The downside to deflation in a debt-based monetary system?

[The Gold Standard]

I don't know. Is gravity good or bad? If there was no gravity you couldn't fall on your ass and hurt yourself. Should the government provide us with rocket boosters that keep us from succumbing to gravity and just keep refueling them until they run out of fuel? Then we will fall from much higher and hurt ourselves much worse.

 

[Black Flag]

No doubt a lot of interesting stuff here. Not enough time to read it all.

So what have we concluded? Is "deflation" bad or good?

In a Free Market, it is a good sign - high productivity, prosperity with sound money.

In a manipulated market - as with all things government - there are a few winners and a lot of losers.

 

[Steven Douglas]

No, it does not.

All capitalization -loans and investments derives from savings. Without savings, there are no loans and there are no investments.

See, now THAT is the part I'm having trouble with, and really want to get your meaning down, without any mincing of words. It almost sounds like you are implying that our economy is driven by privately accumulated capital.

Are you referring to savings (demand deposits? what?) and their ties, as reserve requirements, to credit and loans under a fractional reserve lending regime? Is that the tail, in your mind, that is wagging the economic dog, so to speak?

 

[Black Flag]

Are you referring to savings

The excess of earning minus consumption

 

[Steven Douglas]

The excess of earning minus consumption

Well, that's a good, broad definition for savings, and its source, but didn't address, really, anything I said or asked. You are defining savings as "excess of earning minus consumption", but for it to fit in with your assertion that without it "there are no loans and there are no investments", does it matter where that savings is physically, or what particular form it takes? And how, precisely (as you meant it) is "All capitalization -loans and investments" derived from it?

I said, "It almost sounds like you are implying that our economy is driven by privately accumulated capital." Did you mean to imply that, or, even, are you stating that?

Again, are you referring to savings (again, you didn't say where it needed to be, or what form it took) and their ties as reserve requirements to the obtaining of credit and loans under a fractional reserve lending regime? Is that the tail, in your mind, that is wagging the economic dog, so to speak?

 

[Black Flag]

but for it to fit in with your assertion that without it "there are no loans and there are no investments", does it matter where that savings is physically, or what particular form it takes?

In this discussion, it is a fundamental point.

You cannot loan what you do not have.
You cannot invest what you do not have.

To have must mean it is not consumed.

Therefore, all savings and investment capital must come from the difference between what is earned and what is consumed

It is specific decision to deny present consumption for consumption in the future.

 

[Black Flag]

I said, "It almost sounds like you are implying that our economy is driven by privately accumulated capital."

No.

What I am saying is that if one desires sustainable growth and prosperity that it can only come from the accumulation of savings by the forgoing of present consumption in favor of future consumption. No other way is possible.

This economy is not driven on this fundamental, which is why it tends to be driven into the ground.

 

[Paul Or Nothing II]

So your answer is to ignore the definitions and use what the confused layman use as definition.

Good plan - if you want to add to the confusion.

This thread is proof that YOU have added to YOUR OWN confusion by not using the layman's definitions otherwise so much time hadn't been wasted on defining "money", words aren't "borne" with their own meaning, meaning changes over time & if one wants to make a layman understand the complex nature of money then it must be done in a way they understand; you telling a layman that most of the "money" sitting in their demand-deposits "isn't really money" is only going to confuse him & that's why we choose to use layman's definitions

Besides, as I've argued already, both, central bank money & commercial bank money are merely obligations, promises to pay, so the argument that one is money & the other isn't doesn't stand

That's the point - no it is not.

Money is something that does not obligate someone else to pay or do something.

When I hold a dollar bill, there is no one who I have to hunt down to get payment or force someone to act on my behalf. Money stands on its own.

An IOU is not money, because for that IOU does obligate someone to actually do or pay something. The IOU value is not the IOU but the money or action that underwrites it. If there is no money or no action, the IOU has no value at all

You convoluting two -completely - different things adds to the confusion that the layman suffers - and makes solutions even more difficult to discuss, let alone implement.

