The Money-Printing Disease Spreads

[robzrob]

http://www.youtube.com/watch?v=NoCOagL69_s

 

Must admit I didn't watch it all the way through, but I'm pretty sure that I didn't need to.

[Daniel Unplugged]

Thanks, saved me the trouble of watching it.

[Mark Carolus]

Lol.

 

 

On another note, what about deflation? what do you think of that?

[cobra2411]

Yes, please print more... That'll help a bunch... /sarc

 

Every dollar the fed puts into circulation destroys 30 cents in the real world... 

 

Ben is between a rock and a hard place. That what mathematically can not continue won't. 

[Prairie]

what about deflation?

You mean where a society has a basically fixed amount of currency, said society prospers and becomes more productive, so that most products and services become cheaper over time as a reflection of the fact that they are in fact cheaper as things improve? What's not to love?

[Daniel Unplugged]

Yes, please print more... That'll help a bunch... /sarcEvery dollar the fed puts into circulation destroys 30 cents in the real world... Ben is between a rock and a hard place. That what mathematically can not continue won't.

Actually printing an extra dollar destroys a whole dollar. Printing money creates no extra purchasing power, it just transfers one dollar of purchasing power to the recipient of the new dollar from the holders of all the other dollars.

[Prairie]

I was going to say that the newly-printed dollar has a hair less than a dollar of purchasing power, but remembered that the first spender of illegitimate currency does so before prices can adjust. So it really does take a dollar total from everyone else who holds dollars. So printing it to offer "aid" to other countries is just stealing it from everyone holding dollars without having to leave any evidence.

[cobra2411]

Well yes and no. This is a topic that's clear as mud unfortunately. Money is a store of past productivity. Credit is a promise on future productivity. They are both fungible; meaning that they spend exactly the same. Money systems have evolved over time and really anything that is accepted where you want it to be accepted can be used as money. Once taxes came about it became beneficial for governments to adopt a standardized currency. The state, in cooperation with the quasi-state entity the FED, inject money at the highest levels in the economy. This typically lowers interest rates and spurs on economic activity. With a lower rate I can pay more for a house, you get more in return and can spend it in the economy. The business owner that you spend your money with makes more profit and thus can spend more. So when the money multiplier is above 1 the net result is increased economic activity for every dollar released. Yes it dilutes the existing money out there but it's more complex. Builders start building, employing more people, factories start producing more, stores hire more salesmen, etc. Remember, money is after all a store of productivity. So even though there is more money, there is more productivity to absorb it. Also, on the other side of the equation is taxes. Taxes destroys money in the private sector and without injecting new money it would be very deflationary. 

 

Now, on the other side is credit. I think it was the bank of England in the late 1600's that figured out that people only use about 10% of the money they have stored in the bank at any given time. That gave rise to fractional reserve lending which has devolved into what we have today. No longer is customer's money lent out with 10% of it reserved, they simply create money out of thin air to lend. After the trouble around 2008 there are little if any restrictions on how much reserve they need to back their credit. The banks claim it's economically neutral; on one side they have a loan for a $100k and on the other side of the balance sheet they have an asset - the home worth $100k. However, going back to at least 2000 it was clear the banks were basically ordering appeasers to give them the numbers they wanted. So the value of these assets are not what two people would buy/sell in a free market, they are in fact marked to fantasy. Unsecured credit is basically a zero, second mortgages are also essentially a zero and many first mortgages are underwater. That's only the tip of the iceberg. If the banks were forced to realize the actual value of the assets securing their loans most of them would be instantly bankrupt. Our banking system is a giant confidence game. Look at 2007-2008. Confidence was lost and it all fell apart at an incredible rate. Add to that the desire of the state to protect it's preferred class and you have what we had. That's why reserve requirements were reduced or eliminated and why the government is spending so much money. Without the efforts of the state the economy would wither up and die and contract to a stable level. There are a lot of people that are too far out over the edge that any tap of the brakes will send them over. Attempting to prevent it will cause distortions and what we have is people not responding to the FED's attempt to spend money but rather they are pocketing what they can get their hands on. Confidence, while a little better than 2008; hasn't returned. 

 

The banks are the ones that print nakedly into the economy and are far more dangerous to societies monetary system than the state. Because they create money out of thin air there is never enough to collect it all plus the interest that they charge - someone always loses. It's a giant game of musical chairs. The interest charged alone is enough to ensure that there isn't enough to go around. The system is designed to create scarcity and ultimately a group of losers who pledge tangible property that can be confiscated. When operating normally lenders believe that in the end they will receive enough to justify some losses. Currently there is a lot more hesitation. So the more the FED prints, the more the economy contracts. That which mathematically can not continue won't - despite all the games you try and play. The only thing you can change is the timing of it and right now IMO the elite class is grabbing everything they can get their hands on for when the music stops. 

