[Puffer Fish]

4] That economic theory forgets that 'money' is a store of value, among other things. This means that if the nation's gov. feeds deficit currency units into the economy at a rate that matches the savings rate (whether by nationals or by foreigners), then inflation will be low.

That's just an economic fallacy and is not even logical.

Inflation is not just determined by the amount of money floating around and exchanging hands, like you think.
(The Velocity theory of money is wrong)

[Puffer Fish]

Freakin' conservatives *always* fetishize the money supply itself.

Ironically it's actually progressives who do that.

The reason progressives are not clamoring so much about this issue is because their governments already have Central Banks to do all the monetary manipulation that progressives approve of. ("The Fed" in the US) Even then, constant opinions are still coming out of the news telling the Central Bank what they should do, and you can tell they are never conservative-hatched beliefs.

[late]

Ironically it's actually progressives who do that.

The reason progressives are not clamoring so much about this issue is because their governments already have Central Banks to do all the monetary manipulation that progressives approve of. ("The Fed" in the US) Even then, constant opinions are still coming out of the news telling the Central Bank what they should do, and you can tell they are never conservative-hatched beliefs.

I think he is referring to: "Milton Friedman famously said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

Republicans stopped being conservative a long time ago. There was nothing conservative about Trump's tax cuts.

You might also take note of the similarity in the response to the 2008 economic crisis. Obama did more of what Bush had been doing. Progressive economists wanted a lot more than that.

[Puffer Fish]

You want to back dollars with gold. There's not enough gold for one thing...

The vast majority of dollars don't have to be backed by gold, but they could be denominated in gold.

Do you understand the difference?


It's actually not so different from the current arrangement. Under the modern system, money is denominated in the backing from the reserve assets held by the Central Bank, but the majority of the "money" in bank accounts is actually backed by loans involving private banks.

[Puffer Fish]

I think he is referring to: "Milton Friedman famously said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

Yes, well, unfortunately that type of statement can have a very vague meaning in the context of many economic discussions.

[Puffer Fish]

You donlt understand economics. Not even a little bit.

Driving people into long term poverty destroys the economy n the long run. Low wages stifles innovation and rewards lazy buinesses.

The Industrial revolution was a product of high wages,

We all want high wages, we just seem to disagree what that means.

Printing more money to give people "high wages" isn't going to be helpful.

Neither so much is taxing the economy to "try to create more jobs".

[late]

It's actually not so different from the current arrangement.

My point, precisely, it's a distinction without a difference.

Do more than that, and the economy dies, or we once again do what Nixon did..

[Puffer Fish]

1] If you don't exchange dollars for gold, you are not on a gold standard.
.

I don't think that's really true. And now you are getting into semantics.

They could give people some other asset that is equivalent to set quantity of gold.

Of course that could inherently make the economy and money supply more unstable if the value of those assets being held fluctuates.
But of course that can already happen in the current economy, and what you'd get is a run on the banks, or something like the Housing Crisis, where suddenly the loans the bank held were not worth the money that depositors had in accounts.

The idea is definitely possible, but I will concede it is probably not desirable.

What nonsense. The gold standard was feasible at one time, but no longer.

I'm pretty sure if we went back completely to the gold standard, gold would suddenly skyrocket in price. (being how it behaves as a fiat currency)
Definitely theoretically possible.

Well, maybe it would not increase in price actually. The Central Bank would have to dump all those other reserve assets it owns back into the economy, so maybe things would balance out.

I know a lot of people are too stupid to realize this, but reducing the money supply does not have to always necessarily result in deflation. So long as the ratio of currency to reserve assets are still the same. It is a little bit complicated. Obviously below a certain threshold the lack of actual currency will start getting in the way of economic activity and the existing money may start taking on some properties of fiat currency, and there will be intense pressure on Reserve Rates to go down (to expand the "money" supply in bank accounts), probably even sparking some sort of black market.

It's actually a somewhat complicated problem to try to mathematically analyse.

[pugsville]

We all want high wages, we just seem to disagree what that means.

Printing more money to give people "high wages" isn't going to be helpful.

Neither so much is taxing the economy to "try to create more jobs".

No, "we" do not ALL want high wages. some people are happy for other peopel to work for very low wages.

Personal I woudl just a guaranteed minimum income and business woudl have to actually offer something to get people's labour.

We're happy to print money make the rich richer. Happy to pay the rich more money for doing nothing.

[Puffer Fish]

No, "we" do not ALL want high wages. some people are happy for other peopel to work for very low wages.

Personal I woudl just a guaranteed minimum income and business woudl have to actually offer something to get people's labour.

We're happy to print money make the rich richer. Happy to pay the rich more money for doing nothing.

