Hard Light Productions Forums
Off-Topic Discussion => General Discussion => Topic started by: Bobboau on March 02, 2012, 09:57:14 pm
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I just had a funny thought, the government has the ability to print money. why does it bother to take the money out of our accounts directly, why not just print as much money as it wants to fund whatever it wants. this would have effectively the same effect as taking money out of our accounts in that the buying power would be less at the end of the year, but without all of the bureaucratic overhead. this is effectively using inflation as a means of collecting taxes.
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Physical monies - bills, notes, and coins - are only representation of actual credits. This therefore allows the production of tender at a very cheap rate (I think at one time it cost 12 US cents to print 1 US dollar bill), which is beneficial in the sense that you could have a disaster that destroys the tender.
Now, the exact process they do in order to legalize the tender I'm a bit fuzzy on. They're supposed to only print as much money that they have backed by Gold... kinda like the stock market where companies are broken up into "shares" and owners/consumers possess the tender as legal possession of a piece of the gold.
Taxes can be thought of as a service charge. You know, the charges you pay for your electricity, cable, and dubious magazine collections. The governments provide us the service of diplomatic relations and lawmaking, although not very well in my opinion.
If the government where to print its own money without some sort of material backing, then inflation will skyrocket to the point where the cost to print and legalize the tender would be greater than what its actually worth in material... like each penny costing $10 to make.
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Now, the exact process they do in order to legalize the tender I'm a bit fuzzy on. They're supposed to only print as much money that they have backed by Gold...
Although I don't know exactly how it works, I do know that this is no where close.
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The way inflation happens in real life is through banking. Banks receive deposits, hold a certain percentage which they are required to hold and then lend out the rest. The recipients of those loans, and those who they purchase goods and services from, deposit the same dollars which were borrowed into the banking system. A percentage of those funds is held and more funds are lent out, repeating the process.
So:
1) Gov adds supply of money to bank. (I can't remember the exact mechanism they use and I'm too lazy right now to look it up, but I think they buy a certain type of bond, maybe treasury bonds from banks.)
Gov->Bank
$100
2)Bank keeps required amount, then starts lending cycle
Bank keeps $10 in cash, has 100 dollars on their books total.
Bank -> Joe's Small Business
$90
3)Deposits and stuff happen
Joe's Small Business->Bank
+
Joe's Small Business->Suppliers->Bank
$90
4)More bank lending
Bank Keeps $9 more, has 190 dollars on their books total, 19 of which is in their "vaults".
Bank->Phil's Mortgage
$81
5)Lather. Rinse. Repeat.
The bank could eventually end up with about 1000 dollars on the books, even though it really is the same $100. That's how inflation happens.
The problem with what you are saying is that the Government hasn't caused inflation by buying things directly with money it prints. It can tax people, or it can borrow money from other countries, but it hasn't been creating money out of thin air, buying what they need with it.
And there would be a problem if they were.
The good thing about inflation right now is that it is mediated by the banks. While they took on too much risk recently in the housing crisis and suckered us out of billions of dollars, they still know how to give out a non-mortgage loan. They are not loose with their loans so the money supply does not grow too rapidly. And we should be ok, as long as per-capita wage growth matches inflation, so that the value of what we make is not actually eroded (even though we're lagging in the US in the past few decades).
The problem if the Government started doing what you are suggesting is that the value of each dollar you own would drop. Instead of 10 dollars buying 10 Cokes, 10 dollars might buy 9 cokes, or 8 cokes, and there would be no mechanism for a simultaneous increase in wages. So you wouldn't be able to make the $11.11 needed to buy the same 10 cokes, if you worked the same amount of time for them.
No, paying for government expenditures through inflation is one of the things that got the Roman Empire in trouble, and it's happen quite a few times since, though Economic history is not my strong suit.
Also, money is not gold backed anymore, though it used to be. It's now backed by confidence in the currency and currencies are valued against each other instead of against a commodity, like Gold.
Sorry this isn't extremely clear: it's pretty late, and I've been going all day.
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my point was to build in the expectation of inflation, and that everyone would have to work with ever escalating denominations of money.
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I think that would just wreak our reputation with foreign investors.
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Ok, well, you're never going to be able to say what the inflation rate is going to be. Inflation is measured after the fact, and it's usually measured through purchasing power parity. So, you'd have to be able to guess exactly how much inflation would take place long before the year happens and then be able to adjust it as you willed. That's pretty hard to do. It's like a nearsighted man trying to shoot a crow flying in the dark.