If you read my post again, you MAY notice that I'm talking about your position that central bank money is "money" while commercial bank money "isn't really money" & that's why I explained that central bank money is just as fictional as commercial bank money & it's also just an IOU so saying that one is "money" & the other isn't is preposterous

Moreover, central bank money & commercial bank money are IOUs, there are no two ways about that, they're obligations, they're a promise to pay & as I've said before, previously it was "promise to pay gold/silver", now it's a "promise to pay nothing", & because now they're merely "promise to pay NOTHING", so you don't need to hunt down anyone but previously you had the right to turn in the IOUs & get gold/silver in return; the fact that now they're a "promise to pay NOTHING", does NOT cease them from being an IOUs, they're STILL IOUs

 

[Paul Or Nothing II]

No doubt a lot of interesting stuff here. Not enough time to read it all.

So what have we concluded? Is "deflation" bad or good?

There are two types of deflations
One is preceded & caused by an inflationary boom effected by over-expansion of credit, which leads the markets into thinking that there's more money than there actually is & pushes up demand & prices for goods & services, which causes the producers to this deflation is bad, at least for a period, as the over-expanded moneysupply tries to shrink back but as we know, central-bankers & economic experts & so on will want to re-inflate the bubble taking the bubble as the baseline
Second type of deflation (& the first one may overlap this one after the initial period) is much more gradual (as opposed to sudden shrinking of moneysupply due to bursting of the bubble) & would be normal under a gold-standard (or other commodity-standard) with 100%-reserve-banking

The biggest problem with mainstream "economists" & "experts" is that they don't differentiate between the two, they think both are the same & that's why they oppose gold-standard, disregarding the fact that it's not necessarily the gold-standard that causes the first type of deflation & its related problems but rather the problems are caused by fractional-reserve-banking

By the way, I'd recommend NOT to waste time on reading this whole thread (if you ever think about it), it's just Black Flag arguing with everyone here about "money", just pointless semantics & telling everyone here that they're misinformed or have a pet "crackpot economic theory" if they don't define "money" the way he does; & according to him, only central bank money is "money" while commercial bank money that's created every time they lend, that's not really "money" (even though it's just as fictional ) So now you know, that the money sitting in your demand-deposit, most of it, "isn't really money"

 

[Paul Or Nothing II]

You cannot loan what you do not have.

I think Steven is fuming already

 

[Black Flag]

you telling a layman that most of the "money" sitting in their demand-deposits "isn't really money" is only going to confuse him & that's why we choose to use layman's definitions

Didn't know I was talking to an ignorant, layman - I will change my notes about you.

central bank money & commercial bank money are merely obligations, promises to pay, so the argument that one is money & the other isn't doesn't stand

Please provide proof of your assertion that money isn't money.

central bank money & commercial bank money are IOUs

Please provide proof that FR BANK Notes are an obligation on someone.

Please note: there are Federal Reserve Notes - issued against gold/silver etc. and Federal Reserve Bank Notes - the one we use today. I have been talking solely about the FRBN not the FRN though I have used the FRN letters to mean "Federal Reserve BANK note"... hope this has not confused you and others even more than the confusion that already swirls.

From now on, I will use the letters FRBN - the money of the US$ today.

previously it was "promise to pay gold/silver", now it's a "promise to pay nothing",

The FR BANK Note, established in 1932 has no promise to pay gold/silver on redemption, nor anything else.

It is not a promise to pay nothing - it is merely "nothing".

You would not go around in the days of gold-money claiming "well, really when you pay with gold, gold is really only a promise to pay nothing" - no, owning gold -as money- has no one who needs to do anything. All obligations on performance are done, the transaction is complete.

You are confusing this:
12 USC § 415 - Reduction of liability for outstanding notes by depositing notes and collateral and payment of notes of series prior to 1928; reissue of deposited notes

Text:
Any Federal Reserve bank may at any time reduce its liability for outstanding Federal Reserve notes by depositing with the Federal Reserve agent its Federal Reserve notes, gold certificates, Special Drawing Right certificates, or lawful money of the United States.

Please note this only applies PRIOR to (not after) 1928 and only to the FRN and not the FRBN.

There is purpose in the government and the FED to make these notes the same name, with nearly the same design, the same unit of denomination, and the nearly the same color, when in fact they are not the same at all.

