patrick.net

This whole debate makes me laugh.
Yes a fiat money may have avoided a depression. Yes, in that sense, it was probably better for a lot of people.

Now, we live in a world flooded with green paper that continues to fall from the sky.
This leads to massive leverage and ultra financialization.
This leads to massive speculation, where poor people usually get screwed. (see the housing bubble)
This leads to ultra expensive life necessities: housing, education, healthcare.
This leads to poor people stuck in debt.
This leads to a large and persistent trade deficit as people are actively dissuaded from saving.

Which part of this is good for people? I don't know.
It's a situation obviously massively biased in favor of the top 1%.

Democrats who argue in favor of this are just crazy as far as I can tell.

Ben Bernanke walks into a pizza parlor and orders a pizza.

The waitress asks him, "Would you like that cut into quarters or eighths?"

Bernanke says, "Oh, eighths please. I'm REALLY hungry today."

indigenous says

Bernanke says, "Oh, eighths please. I'm REALLY hungry today."

Don't you see how more money means more pizza IS created?

Heraclitusstudent says

This leads to a large and persistent trade deficit as people are actively dissuaded from saving.

You got that backwards

indigenous says

Heraclitusstudent says

This leads to a large and persistent trade deficit as people are actively dissuaded from saving.

You got that backwards

I did? How?

Heraclitusstudent says

That's how the economy works.

Nope it just means things cost more...

Heraclitusstudent says

indigenous says

Heraclitusstudent says

This leads to a large and persistent trade deficit as people are actively dissuaded from saving.

You got that backwards

I did? How?

The trade deficit creates the other, it is how monetarism works.

indigenous says

Nope it just means things cost more...

What would cost more?
- If there are unemployed people, you can hire them without paying more.
- If you can plant more wheat it doesn't cost more. It's just more labor, see above. Commodities are not a bottleneck by definition.

Unless there is a bottleneck, things don't cost more, in spite of more money.

indigenous says

The trade deficit creates the other, it is how monetarism works.

What I said is the result of a simple equation:
Sum ( accounts in US) = US account deficit = trade account + capital accounts.

You save less, ceteris paribus, the trade deficit increases.

Heraclitusstudent says

This is the heart of the problem: if more customers come and offer to pay $20 for a pizza, then what happens?

You said it yourself, ironically "Don't you see how more money means more pizza IS created?"

Heraclitusstudent says

You save less, ceteris paribus, the trade deficit increases.

The point is they are not equal, though monetarism, the Chinese are able to exploit the situation.

Heraclitusstudent says

Don't you see how more money means more pizza IS created?

More money does not mean more pizzas are being created.

spydah_hh says

More money does not mean more pizzas are being created.

If I enter in a pizza restaurant and order a pizza, they won't make one for me?

What a bizarre world you live in!

Heraclitusstudent says

spydah_hh says

More money does not mean more pizzas are being created.

If I enter in a pizza restaurant and order a pizza, they won't make one for me?

What a bizarre world you live in!

Who said they wouldn't?

Your argument is that creating more money gets people to supply more pizzas. No it doesn't work that way. When demand exceeds supply then the prices rise. Therefore, if more money is created, thus people go out and shop more (driving up demand) then prices will rise do to inflation (money creation). This actually drives down the people's purchasing power. Is that what you want?

If so, then what a bizarre world do you live in!

spydah_hh says

Your argument is that creating more money gets people to supply more pizzas

It could go down like this too:
The pizza restaurant is operating at a restaurant industry average profit margin of 1.8%, that is the yield on their hard work and investment. The money printing isn't magic, it's not like everyone has a lot more money all of a sudden. Money is spent into existence, and currently, this is via credit creation.

The owner of the restaurant can continue to toil for 1.8% profit on his investment, or he can get a cheap loan and buy rental houses instead, which yield more, especially as prices are being bid up. It pays a hell of a lot better than tossing pizzas, and everyone is doing it. He sells his restaurant and becomes a real estate investor. His employees are now out of work.

Times are good, his houses are going up in value, rents are covering loans. After a while, he starts seeing a lot of tenant churn, and the materials and labor for keeping his houses in good shape are costing more, the house investments are starting to lose money, it's time to sell. Uh oh, prices have dropped, he's underwater on the loans. He walks away.

End result:
Pizza place is closed.
Pizza place employees are unemployed
Pizza place owner has ruined his credit, and no longer has a pizza joint.

Welcome to the world of monetary stimulus based bubbles.

