Tapering called off

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Kshartle
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 3:18 pm

technovelist wrote:
moda0306 wrote:
technovelist wrote: 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.
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Re: Tapering called off

Post by moda0306 » Thu Sep 19, 2013 3:20 pm

Kshartle wrote:
MediumTex wrote:
Kshartle wrote: 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?
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 3:20 pm

MediumTex wrote:
Kshartle wrote:
technovelist wrote: 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.
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 3:23 pm

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.
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 3:24 pm

MediumTex wrote:
Kshartle wrote: 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.
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 3:26 pm

Kshartle wrote:
MediumTex wrote: 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.
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 3:28 pm

MediumTex wrote: 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.
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 3:33 pm

MediumTex wrote:
Kshartle wrote:
MediumTex wrote: 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.
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Re: Tapering called off

Post by technovelist » Thu Sep 19, 2013 3:35 pm

MediumTex wrote:
Kshartle wrote: 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?
They didn't drop enough to clear the market, because the government did everything in its power to stop them from dropping, including throwing a tailor into jail for charging "too little" to press a pair of pants:

'A more dramatic jailing was that of 49-year-old Jacob Maged of Jersey City, New Jersey. Maged had been pressing pants for 22 years, and his low prices and quality work had kept him competitive with larger tailor shops in the better parts of town. The NRA Cleaners and Dyers Code demanded that he charge 40 cents to press a suit. Maged, despite repeated warnings, insisted on charging his customers only 35 cents. “You can’t tell me how to run my business,”? he insisted.

Not only was Maged thrown in jail, he was also slapped with a $100 fine. “We think that this is the only way to enforce the NRA,”? said Abraham Traube, a director of the NRA code authority for the Cleaners and Dyers Board of Trade. “If we did the same thing in New York City we would soon get the whole industry in line.”? Many editorialists, however, sided with Maged. “It didn’t matter,”? the Washington Post said, “if Maged had to charge less than the bright and shiny tailor shop up the street if he wanted to continue to exist. The law said he couldn’t.”? “For a parallel,”? the New York Herald Tribune said, “it is necessary to go to the Fascist or Communist states of Europe.”?

Read more: http://www.fee.org/the_freeman/detail/t ... z2fNBQu8Pd
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Re: Tapering called off

Post by moda0306 » Thu Sep 19, 2013 3:35 pm

technovelist wrote:
moda0306 wrote:
technovelist wrote: 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.
Well good thing that people aren't getting "something for nothing," because "monetizing the debt" trades "something for something of equal value."  No wonder we've seen none of the economic indicators Austrians have been predicting for decades.  They forget that this is a trade of financial assets, not a helecopter drop, and refuse to be reminded of it.

So "printing money" should probably be called "printing some money and tearing up other money, all of which is essentially government-issued fiat purchasing power."  Sounds a lot less scary if you actually word it correctly.  You make it sound like what they're doing is a double assault... printing money AND artificially lowering rates.... when it's really all-the-more meaningless because they buy those bonds that move rates.


But really, back to the subject of a fixed reserve system.  It's bound to fail... it's bound to induce deflation (which is giving holders of gold a positive real return while taking no risk)... it's therefore bound to limit economic growth (people have to work extra hard for funding, whether it's an equity or debt position).  And in the end, if you think about it, what you're arguing is that eventually an ounce of gold, given enough economic growth, could be enough to purchase an entire beach-front home, or space-station, or island resort, simply because the growth you said would still occur under a gold based monetary system would lead to the same amount of gold purchasing more and more goods.

And let's not forget this idea of a metal-based fixed monetary system is a statist invention, not something that arose around free exchange.
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 3:37 pm

Kshartle wrote:
MediumTex wrote:
Kshartle wrote: 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.
I think that a LOT of prices dropped.  Even where there were price controls in place, if no one could afford to buy something at the regulated price, that would have felt exactly like a price drop to someone who was selling it.

It seems to me that part of the problem in the 1930s was that asset prices were mostly allowed to drop...and drop...and drop.  Of course, this set in motion a wave of defaults on loans that were initially used to purchase these assets, which caused banks to fail, which led to a shortage of currency in circulation.

The thing I've never been able to figure out about the 1930s, though, is where all of the entrepreneurs were who were supposed to come into the market and buy assets at depressed prices and then allocate them more efficiently.  Ultimately, it seems like it was only when the government introduced a wave of demand into the economy when it needed to buy guns and jeeps and airplanes in 1941 that these entrepreneurs came out of the woodwork.

Why hadn't they come forward earlier?

I don't know what the cure is exactly, but it seems to me that a deflationary spiral can just continue spiraling until literally every single outstanding loan has been defaulted on, unemployment is incredibly high and a vast amount of productive capacity is sitting idle.

The problem, of course, is that sometimes while you are waiting for the entrepreneurs to gallop to the rescue John Galt-style, a revolution breaks out and they are forced to flee the country with whatever capital they have left, which obviously makes things even worse for the economic refugees who can't afford to leave.

I don't have the answer to how this type of situation should be addressed, but I think that the Austrian "let the market clear" narrative leaves out a lot of ugly non-economic stuff that can happen along the way to the "market clearing."
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Re: Tapering called off

Post by Gumby » Thu Sep 19, 2013 3:40 pm

Kshartle wrote: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"
You probably aren't aware of this, but Browne evolved his understanding of inflation over time — particularly since that book was written.

Here's how Harry Browne explained it on his investment radio show (recorded on 12/12/04):
Harry Browne: Inflation results from the supply of money increasing faster than the demand for money. Now, mostly what we hear though is that inflation results from the increase supply of money. In other words, an increase in the supply of money is "A" and inflation is "B". When you get "A" then "B" follows. But what happens is periods like the past few years when the money supply has been increasing at a fairly rapid rate, and yet, we do not see any appreciable price inflation whatsoever. So, what we're seeing here is that the money supply has increased, but the consequence has not ensued. And that's because of two things. One of which is timing, and the other is that other factors can be introduced. So, what we do mean to say, really, is that an increase in the supply of money makes the inflation rate greater than it would be without that increase in the supply of money. We also take into account the demand for money — the desire of individuals to hold money in their pocket, to hang on to money, rather than spending, saving, or investing it. And if that is increasing as fast as the supply of money, then there is no increase in the inflation rate. So, all other things being equal, the increase in the supply of money leads to an increase in the price inflation rate. But, there are other things that have to be considered and that case, mostly the demand for money. These other factors always play a part, but we can't always see them.

Source: https://web.archive.org/web/20160324133 ... -12-12.mp3 (skip to 13:20)
And I suspect he would have changed his explanation even more after 2008 — as many economists did — when the entire world got to see what happens when you spike M0 through the roof and take away assets of equal value.... Barely anything except a few FIRE assets that were bid up.
Last edited by Gumby on Thu Sep 19, 2013 3:46 pm, edited 1 time in total.
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