Tapering called off

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moda0306
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Re: Tapering called off

Post by moda0306 » Thu Sep 19, 2013 3:43 pm

Kshartle wrote:
MediumTex wrote:
Kshartle wrote: 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.
Well I love Browne, but let's analyze his list.

1. I guess my bank account isn't durable in a traditional sense
2. My fiat money is divisible.
3. My fiat money is far more convenient than carrying around a metal.
4. My fiat money is the world's reserve currency... not sure if this counts as "consistent" or not.
5. My fiat money has a very accepted value.  In fact, the markets around my money are unbelievably dynamic and efficient and people have tons of other options of stores of value to use.

So yeah it seems to me he was getting a little hyperbolic in bringing his political opinions into his writings here.

Let's also not forget that people can choose to hold gold/silver as a store of value and index their contracts to them or CPI or whatever they wish, but usually choose not to.  So that indicates to me society sees huge advantages not only to paper money as a medium of exchange in the short term, but a store of value and unit of account in the longer term.
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Re: Tapering called off

Post by technovelist » Thu Sep 19, 2013 3:48 pm

MediumTex wrote:
Kshartle wrote:
MediumTex wrote: 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."
The reason entrepreneurs didn't come to the rescue is that they were frightened to death of what the government would do to them if they were successful, having just seen the government wage war on entrepreneurs in the "New Deal". Once the government started spending money like a drunken sailor on military goods, it was safe to start investing in military goods production, which they could be reasonably certain that the government wouldn't punish.
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 3:49 pm

Kshartle wrote: 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.
Here is an interesting mental exercise:

Let's say that you were the chief on an island and you needed to set up a currency system to facilitate trade among your subjects (let's assume you have already decided you wanted to do this--you can't say "I wouldn't do that as island chief").

You have vast holdings of commodities and finished products and you are trying to figure out how to convert some of that property into a currency that will facilitate trade.  You know of two other islands that you could trade with for possible acceptable forms of currency.

The first island has vast supplies of gold that they would love to sell to you in exchange for some of your commodities and finished products.  The gold you could get from this island would be plenty to seed the currency system on your island and make the economy run more efficiently.

The second island has vast supplies of guns and paper that they would love to sell you in exchange for some of your commodities and finished products.  To sweeten the deal, they would even print up "island chief notes" in various denominations for your use as your island's currency.  If you selected this option, you might find that once it was in place other islands would also be happy to accept your island chief notes in exchange for their goods and services if you provided a guarantee that you would use your guns to protect their islands as well from foreign aggressors. 

You think about the two islands and the pros and cons of each transaction.  Which one would you choose if you only had those two choices?

Consider that if you took the guns and paper you would have the ability to provide strong protection of your island against any potential foreign aggressor, which would potentially provide your economy with much more stability.  OTOH, if you took the gold, your island would now not only be less safe against foreign aggressors, but it would also suddenly have a lot more portable and liquid wealth sitting around that might make it a bigger target for foreign aggressors.

Which would you choose?
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 3:56 pm

technovelist wrote: The reason entrepreneurs didn't come to the rescue is that they were frightened to death of what the government would do to them if they were successful, having just seen the government wage war on entrepreneurs in the "New Deal". Once the government started spending money like a drunken sailor on military goods, it was safe to start investing in military goods production, which they could be reasonably certain that the government wouldn't punish.
But shouldn't those entrepreneurs have seen all of that government spending as artificial government-generated demand and conclude that once the war was over the demand would promptly dry up and probably trigger a default on government debt because of the years of excessive wartime spending?  Why would a rational entrepreneur fall for such an obvious ploy to stimulate demand across the whole economy?

If entrepreneurs weren't active in the 1930s because they were scared of the government, why did they stop being scared of the government just because the government became their new largest customer?  Why did they fall for such a transparent effort to provide a government substitute for organic private sector demand?
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Re: Tapering called off

Post by technovelist » Thu Sep 19, 2013 4:05 pm

MediumTex wrote:
technovelist wrote: The reason entrepreneurs didn't come to the rescue is that they were frightened to death of what the government would do to them if they were successful, having just seen the government wage war on entrepreneurs in the "New Deal". Once the government started spending money like a drunken sailor on military goods, it was safe to start investing in military goods production, which they could be reasonably certain that the government wouldn't punish.
But shouldn't those entrepreneurs have seen all of that government spending as artificial government-generated demand and conclude that once the war was over the demand would promptly dry up and probably trigger a default on government debt because of the years of excessive wartime spending?  Why would a rational entrepreneur fall for such an obvious ploy to stimulate demand across the whole economy?

If entrepreneurs weren't active in the 1930s because they were scared of the government, why did they stop being scared of the government just because the government became their new largest customer?  Why did they fall for such a transparent effort to provide a government substitute for organic private sector demand?
If an entrepreneur can make a large profit in a short time, he doesn't worry about the long run. He also doesn't care about the effect on the overall economy of government actions (or anything else, really), only the effects he foresees on his own activities.

They were also subsidized in building the plants in the first place; the government was happy to take all the "risks" and leave all the profits to the entrepreneurs, so long as they got their guns and tanks ASAP.

