Nick Treklis wrote:I basically agree with what you're saying here. To put it as simply as possible, I'd say that hyper-inflation occurs when there is a disproportionate amount of currency relative to an economies ability to produce goods and services.
Still, people do need to have confidence in the currency they use because even if the monetary policy in place is fundamentally sound, people can get scared into behaving irrationally, thus crippling the ability to facilitate the economy through the currency if people don't trust it.
Ryan Rudolph wrote:Cory,
Your points are sound regarding the futility of trying to prop up an economy with loans that doesn't have the infrastructure and resources support a large influx of investment. The end result is added debt with no real gains because the environment will not support the growth.
However, when trying to understand money supply and how it drives inflation, one must also consider currency worth, which is largely driven by activity on the stock market, and specifically by large investors. What is counter intuitive about stock investing is that when you buy a share in a company, and you set up the account in US dollars or Canadian dollars, the currency you trade in, and even the currency you save your money in matters. It matters because if the currency your trading in is decreasing in value, while the company share is increasing, you could end up with no net gain, or even a loss due. Because of this, any stock investor who has any significant amount of investment is very careful what currency he invests in or even what currency he saves his money in.
So what a nation's government does matters, because large mistakes by government make investors nervous who are holding a lot of funds or stocks in that currency.
So basically currency is not only defined purely as being exchanged for goods and services, but a currency is an entity traded in and of itself, just like gold, nickel, or goodyear tires.
And what makes the relationship more complicated is that resources and companies are never traded or invested in and of themselves, you always have to choose what currency you want to hold these positions in, which should be a measure of how wise you believe the nation is behaving as a whole, which should include government, corporations and individuals.
So what happens when there is a huge supply of gold, with very few buyers, the price goes down. Similarity, there are currency traders, and billionaires that affect the flow of currency within the market. If everyone is dumping their accounts in US dollars, and switching to Chinese Yen, the currency must go down.
So when a country inflates their money supply, they are creating more debt for their population as higher taxes
So when a country inflates their money supply, they are creating more debt for their population as higher taxes
when the money supply is inflated, they are essentially adding to the digital total of funds available to trade stocks in and or save money in. That is why the Federal Reserve buys back US funds and dollars all the time,
they are trying to control the value of US dollars by limiting the amount of digital currency available for currency traders. Much of the activity is shady at the Fed, I suspect they are hiding a huge iceberg that we are only seeing the tip of. That is why the Fed doesn't want to be audited by the congress because they would discover that the FED has probably engaged in buying back currency from banks, that they originally sold to banks as government backed securities, and then they bury the information of how much currency they are constantly buying back. This creates the illusion that things are much better in the US than they actually are.
Is this always true though? Aren't there almost just as many instances where inflating the money supply is good and necessary? For instance, an analysis might indicate that there is a lot of room in a sector of an industry for more businesses, or lots of room for existing businesses to grow. So you print more money, you lend it to the entrepreneurs or you lend it to existing firms so that they can grow their business. A result of this printing and lending is that profits increase, and the loans are paid back. The Nation as a whole becomes wealthier and strong, and this is party because they increased the money supply. Increasing the money supply can expand the playing field and allow for more growth.
Why would inflating the money supply cause more taxes? When banks create money, it doesn't lead to increase taxes. Also, increasing the money supply might actually lead to only a temporary debt which eventually turns into greater profit.
Let me get this straight: are you saying the Fed buys and hides US money, trying to pretend the money no longer exists?
Ryan Rudolph wrote:Let me get this straight: are you saying the Fed buys and hides US money, trying to pretend the money no longer exists?
Sort of. The fed controls how much currency US banks have access to use as a means to control interest rates. Originally, interest rates were supposed to be governed by the amount of savers and borrowers in relation to each other.
For instance: if there were a high supply of savers, with few borrowers, interest rates would be low to indicate that the money supply was high. This is a great position for any nation to be in.
However, later in this century, as demand for credit in the US economy skyrocketed, and there was no longer enough credit available from savers to meet the high demand of borrowers so the FED stepped in and created an artificial mechanism to guarantee there was always enough credit available.
They accomplished this by either pumping credit into banks or buying back currency, and interest rates fluctuated accordingly. What Ron Paul argues is that one consequence of this artificial system is that sometimes the Fed pumps too much credit into banks, as it doesn't realistically represent demand, and it causes individuals to do stupid things. Low interest rates encourages borrowing which can lead to periods of boom/bust cycles. The US is currently experiencing a bust cycle from having too much credit pumped into banks all at once, (from a boom cycle).