As for a trade deficit, who the hell cares. If the Chinese are silly enough to give us goods in exchange for paper dollars, that's their problem. We're exporting dollars and importing physical goods, which is great for us!

myob says

If the Chinese are silly enough to give us goods in exchange for paper dollars, that's their problem.

Yup and that is what happened to the US in the 30s. It is also what is happening to the PIGS to the benefit of Germany.

The problem is with Friedman's contraption that automatically induces inflation into the US over a period of 40 years.

This could be changed to induce austerity in government spending.

Heraclitusstudent says

This whole debate makes me laugh.

Yes a fiat money may have avoided a depression. Yes, in that sense, it was probably better for a lot of people.

Now, we live in a world flooded with green paper that continues to fall from the sky.

This leads to massive leverage and ultra financialization.

This leads to massive speculation, where poor people usually get screwed. (see the housing bubble)

This leads to ultra expensive life necessities: housing, education, healthcare.

This leads to poor people stuck in debt.

This leads to a large and persistent trade deficit as people are actively dissuaded from saving.

Which part of this is good for people? I don't know.

It's a situation obviously massively biased in favor of the top 1%.

Democrats who argue in favor of this are just crazy as far as I can tell.

Agree with most of the points in your post, except for the first one. Fiat money does not avoid depression, but causes it to begin with, then exacerbates it. Causes it via massive credit bubble enabled by fiat money. Exacerbates it by preventing the market from clearing: fiat money from government spending into the economy does not speed up the necessary adjustments for clearing but forcing further detours in economic development causing further misallocation of capital.

Heraclitusstudent says

indigenous says

Nope it just means things cost more...

What would cost more?

- If there are unemployed people, you can hire them without paying more.

- If you can plant more wheat it doesn't cost more. It's just more labor, see above. Commodities are not a bottleneck by definition.

Unless there is a bottleneck, things don't cost more, in spite of more money.

The very purpose of more money printing is raising price; it is this raising of prices that allegedly brings out more production. There are always bottlenecks at any given time. We live in a world of limits; otherwise there wouldn't be a need for economics.

Heraclitusstudent says

spydah_hh says

More money does not mean more pizzas are being created.

If I enter in a pizza restaurant and order a pizza, they won't make one for me?

What a bizarre world you live in!

They would not if people speculating on flour, tomato, cheese and fuel make more money by driving those prices higher faster than working stiffs can afford to pay for pizza. In fact, the pizza shop may well go out of business altogether when that happens, especially if the government then gets into the business of price control. Please read up on the Nixon era price control driving NJ chicken farms out of business when FED money printing drove up chicken feed cost while the feds slapped price control on chicken price.

Reality says

The very purpose of more money printing is raising price; it is this raising of prices that allegedly brings out more production.

Almost correct. More money(in the right hands) = more demand. More demand = more production.

Reality says

They would not if people speculating on flour, tomato, cheese and fuel make more money by driving those prices higher faster than working stiffs can afford to pay for pizza.

Also they wouldn't if aliens landed in their parking lot and started attacking the waitresses.

Why do you have to resort to what ifs to make a point? Speculation can occur under any monetary conditions.

tatupu70 says

Reality says

The very purpose of more money printing is raising price; it is this raising of prices that allegedly brings out more production.

Almost correct. More money(in the right hands) = more demand. More demand = more production.

And more demand (driven by easy cheap money) drives up prices and erodes purchasing power.

tatupu70 says

Reality says

They would not if people speculating on flour, tomato, cheese and fuel make more money by driving those prices higher faster than working stiffs can afford to pay for pizza.

Also they wouldn't if aliens landed in their parking lot and started attacking the waitresses.

Why do you have to resort to what ifs to make a point? Speculation can occur under any monetary conditions.

No speculations don't occur when interest rates are determined by the market. Because then interest rates don't stay low forever. Speculation occurs when interest rates remain low and stay low for years and decades.

The purpose of interest rates is to encourage saving or borrowing in the markets. If banks are low on cash reserves they increase interest rates to encourage people to save more, therefore, people shift their focus to long term investments. When interest rates are low that's when businesses (mostly) or people borrow.

In a market where banks are responsible for their deposits meaning no FDIC, they're not so reckless on issuing debt. They won't give loans to bad business deals, they won't give loans to people who can't afford it. They'll issue loans to those who can afford and have good business proposals. It's why the average american from 1865-1913 were well better off in terms of monetary value back then than we are today, because they were using sound money and focused on production capacity and not consumption.