 

The solution is to end the unbacked emission of credit. All assets must be valuated and all loans must be backed by $1 of capital. So if you loan $100k for a house and the recovery value of that house is only $80k then you need to have $20k reserved to balance that out. I can't even imagine how severely this would contract the money supply but it's the only stable way to do it while retaining the basic framework of the existing system. Additionally, the government's debt limit must be tied to it's productivity. You want more money? Find a way to make your citizens more productive. Additionally, the state needs to take over the central banking system - ala North Dakota. Combine these two items and we would have a sound, robust money supply. We would have utter chaos and destruction for a short while, but those that survived and those that rise from the ash will be much more stable than what we have now. That system will be inherently deflationary as increases in productivity will be passed along to the people. Replacing workers with machines would reduce the cost and thus people would have to work less. It's a vicious circle that would continue till you reached a utility value of an item which would be expressed roughly in the cost of the raw materials + energy to manufacture. This would also provide a strong pressure against anything that didn't contribute anything of value to the economy **cough** the state **cough**

[Prairie]

Money is a store of past productivity. [...] So when the money multiplier is above 1 the net result is increased economic activity for every dollar released. Yes it dilutes the existing money out there but it's more complex. Builders start building, employing more people, factories start producing more, stores hire more salesmen, etc. Remember, money is after all a store of productivity. So even though there is more money, there is more productivity to absorb it.

This assumes that money keeping the same value is "correct" or desirable. If some work is done a year ago when productivity was lower, it was more valuable then than it is now. If the money paid for that work is saved a year, it makes sense that it should be worth more now, worth more work than was done for it then. To me the idea that the money supply should be increased along with productivity sounds like a fiction to justify inflation and those who benefit from it at the expense of everyone else.

[cobra2411]

IMO preserving the value of money is essential for long term stability of the economy. . If I paint a 1000 sf house and get paid for it, I want to be able to save that money and have a 1000 sf house painted. Reguardless how much time has passed. If you destoy the value of money to penalize savers and encourage the use of credit. That's what we have right now. With credit comes leverage and leverage cuts both ways. If you buy a 100k house with only 10k down and later the house increases by 10% to 110k you've doubled your money. If, however, it goes down to 90k then you've lost everything you have. If you're a saver and you pay cash then you only gain or loseo 10%. Sure it hurts if you loose 10% of your savings but it's recoverable. It's not as easy when you loose everything.

 

Technology will change and the amount of hours that went into painting that 1000sf house will likely decrease, but the overall value is the same. In reality things will probalby fluctuate but it shouldn't be as drastic as what we have now. What we have now is a stealth tax and is anotehr way that we're being robbed blind by the elite class.

[Prairie]

I'm not entirely clear whether you're making a point, responding to some other one, so I'm just commenting on things you wrote.

IMO preserving the value of money is essential for long term stability of the economy.

Preserving implies that something else is propping it up. Either it's fake money and it's a confidence game that will eventually end, or it's real money and you just have to get out of the way and not do things to destroy its value (make it illegal, confiscate it, etc.)

Technology will change and the amount of hours that went into painting that 1000sf house will likely decrease, but the overall value is the same.

Are you arguing for monetary inflation in order to prevent price deflation here? It seems that the value should decrease due to the increased supply/decreased cost of doing it. At some point a robot may do it for a few dollars. But if you hand-painted someone's house decades before when there weren't robots and it was of more value to people (they were willing to give up more of their own wealth for it), it makes sense that now you'd be able to have ten houses painted with the money you saved, rather than just one. You sacrificed something back then of greater cost/value and waited until now to get the end-product in exchange.

[cobra2411]

Money is a store of past productivity. It's fungible, meaning it's mutually interchangeable. Money can be anything two or more parties agree upon. You kind of want that to be stable. If I sell 5 chickens today I'd like to later be able to buy 5 chickens. Now, when I said it's value must be preserved I didn't mean though any action, but rather by a lack of what we have currently. The question was asked if a stable value was desired and I believe it is. If the value is stable there's incentive to stock it away for a rainy day. If on the other hand it's unstable and looses it's value then you don't want to hold it.

 

 

 

Are you arguing for monetary inflation in order to prevent price deflation here?

Yeah, I guess I was in a poor attempt to illustrate a point. Like I said, it's a topic that's clear as mud and I still need to think it though a bit to explain it. Let me take another shot to see if I get it right this time. Lets go to chickens... Assuming that the cost of raising chickens has reached it's peak in terms of efficiency and there are no more cost savings left. If I sell 5 chickens for money today, in say 20 years I should be able to buy 5 chickens back. Back to the house painting. As the cost goes down from using rollers to machines it should cost less because the value of the money has remained constant. 

 

By diluting the money supply .gov and the banksters have not only essentially stolen the cost savings from technological improvements, but they have also caused the prices to go up. It's funny that Stefan did a piece on Lincoln as he was one of the first to realize a stealth tax could be created by printing the money to pay for infrastructure rather than putting it up for a vote to raise the money. 

 

I understand most of this, but explaining it still trips me up. You want to encourage capital formation. People will save money, start a business, grow it and be stable. Over the last 20 years or so we've had a declining interest rate environment where loans could be rolled over and money extracted all while keeping the same monthly payment. The principle is never reduced but as long as the interest rate keeps going down you can roll it over so who cares. When now we're at the bottom and are likely going into a rising rate environment. That's going to destroy a lot of businesses. With fractional reserve banking and unabashed printing both by the FED and as credit by the banks we've encouraged that buy now, pay later attitude that's going to blow everything up. 

