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RE: Amity Shlaes: Watch Inflation Capsize US - 3/19/2012 10:13:39 AM   
Musicmystery


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quote:

ORIGINAL: xssve

Yes, "real money", as in money that represents actual assets, and goods and services being exchanged, as opposed to money that represents assets, goods and services that are presumed to be created and exchanged at some future date.

Some of that is obviously necessary, fiat currency itself is basically an IOU, and new wealth creation has to be financed somehow, if it isn't going to get zero sum, i.e., credit is a necessary tool for economic expansion - but it ain't magic, and in any credit scheme, the subsequent production of real performing assets is the difference between economics and magical thinking.

In this case, just like in the 80's S&L debacle, credit was extended to make a buttload of heavily inflated, nonperforming assets i.e., it looked like real money, but it turned out not to be. It seems to happen in every republican administration anymore, they really love those real estate bubbles.

This confirms the confusion.

ALL money is fiat--even if we traded only in gold.

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/19/2012 10:20:58 AM   
xssve


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Status: offline 		In short, financialization is capsizing us, in a process excruciatingly detailed by Adam Smith 200 years ago - an economic shift from production to financial bubbles, wealth concentration and monopolization at the top, declining employment and income at the base - you get feudalism.

Some things never change.

Given our base economy is essentially an oil economy, it's a very inopportune confluence of externalities we face: the "Reagan Revolution" was a watershed moment in American history, turned us back towards feudalism instead of forward towards Capitalism and the pubs are taking us down the road to economic decline in classic fashion.

It's not like it hasn't happened before: the Gilded Age, the Roaring Twenties, but this time it's gonna be a lot harder to float out of it on a sea of oil.



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RE: Amity Shlaes: Watch Inflation Capsize US - 3/19/2012 10:24:54 AM   
xssve


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Status: offline 		That's what I said, it's an extrinsic medium of exchange that (theoretically) represents some form of intrinsic value, that's econ 101.

Insofar as it has any value, that value has to represent some form of intrinsic value: assets, goods, and/or services.

What I'm saying is that credit is a bit like futures trading, it's value of assets, goods, and services that don't exist yet.

And the larger the debt, the further into the future you're borrowing from - at the level of government debt that Bush incurred, in 60 years the interest alone will consume the entire federal budget.

< Message edited by xssve -- 3/19/2012 10:29:10 AM >

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/19/2012 10:57:49 AM   
Edwynn


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In one manner of speaking, money hasn't represented anything since 1973. In another sense it is represented by whatever the Fed buys to put money into circulation. This happens to be a financial asset, US treasuries, but it could be warehouses of lawn mowers for all it matters; money is put into circulation either way. The assets are sold to remove money from circulation. In the most real sense money is accepted as payment by everyone following the fact that the government accepts it as payment for taxes, that latter property always being the final arbiter.

Whatever I can buy with my currency is what backs the currency, since everyone will 'redeem' my paper bills with a loaf of bread, a book, a haircut, a PC, insurance, or even a lawn mower.

Of the three attributes of money, the store of value has usually provided the lesser utility as compared to being a medium of exchange and unit of account. Even in the days of specie backing better stores of value were usually obtainable, and today it is much easier for the average person to avail themselves of a great variety of physical and financial assets.

While on the subject, there has never been an asset that held constant value on its own. The days of gold or silver or bimetalic standards required sometimes a great deal of buying or selling by central banks to maintain whatever target value. Which is to remind that the price of these metals was set by fiat.



< Message edited by Edwynn -- 3/19/2012 10:59:32 AM >

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/19/2012 6:55:49 PM   
provfivetine


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quote:

ORIGINAL: Musicmystery
ALL money is fiat--even if we traded only in gold.


Oh c'mon! That's a patently absurd statement.

Fiat money is government decreed money or legal tender. Gold is not fiat money unless its price is fixed by the state.