Yes, they had a lower standard of living namely because that was over a 100 years ago, so it's not like the internet, fast cars, commercial airlines, cell phones, and computers were available. But you can see the better standard of living because of the less hours worked needed to purchase their needs, yes they still worked 8 hours but they brought home much more money (in terms of value) in those 8 hours.. Today we need to work more hours and have dual or more incomes to get the same goods, all because of cheap easy money driving our purchasing power down.

tatupu70 says

Reality says

They would not if people speculating on flour, tomato, cheese and fuel make more money by driving those prices higher faster than working stiffs can afford to pay for pizza.

Also they wouldn't if aliens landed in their parking lot and started attacking the waitresses.

Why do you have to resort to what ifs to make a point? Speculation can occur under any monetary conditions.

Do you think aliens landed in the 1970's and drove up the price of chicken feed? Do you think aliens have been landing in the past decade and half driving up four prices, tomato prices, cheese prices and fuel prices? The "if's" in my earlier post were not counter-factual hypotheticals, but real observations. FED printers can not control where the money go. The pizza shop owner would only make more pizza if the margin for his business goes up. In a market place where speculators are protected by the FED whereas workers see wage stagnate while commodity prices go up, the pizza shop's margin go down not up! especially in real terms . . . therefore, less pizza is made not more.

Reality says

Do you think aliens landed in the 1970's and drove up the price of chicken feed? Do you think aliens have been landing in the past decade and half driving up four prices, tomato prices, cheese prices and fuel prices? The "if's" in my earlier post were not counter-factual hypotheticals, but real observations.

No kidding. My point was that you could come up with an infinite amount of what-ifs that are not counter factual. What if a tsunami hit the pizza shop's town? What if a tornado hit?

Reality says

FED printers can not control where the money go.

Nope. And you don't need money printing to get speculation.

spydah_hh says

And more demand (driven by easy cheap money) drives up prices and erodes purchasing power.

lol--so, people get MORE money but that's eroding their purchasing power? How exactly does that work?

spydah_hh says

No speculations don't occur when interest rates are determined by the market.

Interest rates ARE determined by the market.

spydah_hh says

Speculation occurs when interest rates remain low and stay low for years and decades.

Actually investing occurs when interest rates are low.spydah_hh says

In a market where banks are responsible for their deposits meaning no FDIC, they're not so reckless on issuing debt. They won't give loans to bad business deals, they won't give loans to people who can't afford it.

Come on--this is ridiculous. The owners of the bank lose whether the depositors are made whole or not. FDIC does not insure bank owners.

tatupu70 says

Reality says

The very purpose of more money printing is raising price; it is this raising of prices that allegedly brings out more production.

Almost correct. More money(in the right hands) = more demand. More demand = more production.

So how much production was brought out during Zimbabwe's hyperinflation? More money does not mean more qualified demand: money driving input factor prices up faster than output prices would actually lead to lower production and business ceasing operation altogether. The often observed immediate effect of monetary injection is simply a statistic chimera before price inflation propagating through the system. It's a little like giving oneself an ecstasy injection; no, your body is not getting healthier because of that shot of stimulant.

tatupu70 says

Reality says

Do you think aliens landed in the 1970's and drove up the price of chicken feed? Do you think aliens have been landing in the past decade and half driving up four prices, tomato prices, cheese prices and fuel prices? The "if's" in my earlier post were not counter-factual hypotheticals, but real observations.

No kidding. My point was that you could come up with an infinite amount of what-ifs that are not counter factual. What if a tsunami hit the pizza shop's town? What if a tornado hit?

Your point was and is irrelevant, unless you are so clueless as not to recognize that I was not proposing hypothetical but summarizing the real effect of FED money printing on the ground in 1970's as well as recently as the past decade and half.

Reality says

FED printers can not control where the money go.

Nope. And you don't need money printing to get speculation.

FED money printing and promise to stop deflation by injecting inflation incentivise speculations on commodity input factors. They are called inflation hedges for a reason.

tatupu70 says

spydah_hh says

And more demand (driven by easy cheap money) drives up prices and erodes purchasing power.

lol--so, people get MORE money but that's eroding their purchasing power? How exactly does that work?

Easy: say the economy has $13trillion floating around, injecting $4T into the pockets of the banksters results in $17T money chasing $13T goods/services, making everyone who did not get the $4T poorer in purchasing power.

Reality says

So how much production was brought out during Zimbabwe's hyperinflation

Must you always resort to the ridiculous extreme case to try to make your point? I don't think there is any threat of the US resembling Zimbabwe any time soon.

