Tenbobnote
Member
- Joined
- Oct 10, 2009
- Messages
- 76
School Me On Inflation
- Thread starter ShaneEnochs
- Start date
osan
Member
- Joined
- Dec 26, 2009
- Messages
- 16,867
Things are not as simple as you suggest here.
First, there are two main sources of inflation, one common and one exceedingly uncommon. The less common source occurs as the result of systemic but organic economic circumstances. For example, if for whatever reason an economy goes moribund and then begins to decline because the availability of a great and overwhelming majority of commonly traded items becomes stressed, you will experience inflation through what is effectively universal increases in demand for basically everything. If, for example, an island community that had existed in happy isolation and material abundance for ages suddenly finds itself short on many basic resources such as food, water, metals, and so fort, inflation will be the result - assuming a free market economy. This is what I would call "organic" inflation arising as the result of what tends to be very uncommon circumstances. Uncommon in that universal shortages do not occur very often, save during catastrophes such as wars, meteor strikes, Armageddon, and so forth.
The commonly experienced brand of inflation, which is to say that which is artificially induced as the result of the structure of a monetary system is the direct result of the fundamental debt-nature of the world's fiat currencies, which are not monies in any traditional sense. Issuance of currency with interest owed is a loser from the get-go because debt can never be avoided. The more currency issued, the greater the debt incurred because every unit has interest attached. How can that interest ever be paid? Answer is that it cannot because you have to pay back more money than was issued. The ONLY way to get that additional currency is to issue more. Instant more debt. It is a death spiral by its very structure that can never lead to prosperity but only to ever growing indebtedness through increased borrowing to pay back what you had already borrowed.
Example: Say you are the government and you go to the Fed, hat in hand, and ask them for some "money". You borrow $100 @ 1% simple interest never compounded over time (just to keep things clear) That means you have to pay back $101. How will you pay back that debt? Even if you can retrieve the full $100, where will the extra $1 come from? By definition it must come the Federal Reserve, which means that you must BORROW it, which means more interest and more debt. And of course in the real world the government never recover 100% and must therefore borrow to cover the shortfall. Then there are the ever growing budgetary requirements due to ever expanding social programs, military ambitions, as well as the effects of this built-in inflation, which acts as the perpetualizer of this debt scheme even if government remains within a given spending boundary year over year. But in reality it cannot precisely because of this inflation, so borrowing more MUST occur just to maintain budgetary stasis.
Fiat currencies are not evil in and of themselves, but when interest is attached they become a most profound source of woe and ultimate slavery.
One other point: increasing the money supply does NOT necessarily cause devaluation of a currency. Money is supposed to be a store of value, which is to say that it has value in and of itself. The concept of "value" is somewhat problematic from several standpoints, one of them being the subjective nature of the concept and its attendant fluidity. Currency, on the other hand does not necessarily have intrinsic value and is therefore not a store of value but a representation thereof. Therefore, a gold-backed dollar bill, worth in itself nothing more than the resources and labor required to print it, represents the unit of gold that is held in some vault and is presumed to have some value in the open and free markets. So long as the gold is present as an underlying asset represented by a dollar bill and as long as that bill is redeemable on demand, all is good and right with the world, all else equal.
This said, the body of a nation's money supply is supposed to represent the value of the economy as a whole in some reasonable way. As an economy grows through the value-added nature of industry, the money supply has the choice either to grow, to shrink, or to remain static. Example: assume economy's total value is $100 today and there are one hundred dollars in currency circulating. Tomorrow that value grows to $110. If the currency pool remains static, then the value that each bill represents is now $1.10 instead of $1. This leads to deflation almost by necessity. Those holding dollars are in great shape and those needing to earn them may be said to be at something of a disadvantage, though this is arguable depending on how one views this situation.
If I shrink the currency pool, we get the same result, only magnified. But if the pool grows by $10, the overall effective purchasing power of each bill should remain the same, which is a good thing from the standpoint of general economic stability. It is through the mechanism of artificial inflation that wealth is stolen from people. If my dollar will buy 1 unit of a supply-stable commodity today whereas it bought 2 yesterday, then someone has robbed me by inflating away the purchasing power of my "money".
Also note that in an asset-backed monetary system, effectively half of the value of that economy needs to be held idle in order that it be available to represent the value of the other half as money. This is an argument against asset backing because real commodities are more valuable if they are used than if they remain idle, at least according to some points of view. Here is where gold reigns nicely as the store of value because it is actually not that good for much else, save jewelry and electronics. Gold sitting idle is not as great a drag on the economy as, say, commercial jets sitting in mothballs as "money" or foodstuffs, machinery, vehicles, medicines, petroleum, and so forth. But even gold has its uses as stated and ideally should be active in the economy too. This is the argument to be made in favor of fiat currency and it actually is a good one, contrary opinions notwithstanding. The interest aspect is what kills our system the most, but there is also the discipline aspect - and that is another area where governments simply cannot be trusted because they have never shown themselves worthy of it, save for relatively short periods. People inevitably give in to the temptations of debasement and it is all down hill from there. History is rotten with examples of this.