 

[Black Flag]

There are two types of deflations
One is preceded & caused by an inflationary boom effected by over-expansion of credit, which leads the markets into thinking that there's more money than there actually is & pushes up demand & prices for goods & services, which causes the producers to this deflation is bad, at least for a period, as the over-expanded moneysupply tries to shrink back but as we know, central-bankers & economic experts & so on will want to re-inflate the bubble taking the bubble as the baseline

Why
(1) do suppliers think deflation is bad in this case?
(2) does the money supply "try to" shrink? Does money have a mind and determines for itself its own level?

Methinks you have recession and deflation defined to be the same thing.

 

[Paul Or Nothing II]

Didn't know I was talking to an ignorant, layman - I will change my notes about you.

I'd figured out pretty quickly though that I was talking to an arrogant sophist

Please provide proof of your assertion that money isn't money.

When are you going to provide proof that ONLY central bank money is "money" & commercial bank money isn't?

No no, don't reach for your monopoly-set because as I've already explained, even if there's no paper or coins, EVEN THEN there can still be central bank money as well as commercial bank money

Please provide proof that FR BANK Notes are an obligation on someone.

Please note: there are Federal Reserve Notes - issued against gold/silver etc. and Federal Reserve Bank Notes - the one we use today. I have been talking solely about the FRBN not the FRN though I have used the FRN letters to mean "Federal Reserve BANK note"... hope this has not confused you and others even more than the confusion that already swirls.

From now on, I will use the letters FRBN - the money of the US$ today.

Just observe the written words on the notes, that's all it takes

The FR BANK Note, established in 1932 has no promise to pay gold/silver on redemption, nor anything else.

It is not a promise to pay nothing - it is merely "nothing".

You would not go around in the days of gold-money claiming "well, really when you pay with gold, gold is really only a promise to pay nothing" - no, owning gold -as money- has no one who needs to do anything. All obligations on performance are done, the transaction is complete.

You are confusing this:
12 USC § 415 - Reduction of liability for outstanding notes by depositing notes and collateral and payment of notes of series prior to 1928; reissue of deposited notes

Text:
Any Federal Reserve bank may at any time reduce its liability for outstanding Federal Reserve notes by depositing with the Federal Reserve agent its Federal Reserve notes, gold certificates, Special Drawing Right certificates, or lawful money of the United States.

Please note this only applies PRIOR to (not after) 1928 and only to the FRN and not the FRBN.

There is purpose in the government and the FED to make these notes the same name, with nearly the same design, the same unit of denomination, and the nearly the same color, when in fact they are not the same at all.

Again, just because they aren't backed by gold anymore doesn't change anything about the very nature of government-issued money, they're STILL IOUs but just "promise to pay NOTHING", the issuance is on the same basis but you just see see it as "different" because now they only have to pay "NOTHING" in return, instead of something

Why
(1) do suppliers think deflation is bad in this case?
(2) does the money supply "try to" shrink? Does money have a mind and determines for itself its own level?

Methinks you have recession and deflation defined to be the same thing.

Your confusion stems from the fact that you think only central bank money is "money" & therefore don't understand the role of commercial bank money in bidding up the prices & causing the inflationary boom, therefore you don't understand that a "deflation" under fractional-reserve-banking system is merely "vanishing" of commercial bank money, yes, that's what causes prices to fall

Now, don't ask me how all that happens because I don't have the patience to explain all that to you so I'd kindly urge you to read some more Austrian Economics

 

[Black Flag]

When are you going to provide proof that ONLY central bank money is "money" & commercial bank money isn't?

By the fact one hold no obligation to perform and the other one does

Just observe the written words on the notes, that's all it takes

One says "legal tender"
The other say "Redeem for Legal Tender on demand"

hey're STILL IOUs

All IOU's have these -required- components:

Who owes
Who is owed
What is owed.

Please provide the answer to those required conditions when addressing FRBN

 

[Black Flag]

under fractional-reserve-banking system is merely "vanishing" of commercial bank money, yes, that's what causes prices to fall

Why would the vanishing IOU cause price to fall? What mechanism are you suggesting causes this?

If I repay my IOU, why does the price of apples go down?

PS: There is such a mechanism, however, I do not believe you understand what it is

 

[Steven Douglas]

Why would the vanishing IOU cause price to fall? What mechanism are you suggesting causes this?

If I repay my IOU, why does the price of apples go down?

