Tapering called off

[moda0306]

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.

[Libertarian666]

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.

[moda0306]

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.

[Kshartle]

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.

[Kshartle]

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.

[MediumTex]

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?

[Kshartle]

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.

How on Earth could you limit loans? Loans are limited by the risk a lender wants to take and the availability of savings. I mean, it would be except we have a bunch of maniacs distorting the markets making bad loans with no savings prior because they just print it and rob everyone else in the process.

[MediumTex]

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.

Why do you think that money was in such short supply in the 1930s?

My understanding is that people even resorted to using "scrip" because there was so little currency circulating in some communities.

What caused this shortage of money?  What would have fixed it short of a World War II-type event?

[MediumTex]

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.

How on Earth could you limit loans? Loans are limited by the risk a lender wants to take and the availability of savings. I mean, it would be except we have a bunch of maniacs distorting the markets making bad loans with no savings prior because they just print it and rob everyone else in the process.

Couldn't bank regulators just raise reserve requirements?

The central bank could also raise interest rates.

Those are two ways to limit loans.

[Libertarian666]

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.

How on Earth could you limit loans? Loans are limited by the risk a lender wants to take and the availability of savings. I mean, it would be except we have a bunch of maniacs distorting the markets making bad loans with no savings prior because they just print it and rob everyone else in the process.

Couldn't bank regulators just raise reserve requirements?

The central bank could also raise interest rates.

Those are two ways to limit loans.

In a free market economy with enforcement of contract law against gold warehouses ("banks"), there would be no bank regulators or central bank.

So that wouldn't be a problem.

[Kshartle]

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?

My conclusions about central bank policies are not based on any time period so they wouldn't change. They are based on logic and reason. Central bank printing is functionaly the same as counterfeiting. More money than there otherwise would be divded by the same goods equals atrificially high prices with those prices that get touched first rising first.

You think the new money hasn't resulted in higher prices? Have you looked at bond prices? Stock prices? Home prices? Where do you think these would be absent the printing? It is clear distortion to the detriment of the economy as a whole and the benefit of a select few. Not to mention it lets the government create more agencies and give more handouts like we need that extra burden.

Is it any wonder the labor participation rate is declining? The birth rate for more affluent people is dropping? Kids are delaying entering the workforce because the economy sucks? I know I know it's lack of demand. Look, human desire is limitless. The only constraint on demand is production. You can't demand what hasn't been produced. We need more production. Production is punished and sloth rewarded however. Gosh if only we had more paper we could really get this thing rolling!

If I look at the last five years of central bank policy I would say it's probably in the running for the worst five year strech by an American central bank I can think of. I'm sure there's been worse. I'm confident Yellen or whoever is up to the challenge of taking the title.

[moda0306]

If all this is so elementary to you, Kshartle and Libertarian666, then why does the economy not behave the way you want or predict it to.

You say that rates are being held grossly artificially negative, but it's not inspiring any of the inflation that one would assume would occur if a price was being controlled by that much (remember, price controls have the element of either surpluses or shortages... if interest rates are at a grossly artificially low rate, you should see a shortage of willing lenders/savers and a glut of willing borrowers/spenders, driving up inflation considerably).


But to hit on another point... Kshartle, so if the fed was pushed to the point of having to "bail out" the treasury by funding it directly, and in doing so it would be acting outside its mandate of balancing inflation with unemployment, what do you think the fed would do?

The fed is currently working well-within its mandate (in fact it's failing at one aspect way more than the other), and if you believe it will continue to do so, that means our money supply (base, not broad) could very well shrink if inflation fires up and the fed reduces QE. 


So the fed is currently working within its mandate, and the market is predicting low inflation and no treasury debt crisis... what the heck is so extreme about all this?  Why are we having a fit about all this?  Like I said in another post, there's one of three options...

- The market sets rates, in which the market is begging the federal government to borrow from it at negative real interest rates, which justifies not only our current rate of borrowing, but even higher.

- The fed sets rates and is independent, and is well within its mandate because inflation is low and unemployment is high, but if inflation increases, the fed will taper and roll back the money supply it has created, and we don't have to worry about perpetual vast increases in the base money supply.  In fact it might go down due to the removability of reserves from the system.

- The fed sets rates and ISN'T independent, and it will fund government, making treasury bills/bonds as good as cash, as they are default-risk free.


You can't have it all ways.  You can't say that the fed isn't independent and is in cahoots with the status-quo-patrol banks and federal government and that the banking system is fraudulent and ignores reserve ratios, but simultaneously that treasury debt is fundamentally different than cash/reserves within the banking system.

You can't say that the bond market will "reject our rates," but then say that the fed controls the bond market.

You can't say that the fed is grossly manipulating the economy, and then completely ignore the signals the market is sending that it is NOT manipulating much.... whether those indicators are low rates, low inflation, low demand for loanable funds, or low velocity of money.

[Libertarian666]

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.