Second, the wealth of individual citizens would be eroded. So if you're someone who lived off savings, what you had saved would be eroded. Savings accounts would be even more useless than they are now, and investors would have a hard time keeping up, since they have required rates of return which are supposed to build wealth despite inflation.
If inflation were cruising around 1% and then the government made it %5 to pay for its stuff, then investors would have to adjust their required rate of returns to match this 4% increase. This means riskier investments and more volatility in the market.(which leads to more frequent and deeper recessions)
And if the government all of a sudden needed a bunch of money, and they couldn't borrow it instead, then inflation would skyrocket and everybody would be screwed.
What you're saying is an interesting solution to a real problem, and one which hadn't occurred to me before, but it has unintended consequences to those who live off savings and investors.
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well obviously many of the institutions that are built around the specifics of our current financial system would not necessarily fit into this new paradigm seamlessly.
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Also, money is not gold backed anymore, though it used to be. It's now backed by confidence in the currency and currencies are valued against each other instead of against a commodity, like Gold.
So basically, our currencies are phallic competition devices on a national scale? Great. :no:
Dry humor aside, I find some sort of atomic error with basing currency off of trust. I'd rather go with a system that was material based (hey, it's worked for eons) or energy based (in the sense that goods are priced by the amount of energy it too to produce them).
Thinking a bit more on the energy-based system, I can see how that's going to be really tricky seeing as the biggest producers of energy are oil, natural gas, nuclear, and renewable energy, with that last one being "free" for the next thousand millennia or so...
As far as the banks go, I have no problem with the banks taking a small cut to pay their own bills, but for some reason I get the feeling that you're pointing at bank's interest rates as the source of inflation (unless I read that wrong). :nervous:
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Bobboau: that's the end result. We already borrow a large portion of our expenditures--our debt will increase far faster than our taxable GDP. We've got two options--either cut at least a quarter of our spending (preferably half of it) or print more money. The former is a good idea; the latter isn't.
All throughout the year, the government issues sovereign debt--bonds with maturities between 30 days and 30 years. By borrowing money, they can fund activities without taxpayers. The only real concern is that eliminating income taxes will erase one check on inflation--making hyperinflation all the more likely as confidence evaporates. Of course, you want to be holding real, tangible assets long before hyperinflation hits. Gold & silver have held their values far better than our coinage or notes. Before 1965, our dimes contained 90% silver (10% copper) and weighed 2.5g; those coins are intrinsically worth about $2.50 today. The Peace Dollar (last minted in 1935) also contained 90% silver and weighed 26.73g; the intrinsic value of those is $27.90.
Remember gold & silver are valuable for two reasons. The first is both must be mined and smelted prior to entering circulation--you can hold them in reserve but you cannot create them out of nothing. The second is that both have uses outside of trade: both are useful in manufacturing. If all else fails, gold doesn't oxidize and silver, though it does tarnish, is less resistive than an equal quantity of copper.
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:wakka:
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I rather like the idea of doing away with a monetary system entirely
things are constructed/produced and distributed according to necessity.
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I rather like the idea of doing away with a monetary system entirely
things are constructed/produced and distributed according to necessity.
aaaahahahahaa
Yeah that went sooo well back when the Russians tried it.
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id start backing all moneys with weapons grade nuclear material, that way if it all goes to **** we can just nuke eachother.
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Perhaps this quote has a lot to do with the issue at hand:
"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." Thomas Jefferson, Letter 1802 to Secretary of the Treasury, Albert Gallatin
The financial situation in the USA seems to have a lot to do with the Federal Reserve, having a fiat paper currency instead of something supported by the gold - or other rare mineral standard. Fractional reserve banking is another issue as well, where banks loan out more money than they actually have deposited. Nonetheless this is a very complex and diverse case in my opinion, so there's a lot of reasons and causes to be considered.
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well obviously many of the institutions that are built around the specifics of our current financial system would not necessarily fit into this new paradigm seamlessly.
Well, under the new paradigm you would have monumental difficulties encouraging new investment at reasonable risk. Everybody is under inflation (or deflation), no matter what paradigm you're under. Once they know that inflation is going to be at 5-10% every year, no one is going to expect anything less than a 12-18% return on their investments, and many will expect more than that.
Trust me, people have tried this in the past and it didn't work: that's why we don't do it now.
So basically, our currencies are phallic competition devices on a national scale? Great. :no:
Dry humor aside, I find some sort of atomic error with basing currency off of trust. I'd rather go with a system that was material based (hey, it's worked for eons) or energy based (in the sense that goods are priced by the amount of energy it too to produce them).
Thinking a bit more on the energy-based system, I can see how that's going to be really tricky seeing as the biggest producers of energy are oil, natural gas, nuclear, and renewable energy, with that last one being "free" for the next thousand millennia or so...