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/19/2012 7:04:08 PM   
Musicmystery


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quote:

ORIGINAL: provfivetine

quote:

ORIGINAL: Musicmystery
ALL money is fiat--even if we traded only in gold.


Oh c'mon! That's a patently absurd statement.

Fiat money is government decreed money or legal tender. Gold is not fiat money unless its price is fixed by the state.

Now you're getting it.

Learn some history. Not only is it fiat, but it opens the door to arbitragers playing the real value of the currency (which still fluctuates according to economic activity) against the real value of the gold (which still fluctuates independently). Twice exactly that problem brought the Bank of England to its knees, forcing a currency devaluation. The same thing was happening in the U.S. when Nixon abandoned our Bretton Woods obligations.

Gold fixes nothing except the illusion of stability in the simple-minded.

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/19/2012 7:04:36 PM   
xssve


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Status: offline 		As of 2000, the FIRE sector accounted for over 50% of US profits, 20% of GDP, while manufacturing fell to 14.5%.

The financial sector employed 8 million workers out of a pool of 161 million available workers at that time.

Here's a breakdown of who does what, and how many, kinda interesting.

http://www.bls.gov/oes/current/occ_industry.htm


The top Three fields of employment looks like retail sales, truck drivers, and cashiers, followed waiters, waitresses and food service employees.





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RE: Amity Shlaes: Watch Inflation Capsize US - 3/19/2012 7:30:36 PM   
provfivetine


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quote:

ORIGINAL: Musicmystery

Now you're getting it.

Learn some history. Not only is it fiat, but it opens the door to arbitragers playing the real value of the currency (which still fluctuates according to economic activity) against the real value of the gold (which still fluctuates independently). Twice exactly that problem brought the Bank of England to its knees, forcing a currency devaluation. The same thing was happening in the U.S. when Nixon abandoned our Bretton Woods obligations.

Gold fixes nothing except the illusion of stability in the simple-minded.


Fiat money derives its value from the state. Period. You're assertion that ALL money is fiat is simply WRONG!

The US was under a pseudo-gold standard for most of its history, but check the gold prices during the period from 1833-1913 when there was no central bank in the US. That's stability! This isn't..

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/19/2012 8:22:33 PM   
Musicmystery


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quote:

Fiat money derives its value from the state. Period. You're assertion that ALL money is fiat is simply WRONG!


As long as the state decides what is acceptable as money, that money is fiat money.

Go ask someone actually in finance.

As for stability, pegging currency to a commodity is artificial, and will always create opportunities for arbitrage. That it took until the 20th century for some major players to figure that out changes nothing.

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/19/2012 8:35:56 PM   
provfivetine


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quote:

ORIGINAL: Musicmystery

As long as the state decides what is acceptable as money, that money is fiat money.

Go ask someone actually in finance.

As for stability, pegging currency to a commodity is artificial, and will always create opportunities for arbitrage. That it took until the 20th century for some major players to figure that out changes nothing.



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RE: Amity Shlaes: Watch Inflation Capsize US - 3/19/2012 8:36:22 PM   
xssve


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Status: offline 		It's not the goddamn fiat currency, if it can be used to purchase goods and services it's doing what it's supposed to do - the whole world was on the damn gold standard when your indentured servant ancestors crossed the ocean to try and pay off their debts, gold standard didn't do 'em a damn bit of good.

It's debt baby, it's the tool of the devil, and this whole country is addicted to it, from top to bottom, right to left.

Well, it's too late now, whatever happens is going to happen, I suspect we'll probably muddle through somehow.

But if inflation does bite us in the ass, you can bet the war debt is a big chunk of it. War is a non-performing asset, and unlike WWII, this one hasn't increased demand for US goods any.

Increasing reliance on imports is a deflationary force too, and CPI inflation again, is mostly due to oil prices and related costs.

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/19/2012 10:23:52 PM   
Edwynn


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quote:

ORIGINAL: provfivetine
Fiat money derives its value from the state. Period.


You said it yourself.

quote:

Fiat money is government decreed money or legal tender.


