from occurring that otherwise could have.  If I have a great idea, but instead of our economy being limited by productive potential it's limited by not enough quantity of medium of exchange, we have a situation where we're far less productive than we otherwise could be.

This, my friend, is elementary.  Not only is an economy's growth limited by insufficient monetary expansion, but it's actually a policy decision.  As some of the other threads have shown, gold was a store of value initially used to help governments, not individuals.

I'm not saying that simply printing gobs of money will miraculously make our economy a utopia.  But it's monetizing an economy in the first place that leaves us exposed to the Mexican standoffs that we call recessions.  Having a fixed money supply amidst a growing economy is a recipe for disaster.  We might as well use bartar at that point.
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 2:42 pm

Libertarian666 wrote: This is elementary, people.
Evidently it is not. I thought I explained clearly how prices just adjust to the new money/goods equilibrium. Rapid changes of either the numerator or denominator cause planning problems but the reality is they only move rapidly if rapid inflation or deflation is possible. Those are only possible when you use money substitues and not real money. Real money isn't going to just appear and dissapear in huge quantites or the market will not choose/use it.

Evidently this is extremely advanced. I can't believe we go through this every single week.
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 2:46 pm

I give up. Stuff can't be made unless we can get our hands on enough gold first.

They had a great economy going with all kinds of production that was profitable and self-sustaing and growing and then they ran out of gold. They got stuck in neutral until they could find another mine or pull it out of teeth from corpses in their graves.
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MediumTex
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 2:48 pm

Kshartle wrote:
Libertarian666 wrote: This is elementary, people.
Evidently it is not. I thought I explained clearly how prices just adjust to the new money/goods equilibrium. Rapid changes of either the numerator or denominator cause planning problems but the reality is they only move rapidly if rapid inflation or deflation is possible. Those are only possible when you use money substitues and not real money. Real money isn't going to just appear and dissapear in huge quantites or the market will not choose/use it.

Evidently this is extremely advanced. I can't believe we go through this every single week.
If the only data points you had were the prices in a basket of goods and services (including wages) over the last five years, what conclusions would you draw about central bank policies over that period?
Only strength can cooperate. Weakness can only beg.
-Dwight Eisenhower
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