[Prairie]

Assuming that the cost of raising chickens has reached it's peak in terms of efficiency and there are no more cost savings left. If I sell 5 chickens for money today, in say 20 years I should be able to buy 5 chickens back. Back to the house painting. As the cost goes down from using rollers to machines it should cost less because the value of the money has remained constant.

We're in full agreement then. What a refreshing technology if it was allowed to exist, to be able to do whatever work one can find that people need doing now, store up the exchanged value, then save it however long one wants until one finds a good use for it, not having to worry about it evaporating between now and then!

a stealth tax could be created by printing the money to pay for infrastructure rather than putting it up for a vote to raise the money.

Yes, printing money is one of the best tricks government came up with. Even money stuffed in one's mattress can effectively be drained by the government without its agents ever setting foot into one's house.

[st434u]

I watched the whole clip. His whole argument can be accurately reduced to: "3.7 trillion of additional money printing didn't cause inflation..." (which is false, but he thinks it's true because inflation measures that govt agencies publish such as the CPI have not gone too much) "...so why not do another 200 billion in order to drastically increase foreign aid?"

 

Of course, besides the monetary problems, he's assuming that doing more foreign aid is a good thing, and that everybody agrees with him.

 

His program suggests making the central bank match any foreign aid spending of the federal govt by 100%. So if the State spends 200 billion in foreign aid, the central bank must match that with a further 200 billion which it just prints and spends. You know, to "encourage the government to give"...

 

No perverse incentives there.

[cobra2411]

Give a man a fish and you feed him for a day, teach a man to fish and you feed him for a lifetime. The problem with teaching him to fish is that he doesn't have to come back to you tomorrow for another fish.The 3.7 trillion printed hasn't caused inflation yet because it largely hasn't been released. With QE the FED and the banks have a nice circle going on so there's nothing for the banks to do but sit on the money. Once rates rise the FED will have to follow or all the QE money will hit the economy. If they do follow then .gov is toast when they have to roll the debt.

[fridolutin]

Lets go back in time and look at the way the artificial economy started. 

 

We learned by archeology and antic historians, man started to multiply when he arrived in rich environments, where soil and climatic conditions made nature provide lots of food. 

Three main regions , Nil, Mesopotamia and Indus valleys saw great civilizations emerge. State cities raised and they grew in power by war and slavery of conquered cities. 

When you read about what was harvested as valuables from the conquered nations, men where kept on place to exploit the land for exportation, woman and children where brought home to be used as slaves and cattle also brought in the homeland for food. 

 

Men where used until death from harsh conditions, forced to work hard with insufficient nourishment and bad housing conditions. Profit was the only goal. 

The use of money started at that time and was used by the upper class for their transactions between them of slaves and the resources they produced. It was expanded with time to a majority but the elite always kept control on the monetary system, as we know is still rigged. 

[JohnPozzi]

Consider Global Resource Bank - www.grb.net

[GRosado]

Lol.On another note, what about deflation? what do you think of that?

Deflation is very beneficial to purchasing power of any currency. Wages tend to decrease along with deflation but prices are lower so workers are able to purchase more at a lower wage.

Actually printing an extra dollar destroys a whole dollar. Printing money creates no extra purchasing power, it just transfers one dollar of purchasing power to the recipient of the new dollar from the holders of all the other dollars.

Inflation is created if there is an increase in the supply of money without a corresponding increase in the demand of money. The supply of money doesn't have a lone affect on purchasing power unless your a monetarist working within the framework of the Quantity Theory of Money.

[Daniel Unplugged]

I was going to say that the newly-printed dollar has a hair less than a dollar of purchasing power, but remembered that the first spender of illegitimate currency does so before prices can adjust. So it really does take a dollar total from everyone else who holds dollars. So printing it to offer "aid" to other countries is just stealing it from everyone holding dollars without having to leave any evidence.

I admit I was just rounding off that 'hair less than a dollar', but you are right, it actually is a whole dollar for the reason you stated.

[cobra2411]

I admit I was just rounding off that 'hair less than a dollar', but you are right, it actually is a whole dollar for the reason you stated.

They get a whole dollar to spend that's been stolen from all the other dollar holders but remember there are trillions of other dollars out there so it's only a small percentage of the total. 

 

With the current system we have now all banks are interconnected and essentially act as one. So if I build a house and Joe gets a mortgage and buys it from me when I deposit the money in my bank it's available as reserves for all other banks. So Jill can go and borrow money from her bank to buy something. That money will end up back in a bank to be lent out. So in the good times, the FED releasing money causes people to borrow and spend and so for every dollar they get the effect of multiple dollars being spent. Note I said effect. They are still stealing money, but it spurs on the economy. 

 

Now however, the effect is negative. For every dollar they print it drags the economy further down. Their tricks aren't working and all they're doing is looting everything that's not nailed down.