I do not see what this has to do with monetary policy, the type of monetary policy we are talking about in this discussion.

[Puffer Fish]

Did you ever hear of the Civil War?

The Austrian school is fake political science pretending to be economics. It's a joke in poor taste.

There are so many things wrong with it it's hard to know where to start.

But one obvious thing will do for today. When we became the reserve currency, after WW2, other countries started holding dollars (of course). That meant we needed to have more dollars printed for them to hold.. Our economy was roaring, which meant it needed a lot more money. And we had incredible levels of military spending, which meant we needed even more money...

The result was that we were spending too much money. We had set up the Bretton Woods agreements to punish those that spent too much. We didn't think that it would bite us on the ass. But it did, the French did a big run at our gold reserves. Nixon had no choice but to take us off the gold standard. There was no choice, we had backed ourselves into that corner.

While the way we got there was regrettable, there is nothing inherently wrong with fiat money. Money is mostly about score keeping.

You do realize what the free market Austrian response to that would be, don't you?

If the US had not expanded its money supply, each dollar would have simply become worth more.
Then people would need less money.

Also probably a lot of that gold held in foreign reserves backing the currency of other countries would end up in the National Bank in the US backing the dollar instead. So it would sort of be like foreign currency getting transformed into dollars.

[Puffer Fish]

3] Japan has a fiat yen. It has had a large deficit for 30 years now and inflation ws less the 1% before the pandemic. and the pandemic can cause shortages, and shortages of food and energy can cause inflation. So, the economic theory that above article is based on can't explain what Japan has not had inflation for the last 30 years.

Japan had an overinflated economy and was in a huge bubble. When that bubble began to burst and contract, or "deflate", then the effect of printing more money just cancelled that out.
This is entirely intentional type of Central Bank policy.

Remember, from 1991 to 2001, the Japanese economy was still in deflation mode (not referring to the currency).

Even after that it was still deflating due to aging population and population decline.

(Fewer people means your yen can stretch farther in Japan and buy more property. Especially in the big cities where rents were previously astronomical)

The Japanese Central Bank was just trying to hold the inflation rate steady. It knew it could get away with printing more money, given the unique situation of the country over that time period.

I personally would still argue the country would have been better off if less money were printed and gradual deflation had been allowed.


Those who keep claiming that Japan proves that a government can run up massive deficits without causing inflation do not really understand the economic history of what happened in Japan so well.

I will say that it must have definitely created inflationary pressure in Japan, even though that effect did not become manifest in the form of visible inflation.
(because it was also in the presence of a deflationary force)

[Puffer Fish]

In the short term, the nullification or repeal of all taxes on alternatives to fiat money—such as gold and bitcoin - is a reasonable goal for a decentralist strategy.

I don't think there are any special taxes on alternatives to money that do not exist on money.

If you choose to pay someone in alternative money, the tax is still the same as it is if you pay them in money.

Now surely you're not arguing people should be able to get paid by other people in alternative forms of money and not pay any taxes on that?
(That sounds like it would be a ludicrous and unfair advantage)

[Puffer Fish]

Still, the central government risks the depreciation of its own currency in terms of harder currencies. As a territorial monopolist of compulsion, however, a state can compel the acceptance of its currency through legal tender laws and by taxing

Taxation would be the big one, but I don't think this precludes the use of alternative money. If government spending represents 40% of the GDP, I think that still leaves open the opportunity for maybe the use of 20% of some alternative money.
Legal tender laws would end up having very little monetary effect, I think, almost irrelevant by comparison. (I'm assuming you are talking about the use of courts to collect debts)

I am also pretty sure the use of alternative money would not result in depreciation of the government's official currency.

I know many of you do not realize it, but the government's official currency does not really operate so much like a fiat currency. That would be a little too complicated to explain and get into here.

And so because you can't create wealth and value out of nothing, and because the government currency would not depreciate...

In fact I think there's perfectly good reason why alternative fiat currencies (like crypto, for example) will not take off the ground and be of any real economic significance. Unless of course the inflation rate starts going high enough.

[Puffer Fish]

capital gains taxes still limit the use of gold.

Capital gains tax seems like a nasty thing if it does not account for inflation.

But this isn't really particular to gold but covers any assets.

I don't really see how this tax (as repugnant as it is) really limits the use of alternative currencies or gives dominance to the government currency.
Do you understand what I mean? I think I totally understand your reasoning with this and where you were trying to go with that, but I do not think that thought is really fully logical.

[late]

You do realize what the free market Austrian response to that would be, don't you?

If the US had not expanded its money supply, each dollar would have simply become worth more.
Then people would need less money.

Also probably a lot of that gold held in foreign reserves backing the currency of other countries would end up in the National Bank in the US backing the dollar instead. So it would sort of be like foreign currency getting transformed into dollars.