What we have addressed here are just the barest fundamentals set in the vacuum of otherwise "perfect" conditions. In the real world, things become a whole lot more complicated; so much so that even experts cannot predict all outcomes and at times seemingly none. But it is pretty safe to say in general terms that money should be real and its supply should track with economic growth and recession. Without this, money, investment, savings all have no meaning and cannot be relied upon. Without confidence, the money system becomes worthless and the only thing to which people can then look forward is economic strife. This is a hazard in any money system due to the nature of money itself even under ideal conditions. It is a hazard of the beast, but when money is properly conceived and administered the risks are just this side of nonexistent. With inflation built in, the hazard is all but guaranteed. Experts in money and currencies know this. The architects of the Federal Reserve system knew it going in; it was their goal to build this into the system precisely for the power it handed to them on golden platters.
This system is no joke, no mistake, and there was no innocence involved in the process of contriving it. Rest you certain of that.
Travlyr
Member
- Joined
- Dec 15, 2009
- Messages
- 14,088
How would inflation work in society that used real money?
What if we were legal to use competing currencies? Gold, silver, copper, platinum would likely rise to the top as redeemable currency of choice, right?
There may be a lot of precious metal in the ocean, and there may be several untapped mines on land, yet it seems like inflation would be almost non-existent in a laissez-faire free-market. It certainly seems like it would be a rare occurrence and of negligible impact on prices.
What if we were legal to use competing currencies? Gold, silver, copper, platinum would likely rise to the top as redeemable currency of choice, right?
There may be a lot of precious metal in the ocean, and there may be several untapped mines on land, yet it seems like inflation would be almost non-existent in a laissez-faire free-market. It certainly seems like it would be a rare occurrence and of negligible impact on prices.
camp_steveo
Member
- Joined
- Dec 20, 2011
- Messages
- 578
mosquitobite
Member
- Joined
- Nov 21, 2007
- Messages
- 4,821
Best, most simplistic answer on the FED and inflation that I've watched.
Zippyjuan
Banned
- Joined
- Feb 5, 2008
- Messages
- 49,008
That is a much more complicated question than it may seem at first. The Federal Reserve only sets the interest rates at which banks can borrow money short term (ususally overnight) from them. If the Fed raises those rates, that tends to lower the amount of money circulating in the economy (it encourages less borrowing from the Fed) and if the Fed lowers those rates it will tend to increase money in circulation. That is the tendency- it does not always happen that way like during the recent economic crisis where they dropped their rates to near zero but borrowing and money in circulation did not increase.
Theoretically, an increase in money circulating could lead to higher prices (price inflation) but again, not necessarily. There may be other economic factors such as changes in supply and demand for goods which have a greater impact on changes in price levels than a change in interest rates.
Next we need to look at the opposite. What effect does the rate of price inflation have on interest rates? Higher rates of price inflation lead to higher interest rates. Why? There are three basic components to an interest rate. I am talking about market interest rates on things like loans and deposits- not the Fed interest rates for overnight borrowing by banks- things like bank deposit interest or rates on car loans or mortgages. The lender would like to make a profit on his loan so he is going to add a premium or profit margin. For this example, let us say one quarter of a percent. Next, he wants to have that profit even if prices go up and the value of the money he loans out becomes worth less so he adds in what he expects the rate of inflation to be during the time of the loan- the higher the expected rate of inflation (or even higher future economic uncertainty) the higher the "inflation premium" he will add to the rate he charges. Higher inflation expected means a higher inflation added to interest rates and lower expected inflation means lower interest rates. The third component is a risk factor- how likely the lender thinks the borrower is likely to be able to pay back the loan. The riskier the borrower, the higher the rate.
So interest rates can have some impact on price inflation but price inflation can also have an effect on interest rates.
In the late 1970's and early 1980's the Fed got concerned by presistant and growing inflation. They chose to try to wring out that iflation by greatly tightening the money supply so they raised interest rates dramatically- as high as 19% for the Federal Funds Rate in 1981. At the price of higher unemployent for a time, the rate of inflation was brought down but in some places unemployment got as high as 14%- the national average hit 10.8 in 1981 but inflation dropped.