So if the government is throwing money around left and right for armaments, there will be people willing to make big profits supplying them. Again, this is not complicated.
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 4:27 pm

technovelist wrote:
MediumTex wrote:
technovelist wrote: The reason entrepreneurs didn't come to the rescue is that they were frightened to death of what the government would do to them if they were successful, having just seen the government wage war on entrepreneurs in the "New Deal". Once the government started spending money like a drunken sailor on military goods, it was safe to start investing in military goods production, which they could be reasonably certain that the government wouldn't punish.
But shouldn't those entrepreneurs have seen all of that government spending as artificial government-generated demand and conclude that once the war was over the demand would promptly dry up and probably trigger a default on government debt because of the years of excessive wartime spending?  Why would a rational entrepreneur fall for such an obvious ploy to stimulate demand across the whole economy?

If entrepreneurs weren't active in the 1930s because they were scared of the government, why did they stop being scared of the government just because the government became their new largest customer?  Why did they fall for such a transparent effort to provide a government substitute for organic private sector demand?
If an entrepreneur can make a large profit in a short time, he doesn't worry about the long run. He also doesn't care about the effect on the overall economy of government actions (or anything else, really), only the effects he foresees on his own activities.

They were also subsidized in building the plants in the first place; the government was happy to take all the "risks" and leave all the profits to the entrepreneurs, so long as they got their guns and tanks ASAP.

So if the government is throwing money around left and right for armaments, there will be people willing to make big profits supplying them. Again, this is not complicated.
So if an economy is in a recession or depression, what effect would we expect to see from a dramatic increase in government spending?
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Re: Tapering called off

Post by technovelist » Thu Sep 19, 2013 4:32 pm

MediumTex wrote:
technovelist wrote:
MediumTex wrote: But shouldn't those entrepreneurs have seen all of that government spending as artificial government-generated demand and conclude that once the war was over the demand would promptly dry up and probably trigger a default on government debt because of the years of excessive wartime spending?  Why would a rational entrepreneur fall for such an obvious ploy to stimulate demand across the whole economy?

If entrepreneurs weren't active in the 1930s because they were scared of the government, why did they stop being scared of the government just because the government became their new largest customer?  Why did they fall for such a transparent effort to provide a government substitute for organic private sector demand?
If an entrepreneur can make a large profit in a short time, he doesn't worry about the long run. He also doesn't care about the effect on the overall economy of government actions (or anything else, really), only the effects he foresees on his own activities.

They were also subsidized in building the plants in the first place; the government was happy to take all the "risks" and leave all the profits to the entrepreneurs, so long as they got their guns and tanks ASAP.

So if the government is throwing money around left and right for armaments, there will be people willing to make big profits supplying them. Again, this is not complicated.
So if an economy is in a recession or depression, what effect would we expect to see from a dramatic increase in government spending?
The same effect as at any other time: impoverishment of the general public and enrichment of the government's favored producers and consumers.
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 4:40 pm

technovelist wrote:
MediumTex wrote: So if an economy is in a recession or depression, what effect would we expect to see from a dramatic increase in government spending?
The same effect as at any other time: impoverishment of the general public and enrichment of the government's favored producers and consumers.
Is that what happened in the early 1940s?

How about in the early 1980s when Regan cranked up government spending in the midst of a recession?
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Re: Tapering called off

Post by technovelist » Thu Sep 19, 2013 5:26 pm

MediumTex wrote:
technovelist wrote:
MediumTex wrote: So if an economy is in a recession or depression, what effect would we expect to see from a dramatic increase in government spending?
The same effect as at any other time: impoverishment of the general public and enrichment of the government's favored producers and consumers.
Is that what happened in the early 1940s?
Yes. Money incomes went way up but there was almost nothing for consumers to buy. Then when they could finally buy consumer goods after the war, prices had risen substantially due to the inflation, so their forced savings were much less valuable than when they had been saved.
MediumTex wrote:
How about in the early 1980s when Regan cranked up government spending in the midst of a recession?
Yes. All the government can do is to take purchasing power away from some people and give it to others. That impoverishes the former more than it enriches the latter due to the friction (overhead) inherent in such an operation, even if we ignore the injustice of it.

If the government inflates, people can be convinced that they are richer, in which case they spend more than they would otherwise. However, this also impoverishes them because their savings are decimated both by this overspending and by the increase in the average price level due to the inflation.
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Re: Tapering called off

Post by Gumby » Thu Sep 19, 2013 8:02 pm

technovelist wrote:their forced savings were much less valuable than when they had been saved.
technovelist wrote:this also impoverishes them because their savings are decimated
Umm... Are you sure we live in the same country? Not sure where you live, but here in the United States of America, we've had an extraordinary increase in standard of living since World War II — despite the fact that the US dollar has lost 95% of its value since 1913.

[align=center]Real Per Capita Wage and Salary Disbursements
(July 2013 Dollars)
[/align]

[align=center]Image[/align]

Our standard of living has virtually doubled since 1960. Americans haven't had their savings "decimated" and we certainly haven't been "impoverished".

Even Harry Browne wrote that people who left all their money in an FDIC savings account, or T-Bills, did OK over the past few decades.
Last edited by Gumby on Thu Sep 19, 2013 10:05 pm, edited 1 time in total.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
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