This is completely wrong. In a free market economy with gold money, whoever has gold can lend it if he wishes to do so, which he is likely to do if he thinks the reward outweigs the risk. Doubling the amount of "money" by printing an additional amount of warehouse receipts equal to the actual monetary gold will not increase the amount of wealth; all it will do is rearrange the wealth in favor of the printers.

So if someone wants to build a widget factory and they can't afford the equipment, etc., they have two choices:
1. Take an equity partner who will accept part of the profit and part of the loss in exchange for supplying money; or
2. Take on debt, agreeing to pay the money back regardless of the profit or loss, presumably from other sources of wealth if there is a loss.

Neither of these is helped by money printing... other than by allowing the parties to the transaction to extract wealth from others via dilution of the money due to the printing. But of course in that case they don't even need to build the factory at all; they can just live off the extracted wealth, as the government does.

Again, this is elementary logic, not even moderately complex economic theory. You can't get something for nothing unless someone else gets nothing for something.

[Kshartle]

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.

Why do you think that money was in such short supply in the 1930s?

My understanding is that people even resorted to using "scrip" because there was so little currency circulating in some communities.

What caused this shortage of money?  What would have fixed it short of a World War II-type event?

The 20s inflationary boom was unsustainable. An unsustainable inflationary boom has to be followed by delfation or more inflation. They went with deflation, the industries built up in the boom that could not be sustained collapsed. The goverment imposed wage/price controls that turned the recession into a depression.

All that needed to happen was for wages and prices to drop. Rapid drops will be tough even if the government doesn't impose controls. Paper has no magical properties though. Well, I guess if were an alien looking at humans I would assume it's magical since people will do anything for it and trade anything for it.

[Kshartle]

How on Earth could you limit loans? Loans are limited by the risk a lender wants to take and the availability of savings. I mean, it would be except we have a bunch of maniacs distorting the markets making bad loans with no savings prior because they just print it and rob everyone else in the process.

Couldn't bank regulators just raise reserve requirements?

The central bank could also raise interest rates.

Those are two ways to limit loans.

In a free market economy with enforcement of contract law against gold warehouses ("banks"), there would be no bank regulators or central bank.

So that wouldn't be a problem.

Yes I was just getting to this. We are talking about using real money as money that can't just be poofed into existance or poofed out by government edict.

[MediumTex]

All that needed to happen was for wages and prices to drop. Rapid drops will be tough even if the government doesn't impose controls. Paper has no magical properties though. Well, I guess if were an alien looking at humans I would assume it's magical since people will do anything for it and trade anything for it.

Are you saying that wages and prices didn't drop during the 1930s?

[MediumTex]

In a free market economy with enforcement of contract law against gold warehouses ("banks"), there would be no bank regulators or central bank.

So that wouldn't be a problem.

Yes I was just getting to this. We are talking about using real money as money that can't just be poofed into existance or poofed out by government edict.

Which country do you think will be the first to return to a gold standard?

When do you think this will occur?

[Kshartle]

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.

This is completely wrong. In a free market economy with gold money, whoever has gold can lend it if he wishes to do so, which he is likely to do if he thinks the reward outweigs the risk. Doubling the amount of "money" by printing an additional amount of warehouse receipts equal to the actual monetary gold will not increase the amount of wealth; all it will do is rearrange the wealth in favor of the printers.

So if someone wants to build a widget factory and they can't afford the equipment, etc., they have two choices:
1. Take an equity partner who will accept part of the profit and part of the loss in exchange for supplying money; or
2. Take on debt, agreeing to pay the money back regardless of the profit or loss, presumably from other sources of wealth if there is a loss.

Neither of these is helped by money printing... other than by allowing the parties to the transaction to extract wealth from others via dilution of the money due to the printing. But of course in that case they don't even need to build the factory at all; they can just live off the extracted wealth, as the government does.

Again, this is elementary logic, not even moderately complex economic theory. You can't get something for nothing unless someone else gets nothing for something.

Preciesly.

To quote Browne from page 34 of yada yada - "3. That brings us to the most subtle method (he's referring to the government financing his purchases). It is inflation. The government, in effect, merely prints extra money substitutes and spends them for whatever it wants. We have seen, however, that these money substitutes only take on purchasing power at the expense of the other money substitutes which are thereby reduced in purchasing power. Prices are higher than they otherwise would have been"

With that I must bow out since it's exhausting hitting the same topics day after day like it's Groundhog's day.

I would encourage everyone to read Browne's works. Maybe he's not the greatest economist in history but he's the best I've ever read at conveying economic principles in the English language.

[moda0306]

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?

My conclusions about central bank policies are not based on any time period so they wouldn't change. They are based on logic and reason. Central bank printing is functionaly the same as counterfeiting. More money than there otherwise would be divded by the same goods equals atrificially high prices with those prices that get touched first rising first.