Zippyjuan
Banned
- Joined
- Feb 5, 2008
- Messages
- 49,008
There are many uses for the word inflation. It does not only mean increasing the money supply (though some will try to insist that this is its only meaning- it isn't). It can also mean price inflation (the most common usage and what people think of when they read an economic article on inflation). If the sort of inflation is not speficied, most will assume you are talking about price inflation. A tire or balloon can also be inflated or a person's ego can undergo inflation. I try to indicate "price inflation" when I post.
seraphson
Member
- Joined
- Sep 26, 2011
- Messages
- 674
I'm curious if someone could answer this as I have a feeling if I pose the idea of inflation in educating someone they'll ask it. "So? The wages go up with the inflation. So what if bread was 10 cents a loaf, they made 10 cents an hour back then too."
I *think* the answer would be somewhere along the lines of a dollar today is worth less a year in the future (assuming this person saves money [funny concept, I know]). Also, in regards to cost of living and inflation I believe the scale of wages hasn't been quite on par with the scale of costs. Say the cost of bread doubles, wages don't linearly double as well. Are my guesses correct?
I *think* the answer would be somewhere along the lines of a dollar today is worth less a year in the future (assuming this person saves money [funny concept, I know]). Also, in regards to cost of living and inflation I believe the scale of wages hasn't been quite on par with the scale of costs. Say the cost of bread doubles, wages don't linearly double as well. Are my guesses correct?
Jovan Galtic
Member
- Joined
- Jul 6, 2011
- Messages
- 310
The problem is that it doesn't all happen at the same time. People who get new money first benefit the most. Wages are the latest to rise. In essence, it is redistribution of wealth from the poor and middle class to the politically connected elite.
Zippyjuan
Banned
- Joined
- Feb 5, 2008
- Messages
- 49,008
This is why I would like to use time as a measure of value or wealth rather than dollar figures. How many hours did you have to work to buy a loaf of bread or a car or a house vs how many hours today? Real purchasing power. Sure you could buy a loaf of bread for 10 cents but as you point out- how much were people making back then? Discounting for inflation attempts to measure this to some degree but not all things face the same inflation rates. Incomes don't always move the same as the price inflation rate either- some years wages may rise faster, some years prices may rise faster. And how do you measure improvements in products? Houses cost more today but are in general larger and have more amenities than they did say 50 or 100 years ago. Cars have more features over time. Can we really comapre the price of a car from say 1945 with one today? These are difficult to measure.
It is true that people spend less on food today for example. Simply buying necessities for eating used to take about a third of household income- today that is about 11% and the selection of foods available today is much greater. Less on food and housing means more available for wants like TV or PCs or cell phones- once luxury goods we take for granted today.
I'll repeat my earlier post first: There is one cause of monetary inflation: Printing of money in excess of GDP. The rest of the nonsense about supply and demand, price increases, etc., are separate issues and do not define monetary inflation.
Regarding wages over time, inflation has simply been a tool for the banks, through the government to get paid their pound of flesh for lending your government its own money at interest.
Many people have posted here how the average income today is far greater than it was in 1913, even in adjusted dollars (after inflation). The problem with that is there is no consideration for the fact that in 1913 there was:
No income tax
No Medicare tax
No Medicaid tax
No health insurance tax
No telephone tax
No building permit tax
No airline/airport taxes
No gas guzzler tax
No {many, many more} taxes
As well, there is little mention of the rate of increase of taxes that did exist then vs now against the rate of income increase.
The point is that a rise in income vs inflation is an irrelevant statistic if you don't get to keep any of the increase, and especially if you actually lose after all is said and paid out from the gross.
Bosso
Steven Douglas
Member
- Joined
- Oct 24, 2011
- Messages
- 1,956
That's the team spirit. That is exactly what the Fed and mainstream economists would prefer that everyone do, which is why the very definition of inflation has changed over time, switching from the causal definition to one of effect only, with multiple causes and possible solutions. This takes the focus completely off the full scale, massive and deliberate counterfeiting operation that is taking place (blindly) in the background, as everyone points meaningless fingers at thousands of symptoms, and the many actions and reactions, as if they were all causes, and not effects themselves. We bat at branches and leaves, while leaving the trunk and roots of the largest, gnarliest, most deliberate contributor to the original problem, fully intact.
Having "many uses for the word inflation", and many symptoms for "a general increase in prices" is WONDERFUL NEWS for the Fed, the bankers, Wall Street, and pro-deficit spending politicians, because:
"When many cures are offered for a disease,
it means the disease is not curable"
- Anton Chekhov -
it means the disease is not curable"
- Anton Chekhov -
That is precisely what we have now -- a terminal disease for which there is no cure, because the disease itself has long since passed itself off as a cure for the many symptoms of which it was the primary cause all along. The absolute lunacy of this is that it is stated quite plainly, as a primary objective:
A growing economy is NATURALLY deflationary. "Price stability" is naturally achieved once the economy stops growing, and prices reach long term equilibrium. Meanwhile, as long as the economy grows, falling prices are fully expected, as wealth and productivity increase relative to a stable currency supply. The Fed was put in place to provide a "cure" for this Very Scary Problem, by deliberately inflating the currency supply, with the full intent of placing general upward pressure on prices.