Reality says

Your point was and is irrelevant, unless you are so clueless as not to recognize that I was not proposing hypothetical but summarizing the real effect of FED money printing on the ground in 1970's as well as recently as the past decade and half.

Nope-my point was apt. Are you saying the only time there was speculation in the 70s? Further, the 70s was a unique time due to demographics--not the Fed.

Reality says

FED money printing and promise to stop deflation by injecting inflation incentivise speculations on commodity input factors. They are called inflation hedges for a reason.

Inflation hedging is not speculation.

Reality says

Easy: say the economy has $13trillion floating around, injecting $4T into the pockets of the banksters results in $17T money chasing $13T goods/services, making everyone who did not get the $4T poorer in purchasing power.

He specifically said people--not banksters. And my post that he is responding to clearly states that the money must go into the right hands.

tatupu70 says

Reality says

So how much production was brought out during Zimbabwe's hyperinflation

Must you always resort to the ridiculous extreme case to try to make your point? I don't think there is any threat of the US resembling Zimbabwe any time soon.

Then you are an economic ignoramous. Here's a quick summary of what happened in the 1970's US inflation and price control episode:

http://www.cato.org/publications/commentary/remembering-nixons-wage-price-controls

No, the result is not higher production when ranchers and farmers slaughter their cattles and drown their chickens.

Reality says

Then you are an economic ignoramous. Here's a quick summary of what happened in the 1970's US inflation and price control episode:

http://www.cato.org/publications/commentary/remembering-nixons-wage-price-controls

No, the result is not higher production when ranchers and farmers slaughter their cattles and drown their chickens.

And who is arguing for price controls?? Are you arguing with yourself??

Reality says

Then you are an economic ignoramous

So, in your opinion, hyperinflation is right around the corner then?

tatupu70 says

Interest rates ARE determined by the market.

For the most part interest rates are determined by the FED, you should know this.

tatupu70 says

Actually investing occurs when interest rates are low.

Investing occurs when rate are low and high. When rates are high people save which is still an instrument of investing. When they're low and held low people tend to speculate. Which really isn't investing, normally you wouldn't invest into a company or companies that is worth billions but never made a profit, when you do this, you're speculating not investing.

tatupu70 says

Come on--this is ridiculous. The owners of the bank lose whether the depositors are made whole or not. FDIC does not insure bank owners.

FDIC insures depositors, so if depositors are insured then banks can do their fractional reserve lending like there's no tomorrow.

tatupu70 says

Reality says

Your point was and is irrelevant, unless you are so clueless as not to recognize that I was not proposing hypothetical but summarizing the real effect of FED money printing on the ground in 1970's as well as recently as the past decade and half.

Nope-my point was apt. Are you saying the only time there was speculation in the 70s? Further, the 70s was a unique time due to demographics--not the Fed.

Speculations take place all the time. The entire agro industry dependson furtures speculation to spread risk. FED money printing however makes one-way bet for higher prices more profitable. 70's was not a unique time, but it was the last time the FED emarked on massive monetary expansion (mid to late 60's to the end of 70's), before the past decade and half. It would be a mistake to think "this time is different."

Reality says

FED money printing and promise to stop deflation by injecting inflation incentivise speculations on commodity input factors. They are called inflation hedges for a reason.

Inflation hedging is not speculation.

Inflation hedging is of course speculation on inflation. Practically everything a person does with uncertain future result is a speculation, including buying a house (instead of renting and reserving the flexibility to move). FED money printing just makes certain one-way bets more profitable than they would be in the absence of FED money printing.

tatupu70 says

Reality says

Easy: say the economy has $13trillion floating around, injecting $4T into the pockets of the banksters results in $17T money chasing $13T goods/services, making everyone who did not get the $4T poorer in purchasing power.

He specifically said people--not banksters. And my post that he is responding to clearly states that the money must go into the right hands.

Are you born yesterday? Do you also believe in the dictatorial power should go into the hands of "the right people"? FED can not control where money ends up. The way the FED is set up, banksters own the game as they put together the list of candidates for the FED appointees.

tatupu70 says

Reality says

Then you are an economic ignoramous. Here's a quick summary of what happened in the 1970's US inflation and price control episode:

http://www.cato.org/publications/commentary/remembering-nixons-wage-price-controls

No, the result is not higher production when ranchers and farmers slaughter their cattles and drown their chickens.

And who is arguing for price controls?? Are you arguing with yourself??

Stagnant wages put a cap on consumer prices. The result is closing of retail businesses. Have you been hiding under a rock? Did you not read the news about massive closures of retail businesses? Is that your understanding of more money printing bringing out more production?