The Austrian school is an old joke.

Foreign reserves would not back the dollar.

What I said before still applies..

[Steve_American]

The vast majority of dollars don't have to be backed by gold, but they could be denominated in gold.

Do you understand the difference?


It's actually not so different from the current arrangement. Under the modern system, money is denominated in the backing from the reserve assets held by the Central Bank, but the majority of the "money" in bank accounts is actually backed by loans involving private banks.

No, I don't understand what you mean.

The part in yellow is just wrong. The current fiat dollar is backed by nothing. The main reason people accept them is because people and corps need them to pay taxes at all gov. levels. If you disagree please explain.
. . . Loans don't "back" the dollars they created when the loan was made. If you disagree please explain. IMO, "backed" means the something promised if you want to exchange the currency for what is Backing it. Banks don't give away their assets in the form of loan contracts, when someone walks in with some dollars. In fact they don't promise to exchange anything for dollars. All they do is slowly extinguish the loan as payments are made.
. . . Are friendly IOUs as gambling debts "backed" by anything? I don't think so.
.

[Steve_American]

Japan had an overinflated economy and was in a huge bubble. When that bubble began to burst and contract, or "deflate", then the effect of printing more money just cancelled that out.
This is entirely intentional type of Central Bank policy.

Remember, from 1991 to 2001, the Japanese economy was still in deflation mode (not referring to the currency).

Even after that it was still deflating due to aging population and population decline.

(Fewer people means your yen can stretch farther in Japan and buy more property. Especially in the big cities where rents were previously astronomical)

The Japanese Central Bank was just trying to hold the inflation rate steady. It knew it could get away with printing more money, given the unique situation of the country over that time period.

I personally would still argue the country would have been better off if less money were printed and gradual deflation had been allowed.


Those who keep claiming that Japan proves that a government can run up massive deficits without causing inflation do not really understand the economic history of what happened in Japan so well.

I will say that it must have definitely created inflationary pressure in Japan, even though that effect did not become manifest in the form of visible inflation.
(because it was also in the presence of a deflationary force)

PF,
You don't seem to agree with most main stream economists and all MMTers, that depreciation is to be avoided at almost any cost. Down that road lies ruin, because it tomorrow everything will cost less, then why spend today? Then, if everyone delays spending the incomes fall because spending by me is income for the seller. And so down, down, down goes the economy. The deflationary pressure you see in Japan was and is in your imagination. How would one measure it? Yes, you can string together some words to prove it exists. But, I want something more real than words.

PF, I'm not sure this thread is about monetary policy. Monetary policy is setting interest rates, AFAIK. The thread isn't about fiscal policy either. I'm not sure what it is. Maybe the philosophy of money.
.
I assert that the deflationary

[Puffer Fish]

No, I don't understand what you mean.

The part in yellow is just wrong. The current fiat dollar is backed by nothing. The main reason people accept them is because people and corps need them to pay taxes at all gov. levels. If you disagree please explain.

I don't think you understand how the Central Bank (or Federal Reserve Bank) system works very well.
Theoretically all bank notes (in this case currency) are backed by the Reserve Bank's Reserve Assets. All outstanding notes (money that has been issued) represent "liabilities" for the bank, which are exactly matched by "assets" (Reserve Assets on the bank's balance sheet). Theoretically the bank could sell off some of its assets and retire some of the outstanding notes (which would contract the amount of currency).

Of course this is more theoretical these days, but it is not true to say that the Central Bank currency (which most currency is these days) is backed by nothing. There do exist Reserve Assets.

Discussing this in more detail could get very complicated.

There are theoretical situations where a Central Bank could expand the money supply with virtually no effect on inflation.
Especially if they do what they are "supposed to do" (I mean financial prudence, not overpaying when they buy assets for example). In some sense, the value of the currency could be seen as the ratio of the value of the Reserve Assets divided by units of currency in circulation. So long as that ratio does not change then (in some situations) there should be no inflation.
(In Reality this is rarely what the Central Bank does, so there usually is inflation, but it's not really directly in proportion to the amount of new currency issued)

I say everything here with a caveat of course since it is far more complicated, but I am trying to get you to understand a basic element of this system and how it works, the foundation of the theory, you might say.

The currency is "backed" by the Reserve Assets in multiple (indirect) ways, but the "primary" way is that the Central Bank could theoretically sell off those Reserve Assets at some point. Then there is also the Reserve Requirement on private banks that forces them to put up assets (almost always loans). (Right now the Reserve rate in the US has been dropped to zero, something I disagree with, so this is irrelevant)

[ckaihatsu]

Rudd

Honest Government Ad _ Hung Parliament