AND IT FACILITATES EXACTLY THAT. DELIBERATELY! There is no mystery to it! There is no wondering on the Fed's part whether currency inflation causes price inflation. They make no bones about it. But others wonder - to the point where some would very much like to ignore currency inflation altogether (or as much as possible) having already framed it as not so much a cause of price inflation, but rather a cure for price deflation. Thus, this "cure" gets marginalized as "but one possible cause" out of many for "a general increase in prices".
Meanwhile, we're so fixated on "price stability" as a fricken indicator, as well as somehow being A Noble And Worthwhile Objective, that so long as COUNTERFEITING AND OUTRIGHT THEFT results in just enough upward pressure on prices to counteract that horrible, evil, dreaded deflation, with no net change in prices, or only a moderate general increase in prices, then all must be well and good. Forget that real wealth and productivity had to be siphoned away from currency holders, present and future, and funneled to selected winners and their specific economies; so long as "price stability" is maintained, it must be good for "the economy", and we can all breathe a collective sigh of relief -- because prices didn't go down!
More on this blithering insanity and how it all gets obfuscated later...
Che
Member
- Joined
- Jun 4, 2009
- Messages
- 409
yea.. i always wanted an answer to that. They say the FED is printing money, but dollar was a good investment for the year. So yea, can anyone answer this: How does QE = devaluation of dollar? Why's the Japanese Yen so high after numerous decades of money printing with excessive debt monetization? If the United States really have too much unsustainable debt, why's the treasury yield so low, compared to various european countries?
Thanks
Zippyjuan
Banned
- Joined
- Feb 5, 2008
- Messages
- 49,008
I see. I cannot inflate my bicycle tire when it goes flat becaue inflation only applies to the money supply. And changes in the money supply are the only reason prices may go up or down- reletive scarcity never comes into play. Inflation of the money supply can certainly lead to price inflation but other factors can cause it as well. Demand rising faster than supply for example.
It can refer to all of those things.
How stable were prices when we did not have fiat currency?
The money supply was kept pretty stable under the Gold Standard so prices should have been pretty stable as well. But prices were all over the place.
http://en.wikipedia.org/wiki/File:US_Historical_Inflation_Ancient.svg
It can refer to all of those things.
How stable were prices when we did not have fiat currency?
The money supply was kept pretty stable under the Gold Standard so prices should have been pretty stable as well. But prices were all over the place.
http://en.wikipedia.org/wiki/File:US_Historical_Inflation_Ancient.svg
Last edited:
hazek
Member
- Joined
- Nov 9, 2007
- Messages
- 4,688
I was just waiting when you're FED and central bank thievery apologist ass would show up with some good old propaganda to defend their scheme. Naturally you completely fail in your attempt at irony since no one here claimed anything like you're pretending in the quote above.
Just as an example:
So please, just go away, and take your dirty slimy propaganda with you and spew it some place else.
hazek
Member
- Joined
- Nov 9, 2007
- Messages
- 4,688
How stable were prices when we did not have fiat currency?
The money supply was kept pretty stable under the Gold Standard so prices should have been pretty stable as well. But prices were all over the place.
http://en.wikipedia.org/wiki/File:US_Historical_Inflation_Ancient.svg
This is nothing but propaganda intentionally leaving out vital information to understand what was going on back then. Even on the gold standard there was a massive increase in money supply by banks issuing paper receipts in excess of their reserves through fractional reserve banking and also when new major gold discoveries happened.
In fact I know of no period in human history where supply of gold or fiat money wasn't messed with by either caesars, kings, monarchs, governments or banks not to mention when new gold depository discoveries were made.
Zippyjuan
Banned
- Joined
- Feb 5, 2008
- Messages
- 49,008
Do you disagree that if demand for something rises faster than the supply does the price for that good will not rise? Steven Douglas agrees that there are many causes of inflation including increases in the money supply. His quote you cited agrees with what I said. We agreed on what can cause it.
I was basically disagreeing that monetary inflation is the only true meaning of the term inflation. It's most common usage is to refer to price increases.
Last edited:
Zippyjuan
Banned
- Joined
- Feb 5, 2008
- Messages
- 49,008
You are right- there are a lot of things going on in that chart. Changes in the money supply only explain a tiny part of the changes in prices over the time it measures. There are many other factors influencing it as well.
hazek
Member
- Joined
- Nov 9, 2007
- Messages
- 4,688
None of us said that douche. That's part of my problem with you.
hazek
Member
- Joined
- Nov 9, 2007
- Messages
- 4,688
Then mention them and don't leave them out and pretend as if in that period under the gold standard the money supply didn't change.