As far as the banks go, I have no problem with the banks taking a small cut to pay their own bills, but for some reason I get the feeling that you're pointing at bank's interest rates as the source of inflation (unless I read that wrong). :nervous:
I'm not really comfortable with the system as it is right now either, but there are problems with instituting a material standard. Running out of the materials is the main reason we went off the gold standard, if I remember right.
Bank interest rates aren't the source of inflation, that would be weird. It's more how often they loan out their money and how much money they are required to hold by law.
Bobboau: that's the end result. We already borrow a large portion of our expenditures--our debt will increase far faster than our taxable GDP. We've got two options--either cut at least a quarter of our spending (preferably half of it) or print more money. The former is a good idea; the latter isn't.
All throughout the year, the government issues sovereign debt--bonds with maturities between 30 days and 30 years. By borrowing money, they can fund activities without taxpayers. The only real concern is that eliminating income taxes will erase one check on inflation--making hyperinflation all the more likely as confidence evaporates. Of course, you want to be holding real, tangible assets long before hyperinflation hits. Gold & silver have held their values far better than our coinage or notes. Before 1965, our dimes contained 90% silver (10% copper) and weighed 2.5g; those coins are intrinsically worth about $2.50 today. The Peace Dollar (last minted in 1935) also contained 90% silver and weighed 26.73g; the intrinsic value of those is $27.90.
Remember gold & silver are valuable for two reasons. The first is both must be mined and smelted prior to entering circulation--you can hold them in reserve but you cannot create them out of nothing. The second is that both have uses outside of trade: both are useful in manufacturing. If all else fails, gold doesn't oxidize and silver, though it does tarnish, is less resistive than an equal quantity of copper.
:/
Anything and everything can be overvalued from Land to commodities to Gold to chia pets. I don't care what it is. Back in September Gold dropped about $200 in three days http://money.cnn.com/2011/09/23/markets/gold_prices/index.htm (http://money.cnn.com/2011/09/23/markets/gold_prices/index.htm). I'm convinced that Gold is being highly over-valued right now by flight-to-quality investors. If you don't believe me, look at the 6 month average for Gold. It's gone down 8%.
I'm not saying gold is worthless, but it's probably not the best investment right now. If and when you want to invest in anything, make sure you look at the recent performance and long-term performance of those things.
Right now, Gold is dropping in value, and in the recent past it has far surpassed it's long term growth performance. It's overvalued, and it probably will be until it goes back to about $1400/oz. give or take. Same thing happened to gas prices a few years ago, and housing in the years before that.
The financial situation in the USA seems to have a lot to do with the Federal Reserve, having a fiat paper currency instead of something supported by the gold - or other rare mineral standard. Fractional reserve banking is another issue as well, where banks loan out more money than they actually have deposited. Nonetheless this is a very complex and diverse case in my opinion, so there's a lot of reasons and causes to be considered.
If you have banks that don't loan out anything, then banks are useless institutions. If you have banks that loan out everything, then money can infinitely multiply. What's the problem with fractional reserve banking itself?
I know it sounds weird and it's counter-intuitive, but that's the mechanism that allows you to get a car loan or a mortgage from a bank. The only real alternative is that we would start lending each other money instead of the banks doing it, and their expertise in knowing who to loan money at what interest rate would be lost to the majority of citizens. Plus our reserve ratio is way above the world average and can only increase the money supply 10 dollars for every dollar injected at the absolute maximum (which can take years). The Euro can increase its money supply by 100 euros for every euro injected. I'd much rather live here.
Guys, the Economy sucks. It's weird, few people understand it, companies and consumers don't know how to react to it, the way we study it depends on perfect rationality, and no one knows what's going to happen for sure. I know you are wishing for a better system, but until you're willing to loan out money yourself to others, then you're going to have to depend on banks.
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alternative to taking a loan would be to save up until you had enough to buy whatever you wanted outright.
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That's true. Many people don't have that option, especially since wages have not kept up with inflation lately. Also, catastrophic loses are a good reason to have lending intact. If you lose a car that's covered by your insurance and you don't have the cash on hand to replace it immediately, then you might have to depend on a loan so that you can get to your workplace while your insurance company goes through the process of reimbursing you.
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Bobb--that's almost a bad idea. With real inflation versus government-defined inflation, the interest rate on many loans is actually negative. Some economists will preach about how inflation indexes are absolutely correct--how we look for equal utilities. I think it's a false premise because the real measure should be that of wealth (what you can buy) and quality (specifically, quality of life).