Dead on. Gold was decreed to be the legal tender.

quote:

Gold is not fiat money unless its price is fixed by the state.


Bingo. And no better evidence of gold price being fixed by the state than ...

quote:


but check the gold prices during the period from 1833-1913 when there was no central bank in the US.



See, you've got it figured out after all.

The purpose of a gold standard had less to do with domestic considerations and more to do with maintaining a fixed exchange rate. Countries had to raise or lower interest rates and/or buy or sell gold on the open market to maintain the artificial gold price and exchange rate. Again, there is no commodity or other asset that maintains constant value over time other than by outside manipulation for that purpose. Never has been, never will be.

This absolutely did not equate to price stability of anything else, as prices could still fluctuate wildly, and under the gold standard both output (GDP) and unemployment also fluctuated much more than today. Business cycles had greater volatility.





< Message edited by Edwynn -- 3/19/2012 10:24:55 PM >

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/20/2012 1:04:00 AM   
provfivetine


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quote:

ORIGINAL: Edwynn

See, you've got it figured out after all.

The purpose of a gold standard had less to do with domestic considerations and more to do with maintaining a fixed exchange rate. Countries had to raise or lower interest rates and/or buy or sell gold on the open market to maintain the artificial gold price and exchange rate. Again, there is no commodity or other asset that maintains constant value over time other than by outside manipulation for that purpose. Never has been, never will be.

This absolutely did not equate to price stability of anything else, as prices could still fluctuate wildly, and under the gold standard both output (GDP) and unemployment also fluctuated much more than today. Business cycles had greater volatility.



I agree, gold and silver under the Constitution is technically legal tender, but this is irrelevant to the point I'm making. All money is not necessarily always fiat. A real market economy would never in a million years use pure fiat money; fiat money requires government coercion. We agree on this.

The point is that the US never had a real market based gold standard. Blaming the market for government failure in the pseudo gold standard era is not warranted. Murray Rothbard explains this in detail here.

< Message edited by provfivetine -- 3/20/2012 1:11:26 AM >

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/20/2012 1:56:15 AM   
Edwynn


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There has never been any gold standard that you speak of. Like everything else Mises-based. Nothing of his proposals have ever happened in history and have nothing to do with reality. Regardless of the form of currency, if it is to be held constant or at a managed rate of change there must be manipulative control of it.

What "market based gold standard" are you speaking of? An example would be interesting. If there were a specie backed currency whose value was not controlled by the issuer then the value of the currency would fluctuate much more than would be the case under either the "pseudo gold standard" or today's interest rate mechanism and floating exchange rates. In any case there has never been a money system I am aware of where the issuer did not fix or at least attempt to fix its domestic value. It would be pointless otherwise.

A "market based gold standard," so far as I can imagine it, would greatly reduce the utility of currency as a medium of exchange or a unit of account or even a semi-stable store of value, the three functions of money, due specifically to the market fluctuations. Nobody will know what they have from day to day, trying to fix a price on anything would be near impossible, the accounts receivable/payable calculated for today will actually be a different accounts receivable/payable tomorrow, ...

First you point to the historical price of gold and its near constant value over decades as evidence of the superiority of the gold standard, then once it's explained to you how that happened you now claim that this same price stability is evidence that it was a failure due to government manipulation. Confusion.

You are having a hard time understanding just what money is, what it does, and more important, what it is for by way of its three functions.




< Message edited by Edwynn -- 3/20/2012 2:15:58 AM >

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/20/2012 3:23:49 AM   
provfivetine


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quote:

ORIGINAL: Edwynn

First you point to the historical price of gold and its near constant value over decades as evidence of the superiority of the gold standard, then once it's explained to you how that happened you now claim that this same price stability is evidence that it was a failure due to government manipulation. Confusion.

You are having a hard time understanding just what money is, what it does, and more important, what it is for by way of its three functions.