You think the new money hasn't resulted in higher prices? Have you looked at bond prices? Stock prices? Home prices? Where do you think these would be absent the printing? It is clear distortion to the detriment of the economy as a whole and the benefit of a select few. Not to mention it lets the government create more agencies and give more handouts like we need that extra burden.

Is it any wonder the labor participation rate is declining? The birth rate for more affluent people is dropping? Kids are delaying entering the workforce because the economy sucks? I know I know it's lack of demand. Look, human desire is limitless. The only constraint on demand is production. You can't demand what hasn't been produced. We need more production. Production is punished and sloth rewarded however. Gosh if only we had more paper we could really get this thing rolling!

If I look at the last five years of central bank policy I would say it's probably in the running for the worst five year strech by an American central bank I can think of. I'm sure there's been worse. I'm confident Yellen or whoever is up to the challenge of taking the title.

Printing money and spilling out of a helecopter would be inflationary.

Printing money and trading it for other government-issued fiat purchasing power in an economic mexicanis not.

And regarding bond prices.... there's two sides to that transaction.... you can't say in one breath that "savers are being punished" by artificially low rates, but that those exact same savers are benefitting from their bond prices rising considerably.  You seem to just be angry that they're meddling but not really looking at fundamentals in the economy to see HOW they're meddling.  You keep saying that "printing doesn't accomplish anything."  This is pretty true... so why be so scared of it... they're not really adding or subtracting anything of substance from the econoy.  They may be monkeying around with rates a bit, but that's mainly for government loans.  The private sector is free to charge whatever it wants to borrowers given long-term inflation and interest-rate predictions.  They aren't charging that high of rates... so what's the big rub... are you saying that the entire market of profit-seeking financially knowledgeable millionaires simply have no idea what they're doing in terms of negotiating for their own profit?

[Kshartle]

In a free market economy with enforcement of contract law against gold warehouses ("banks"), there would be no bank regulators or central bank.

So that wouldn't be a problem.

Yes I was just getting to this. We are talking about using real money as money that can't just be poofed into existance or poofed out by government edict.

Which country do you think will be the first to return to a gold standard?

When do you think this will occur?

I really don't know. I'm not even an advocate of the gold standard.

Perhaps China will peg the RNB sometime in the next few decades.

So many factors, I can't even be sure it'll ever happen. It's more likely some government might allow people to use gold without taxing them on it, or just not enforce the rules.

[MediumTex]

I've read Browne's works.

If private credit is contracting and public credit is expanding, but total overall credit is remaining more or less stable, I don't see how that would result in more dollars chasing the same amount of goods and services, and thus I don't see how it would result in inflation.

[Kshartle]

All that needed to happen was for wages and prices to drop. Rapid drops will be tough even if the government doesn't impose controls. Paper has no magical properties though. Well, I guess if were an alien looking at humans I would assume it's magical since people will do anything for it and trade anything for it.

Are you saying that wages and prices didn't drop during the 1930s?

Some prices dropped. Many were prevented from dropping by law. I won't bother you with links, if you're interested to learn about how the recession was turned into a depression that information is all out there.

[MediumTex]

Which country do you think will be the first to return to a gold standard?

When do you think this will occur?

I really don't know. I'm not even an advocate of the gold standard.

Perhaps China will peg the RNB sometime in the next few decades.

So many factors, I can't even be sure it'll ever happen. It's more likely some government might allow people to use gold without taxing them on it, or just not enforce the rules.

Why are you not an advocate of returning to the gold standard?

According to your worldview (as I understand it) that would seem like an obvious cure for many of the problems we are facing.

[Kshartle]

I've read Browne's works.

If private credit is contracting and public credit is expanding, but total overall credit is remaining more or less stable, I don't see how that would result in more dollars chasing the same amount of goods and services, and thus I don't see how it would result in inflation.

If by inflation you mean the general price level you are correct except I would sub in money supply for credit.

Same dollars / same goods and services = same price level.

If someone disagrees with that equation, they need to return to the 3rd grade. Or 2nd grade I can't remember when fractions were introduced.

[Kshartle]

Which country do you think will be the first to return to a gold standard?

When do you think this will occur?

I really don't know. I'm not even an advocate of the gold standard.

Perhaps China will peg the RNB sometime in the next few decades.

So many factors, I can't even be sure it'll ever happen. It's more likely some government might allow people to use gold without taxing them on it, or just not enforce the rules.

Why are you not an advocate of returning to the gold standard?

According to your worldview (as I understand it) that would seem like an obvious cure for many of the problems we are facing.

I advocate no use of force. Therefore, no standard. The standard should be only what two individuals agree on. I'm confident that together people all over the world will discover what works best as money. I'm certain it won't paper backed by nothing. That is laughable. It might be gold, might not.

I like the following little chart from page 70 of Browne's book yada yada:

Advantages of Gold and silver as money:                            Advantages of paper as money:
1. Durable                                                                              1.
2. Divisible                                                                            2.
3. Convenient                                                                        3.
4. Consistent                                                                        4.
5. Accepted Value                                                                  5.