Steak costs $6/lb and beef chuck $3/lb. If your standard household feeds 4 (1 lb beef/day) and your weekly dinner meat budget is $30, you can buy 3 pounds of steak and 4 pounds of chuck. If the prices of steak & chuck goes up 20% each, steak is now $7.20 and chuck is $3.60. The same $30 can now buy 6 lb chuck and 1.16 lb beef. Ooh look you bought more meat! Looks like your quality of life is up, right?
At the same time, image it's a Northern/Eastern European household who eats far more potatoes than rice, noodles, or similar staples. If a family's serving of potatoes are $4, noodles $6, and rice $2 (since they're not pound-for-pound equivalents), their weekly budget may have 5 nights of potatoes, one of noodles, and one of rice. $28 is their historical budget for these staples. If prices again rise 20%, now the household cannot afford noodles and instead has to buy 4 nights of potatoes and 3 nights of rice. But hey--they saved $1.60 per week! That's useful--their standard of life has obviously increased, right?
That's why I hate inflation, especially inflation driven by printing presses. The first group to see inflated prices is the government--so they increase their budgets faster than the official inflation rate. They get a windfall and, a few months later, prices are up but the rest of us are not being paid any more. If we got 3% annual raises, we might just keep the same standard of living. If our company's pay is frozen, we're effectively getting pay cuts. If inflation is in fact higher than the government admits, we're still losing buying power and would need 5-10% annual raises to keep up with that inflation.
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I rather like the idea of doing away with a monetary system entirely
things are constructed/produced and distributed according to necessity.
aaaahahahahaa
Yeah that went sooo well back when the Russians tried it.
To be fair, the Russian implementation was inherently flawed from day one. Marxist theory has never been actually practically tried on a scale larger than a commune... probably because human greed ****s it up.
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Just because something is tried once and works terribly, does not mean that all variations of it will meet the same fate. All social systems are at least potentially unstable.
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I think you misread what he said. He didn't say "Marxism has been tried and it failed"; he said it hasn't been tried. Russia did it wrong.
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I'm not very educated on economics, but a few things seem pretty obvious to me. Maybe I'm missing something, but here goes:
The only place the value of the dollar matters is at the interface where things are bought. The dollar can be exchanged in large quantities for other things fairly easily in the stock market, even actual materials if you want to pay for storage. So, even if the value of the dollar fluctuates, if you have a handle on it, you beat inflation because the goods that would be bought with the dollar remain just as valuable.
My point is, all inflation does is make the interface where things are bought more difficult to deal with. When I go to the store, things will slowly rise in price and I have to factor that in. Every few years minimum wage will need to go up, or stay the same if they want it to be lower. It doesn't effect anything beyond that.
The biggest problem with this is that it travels in a way that suckers the poor out of money, it's a tax for being poor if you will. When you have lots of money, the cost to manage that money in relation to the amount your managing is relatively low. You are always far away from that "interface" but if you don't have lots of money, you're focusing on making ends meet and can't go around on the futures market or what have you. So you put your money in a bank account, where it slowly increases in value but not beating inflation while everyone else who has money makes a profit of you.
That and pennies cost more to make than they're actually worth, or even do math with. Shopping at the store forces the cashier to spend time doing math that isn't worth the minimum wage they're paid.
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actually it is a tax on people who hore money, if you don't have much in the bank and your job keeps your pay in pace with inflation the value of your goods will not decrese like the guy who has a billion in the bank and will be able to by a snickers bar with it in 10 years.
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I'm not very educated on economics, but a few things seem pretty obvious to me. Maybe I'm missing something, but here goes:
The only place the value of the dollar matters is at the interface where things are bought. The dollar can be exchanged in large quantities for other things fairly easily in the stock market, even actual materials if you want to pay for storage. So, even if the value of the dollar fluctuates, if you have a handle on it, you beat inflation because the goods that would be bought with the dollar remain just as valuable.
My point is, all inflation does is make the interface where things are bought more difficult to deal with. When I go to the store, things will slowly rise in price and I have to factor that in. Every few years minimum wage will need to go up, or stay the same if they want it to be lower. It doesn't effect anything beyond that.
The biggest problem with this is that it travels in a way that suckers the poor out of money, it's a tax for being poor if you will. When you have lots of money, the cost to manage that money in relation to the amount your managing is relatively low. You are always far away from that "interface" but if you don't have lots of money, you're focusing on making ends meet and can't go around on the futures market or what have you. So you put your money in a bank account, where it slowly increases in value but not beating inflation while everyone else who has money makes a profit of you.
That and pennies cost more to make than they're actually worth, or even do math with. Shopping at the store forces the cashier to spend time doing math that isn't worth the minimum wage they're paid.