Ron wants to go back to a gold standard, which is a horrible idea, as backing your currency with a rare metal is just not practical in economies as large as these.
In small simple economies with a low rate of growth, a gold standard might work, but any technological complex civilization couldn't sustain itself with a gold standard. Plus Ron is naive in his thinking when he believes a gold standard would stop over spending, the FED and the government would find a way around it somehow - probably by a continual dilution how much each dollar is backed by in gold.
What you also need to understand about the FED is that if it sort of like the mother hive of all smaller banks, but it is also behaves like a private institution, meaning it has its own balance sheet, makes its own business deals, and attempts turns a profit independently of the tax money congress gives it to operate.
However, the government backs the FED even if it takes loses, which are passed on to the tax payer. The FED tries its best to use actual currency from its own reserves to lend to smaller banks, but inflating from nothing happens as a last resort. The FED also has total secrecy over what it does, and I believe it fudges its balance sheets to make it seem like it has more assets and capital than it actually has.
Morever, I believe that during this crisis, they resorted to some dishonest practices as well.
From the beginning, I suspect The fed lent smaller banks too much credit, so the banks got greedy and lost most of the money due to poor investment choices, taking large risks, poor mortgage practices and so on, ending up with net loses and debt. Then the FED informs these banks to take all these bad investments, bad debt and bundle them together to create a high risk securities that the FED buys back as investments, but there is nothing there but debt and loss, which is dressed up as a potential investment. Then the FED holds these for a period of time, and eventually burys them somewhere in the books, and reports that they were ACTUALLY able to turn a profit off of the smaller banks securities. I believe something like this is happening at the FED, and that is why they are avoiding an audit by the congress.
Do you mean to imply that it's the FED's job to know the health of all banks below the FED?
Does the Fed need to analyze the health of all these franchises in order to determine what interest rates should be? If so, then I can understand why the FED should function as a business, however, a little more transparency and regulation would be nice.
Do you think this is always a bad idea? I'm leaning toward the notion that in some cases, this strategy can and should work.
Is it really true to say that the excessive credit did not realistically represent the demand? Or is it more accurate to say that the demand was present, but it wasn't a very wise demand.
It's interesting to note how the wise demand is connected to the foolish demand. The success of the person making the wise demand for credit leads to the job loss of the person who makes the foolish demand for credit.
However, I don't know if the trend toward automation is partly responsible for the latest bust in the American economy. What do you think?
It might work if you could figure out a way to establish a tendency toward deflation. As economies evolve in sophistication, it seems rational that currency would deflate more and more. After all, if the goal it to produce products more efficiently, then you would think that the end result would be cheaper and cheaper goods.
One thing that still is not clear for me: you talked earlier about how the the FED buys back currency from smaller banks. This confuses the hell out of me. What do they buy the currency with?
Ryan Rudolph wrote:I've been considering the relationship between creative talent and motivation, and it seems to me that some of the greatest inventions have emerged from the human mind with very unwhole motivations. For instance: Much of our modern technology has been invented by the great militarys of the world, who were driven by the masculine tendency to conquer, destroy and out-compete with other nations and races.
However, the progress made from these creative, yet feeble brained men has paved the way for companies with a much more whole vision such as google, who invent new products, but charge no money for them. Their motivations are non-typical of capitalist values, which states that a company should only do something if it can profit personally in a monetary sense from the activity. And the goal is to perpetuate personal profit, usually at the expense of others.
Ryan Rudolph wrote:Much of our modern technology has been invented by the great militarys of the world
Just imagine how many more technical advancements there would be if the intent was in fact to actually advance humanity by investing in genetics, health care, sustainable energy, biology, robotics, and nano-technology. I mean, look at what the government was capable of doing with the Manhattan Project; developing the atomic bomb in less than four years when technology wasn't even close to where it's at today, same goes for the Apollo Space Program. These examples show how vastly inferior capitalism is compared to intelligently planned socioeconomic programs.
Nick Treklis wrote:Cory,
Consumer spending in the USA makes up a very large percentage of economic activity. So if consumers lose trust in their currency causing them to behave irrationally by erratically saving, spending, or investing their money, it does have the potential to make large portions of the economy unstable. It's a lot more complex than this, but when money starts ending up in places that the economy isn't used to having it in, and disappearing from places it's used to having it, I imagine it could throw things off quite a bit. And depending on how you look at it, it doesn't necessarily have to be a bad thing either unless you are heavily invested in the status quo.
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