PS: There is such a mechanism, however, I do not believe you understand what it is

Was that necessary?> Why so deliberately evasive, treating members as if they were nothing but obtuse?

In some respects you are very much like Roy L. - you are condescending and patronizing, you take the longest way possible, arguing normatives using only your preferred definitions (which you shortcut, as if no clarification was necessary), and argued from your own narrow premises, as if they were the reality from which all else (including reality itself) is a fictional departure.

It's almost impossible to pin down or know precisely whether you are describing reality as it is in the present, or your ideal, as you feel it ought to be in any time frame. Thus, you don't really make your point, let alone persuade - much like Roy L., who goes round and round, page after page, insisting that everyone adopt his paradigms, his conclusions as a foundation for understanding (which he sees as indisputable, irrefutable, undeniable facts of objective reality, no less).

 

[Black Flag]

Was that necessary?> Why so deliberately evasive, treating members as if they were nothing but obtuse?

Obtuse? Don't be obtuse.

He needs to think it for himself - me telling him won't do a damn bit of difference, and he won't pick up a book to learn it.

So it is self-discovery from himself.

In some respects you are very much like Roy L.

So are you.

 

[Steven Douglas]

Obtuse? Don't be obtuse.

He needs to think it for himself - me telling him won't do a damn bit of difference, and he won't pick up a book to learn it.

So it is self-discovery from himself.


So are you.

That's it? Just prove my point for me, followed by...nyah?

 

[rockerrockstar]

We should be more worried about inflation.

 

[Paul Or Nothing II]

By the fact one hold no obligation to perform and the other one does

You just totally miss the basis of issuance of current "money" system

When government buys a good or service with its paper or electronic entry, it's merely an acknowledgement of indebtedness

It's like how someone may give a person a bearer-check in return for the goods or services, the check may even be passed around from one person to another & used as money but the fact remains that it's an acknowledgement of debt, to be made good by the issuer

Again, just because there's no more an obligation to pay "something", doesn't mean it's not an obligation anymore; a simpler example would be a bearer-check worth $0 would STILL be considered an obligation of the issuer even though he doesn't really have to pay anything; I mean if people are giving him goods & services for $0 checks & then they start using that as money amongst themselves, then that doesn't mean it's not an obligation anymore, the BASIS of the argument doesn't change one bit

One says "legal tender"
The other say "Redeem for Legal Tender on demand"

You're close, very close, just read a little bit more & try to draw connections as to why it IS an IOU & an obligation

All IOU's have these -required- components:

Who owes - obviously issuers
Who is owed - obviously holders
What is owed. - Unspecified (which is the fundamental problem with this system that those IOUs represent NOTHING)

Please provide the answer to those required conditions when addressing FRBN

Why would the vanishing IOU cause price to fall? What mechanism are you suggesting causes this?

If I repay my IOU, why does the price of apples go down?

PS: There is such a mechanism, however, I do not believe you understand what it is

Looking at your exchanges earlier in the thread with "Steven Douglas" & "Gold Standard", I don't think you understand how & why commercial bank money causes the inflationary boom (of course, central bank money plays its role in it too) or subseqently, how & why it "vanishes" because you contend the very fact that it comes into existence upon lending & "vanish" when it's paid off so, you don't really understand the fundamentals as well as you think you do so I'd urge you learn more about Austrian Economics as I simply don't wish to play your little semantics game

Was that necessary?> Why so deliberately evasive, treating members as if they were nothing but obtuse?

In some respects you are very much like Roy L. - you are condescending and patronizing, you take the longest way possible, arguing normatives using only your preferred definitions (which you shortcut, as if no clarification was necessary), and argued from your own narrow premises, as if they were the reality from which all else (including reality itself) is a fictional departure.

It's almost impossible to pin down or know precisely whether you are describing reality as it is in the present, or your ideal, as you feel it ought to be in any time frame. Thus, you don't really make your point, let alone persuade - much like Roy L., who goes round and round, page after page, insisting that everyone adopt his paradigms, his conclusions as a foundation for understanding (which he sees as indisputable, irrefutable, undeniable facts of objective reality, no less).

Indeed, he's very much like Roy L & obviously, that's why we thought it was him; in some ways, they're like intellectual-twins as they both believe that their view is "self-evidently objectively correct", but one is far left & the other is far right