Stop putting words in my mouth and read what I said. I said that there was no central bank between 1833-1913 when the purchasing power of gold remained relatively stable. Since 1913 and especially since 1971 the price of gold has risen tremendously. This is no coincidence. You didn't read the Rothbard article. You just saw the mises.org reference and then rejected it on that basis. I can't summarize monetary history in a more concise way than Rothbard does. You have to READ the article.


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RE: Amity Shlaes: Watch Inflation Capsize US - 3/20/2012 5:26:11 AM   
Musicmystery


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Status: offline 		Oh good grief. You're imagining a cause/effect relationship.

1914 brought world war, and the U.S. in the 20th century became a global player. The world became a very different place with easier transcontinental travel.

These are not small factors. Gold became a hedge.


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RE: Amity Shlaes: Watch Inflation Capsize US - 3/20/2012 7:12:04 AM   
Edwynn


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I did not re-read the article just in this instance, no. I had already read it before some time ago. But primarily I have read numerous scholarly, peer reviewed articles and books on the history of finance and money, well researched works written by those in the field who know the subject well. This author does not meet those qualifications. What that article did not tell you is any of the surrounding economic conditions and circumstances, and especially not the macro and microeconomic repercussions of a currency that did not accommodate any other consideration but the exchange rate. Did the article tell you about the five different financial  crises in the 19th century? about the plethora of wildcat banks that issued their own notes in the first half of the century? about the farmers who suffered greatly from the ongoing depreciation in the latter half of the century? about the wild swings in GDP and unemployment? The ONLY thing that was mostly stable was the price of gold. Everything else suffered as a consequence, including prices of goods and services.

Re the Rothbard article: " I can't summarize monetary history in a more concise way than Rothbard does."

Nor in a more nonfactual way. Here in the first of the article:

"One of the reasons for the growth and prosperity of the United States has been the fact that we have enjoyed one money throughout the large area of the country. we have had a gold or at least a single dollar standard within the entire country, and did not have to suffer the chaos of each city and county issuing its own money, which would then fluctuate with respect to the moneys of all the other cities and counties. The 19th century saw the benefits of one money throughout the civilized world."

The guy has obviously never read a REAL book on 19th century financial and economic history, because that is nowhere close to the truth, or else he is just flat out lying. There were banks issuing their own notes all over the place until the National Bank Act of 1863, and still some bit of it afterward. Why would you expect someone who knows what he's talking about to read any further?

Repetitive nonsense, that's all anything from the Mises crowd is. And quit demanding that knowledgeable people read it.


Just stop it.




< Message edited by Edwynn -- 3/20/2012 7:54:33 AM >

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/20/2012 10:02:09 AM   
PatrickG38


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[/quote]

I agree, gold and silver under the Constitution is technically legal tender, but this is irrelevant to the point I'm making. All money is not necessarily always fiat. A real market economy would never in a million years use pure fiat money; fiat money requires government coercion. We agree on this.

The point is that the US never had a real market based gold standard. Blaming the market for government failure in the pseudo gold standard era is not warranted. Murray Rothbard explains this in detail here.
[/quote]

A market economy can only use fiat money and as the other's have exlained anyhting called 'money' is fiat. If a non-fiat medium of axchanges is used (I.e. An item with inherent value), that is a barter economy in which value is traded for value.

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/20/2012 11:14:17 AM   
provfivetine


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quote:

ORIGINAL: Musicmystery

Oh good grief. You're imagining a cause/effect relationship.

1914 brought world war, and the U.S. in the 20th century became a global player. The world became a very different place with easier transcontinental travel.

These are not small factors. Gold became a hedge.



No, that's not what I've said. The point is that central banking allowed (not directly caused) these wars to be financed (just like FDR's New Deal, Johnson's Great Society, the Space Race, and all the other wars since then).

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RE: Amity Shlaes: Watch Inflation Capsize US - 3/20/2012 11:17:36 AM   
mnottertail


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Status: offline 		Wars were financed long before central banking was promulgated.

It is a distinction without a difference. 

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