The stock market is a poor place to consider the value of the dollar. That's because all stock prices are highly speculated upon--the actual owners equity and the market capitalization are very different numbers. If my company has $100 in assets & $80 in liabilities, that means that owners' equity is $20. However, in order to consider selling my company, I'd want to recoup at least my initial investment--if I invested $50, that means I want at least $50 to walk away--$30 more than my actual interest. Imagine this times a few million--some companies have market capitalizations greater than $100B--in a pure system free of the effects of mass psychology, that stock price would reflect both today's book value (their current ratio) and tomorrow's potentials (their overall ratio and expectations placed upon new products).
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actually it is a tax on people who hore money, if you don't have much in the bank and your job keeps your pay in pace with inflation the value of your goods will not decrese like the guy who has a billion in the bank and will be able to by a snickers bar with it in 10 years.
observation: bob does not know how to spell whore.
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actually it is a tax on people who hore money, if you don't have much in the bank and your job keeps your pay in pace with inflation the value of your goods will not decrese like the guy who has a billion in the bank and will be able to by a snickers bar with it in 10 years.
You're supposed to be getting paid more because you're getting better at your job. Anyway, my point doesn't rely on it, only that it was more thing you end up keeping track of.
I guess the stock market was a bad example. There's still the future's market, where you invest in actual goods, bonds, hedge funds or CDs, though to be honest I don't know that much about them.
I think that the point that we are not on the same page on is whether rich hoarders sit around with all their money invested in US dollars or in something else that would appreciate in value. I just assumed it was the latter, but I don't really know for sure.
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and your job keeps your pay in pace with inflation
There isn't a middle-class job on Earth with pay that consistently keeps pace with inflation. The only compensation packages that tend to deal with inflationary pressure (or provide sufficient compensation to make inflation essentially irrelevant) are in the top 5% of earners.
There are a few pension plans out there that are technically indexed (for the moment, mine is one of them), but the indexing is typically not based on cost of living and instead uses a national inflation statistic derived from central banks, which never accurately reflects real-world inflation.
It is true that monetary policy that encourages or allows inflation, such as those being pursued by the Fed and the Bank of Canada right now tend to be a tax on savers to the benefit of borrowers. However, I think most people can agree that cranking interest rates up anytime soon is a spectacularly bad idea if we're aiming for economic recovery.
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observation: bob does not know how to spell whore.
actually I was trying to spell "horde".
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I think that the point that we are not on the same page on is whether rich hoarders sit around with all their money invested in US dollars or in something else that would appreciate in value. I just assumed it was the latter, but I don't really know for sure.
Most of the very rich have their wealth in stocks of their own companies, like Bill Gates, Warren Buffet etc. It'd be kind of awkward to have a bank account with 40 billion dollars just sitting there..... Though, I wouldn't mind it.....
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observation: bob does not know how to spell whore.
actually I was trying to spell "horde" "hoard".
You people and your Worlds of Warcrafts. :p
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I think you misread what he said. He didn't say "Marxism has been tried and it failed"; he said it hasn't been tried. Russia did it wrong.
Central Planning is what brought the Soviet Union down.
Capitalism with un-/deregulated markets is bringing the United States down.
Communism and/or Democracy are only in so far to blame as they rely on those flawed economic systems.
What we really do need is a new, stable, humane and fair system for allocating goods and ressources.
The tragedy of our time is really that we are quickly approaching a point where there simply isn t enough "work"available for everyone anymore and instead of rejoicing and using all that available time productively we just can t handle it because we re still stuck in classic Capitalism and goods allocation is a matter of corporate arithmetics instead of common sense.
In a way you might argue we already have "AIs" in control that graze on humanitys wealth in order to survive... rather dumb AIs running programs cooked up by business economics theory and running on the completely inefficient and rather unreliable hardware that consists of a network of multiple humans. Once a corporation reaches a complexity that eludes a single humans control... what is it really? ;) An entity that exists to survive and make profits, by any means necessary... a symbiotic relationship with "customers" is nowadays often already optional. (See patent trolls for a particularily nasty corporate "lifeform".) ;)
So how long before we can remove human decision making from the process? Or do we even still have to ask when on a smaller scale we are already seeing the first bot entrepreneurs on Amazon lol.
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Bobboau, you need to look up Modern Monetary Theory right now and read about it. Especially anything written by L. Randall Wray.
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Here we go:
http://www.economonitor.com/lrwray/2011/08/24/zimbabwe-weimer-republic-how-modern-money-theory-replies-to-hyperinflation-hyperventilators-part-1/