ALL BLOG POSTS AND COMMENTS COPYRIGHT (C) 2003-2014 VOX DAY. ALL RIGHTS RESERVED. REPRODUCTION WITHOUT WRITTEN PERMISSION IS EXPRESSLY PROHIBITED.

Saturday, February 02, 2013

Paging Helicopter Ben

Apparently no one has alerted the government of Zimbabwe about the magic of the printing press:
Zimbabwe's finance minister has taken a hard look at the cash strapped country's bank accounts - and discovered it only has £138 and 34 pence left. Tendai Biti made the announcement at press conference yesterday declaring: 'Last week when we paid civil servants there was $217 in government coffers.  Mr Biti went on to tell the shocked news reporters that they were individually likely to have healthier bank balances than the state's.
Ah, my mistake.  It appears they do have a central bank and a printing press; this is merely a currency translation problem.  The government has ZWD 46.6 quantillion in the bank, which is the equivalent of $217 at the official exchange rate.

Although I do have a vision of the Dollarific Duo, Ben Bernanke and Paul Krugman, two econoheroes helicoptering into countries with contracting economies and rescuing them before riding off into the sunset on their tandem Neo-Keynesian cycle.

Labels:

100 Comments:

Anonymous Loki of Asgard February 02, 2013 5:10 PM  

So, in terms of currency conversion, would it be possible to purchase their nation for a round 300 dollars?

The jar into which I deposit my pocket change is getting quite full, you see.

Blogger Serge_Tomiko February 02, 2013 5:14 PM  

Vox, how can you honestly keep publishing this nonsense?

As I have said countless times, the value of money is related to sovereign power. It is the primary means by which a sovereign entity imposes authority over a given people. It's value is only as good as the power of the sovereign in question.

This is Zimbabwe. The people are barely literate. The average IQ is probably 75. Do you really think that shit hole would be a fabulous place if a gold fetishist like you was in charge?

No.

Money facilitates trade and productive economic activity. If your people are retards and you don't a strong overlord class, you're not going to have a productive economy. Hence, the idiot sovereign ruling such fools won't have any real power. And thus the money will be worthless.

Nothing that goes on in Zimbabwe has anything to do with a civilized nation. What you are seeing are the pathetic attempts to impose a Western social system on animals. Obviously, it's not going to work.

Anonymous Thales February 02, 2013 5:15 PM  

Loki, the rub is that, at $300, the nation is still over-priced. Cathedral UN forces would intervene to keep you from doing what's necessary for positive ROI.

Anonymous Salt February 02, 2013 5:27 PM  

$217? Wow! That's about 60 some Happy Meals. They're doing great!

Anonymous Loki of Asgard February 02, 2013 5:28 PM  

Loki, the rub is that, at $300, the nation is still over-priced. Cathedral UN forces would intervene to keep you from doing what's necessary for positive ROI.

Well, I must start somewhere. Thus far, every time I attempt to conquer by main force, I get hit with a flying disc or struck by lightning.

I tell you, it is wearing on my wardrobe.

Anonymous kh123 February 02, 2013 5:30 PM  

Airwolf apparently now has a sequel series.

Blogger James Dixon February 02, 2013 5:36 PM  

> As I have said countless times, the value of money is related to sovereign power.

Your continually repeating something doesn't make it correct, Serge.

Anonymous Stilicho February 02, 2013 5:39 PM  

It is rather remarkable how creative our political class is: Republicans create imaginary terrorists while Democrats create imaginary jobs and they both create imaginary money.

Anonymous Mike43 February 02, 2013 5:41 PM  

Well, let's see. They are actually 16 trillion dollars ahead of us. So, I'm not sure that their situation is worse than ours.

Anonymous Soga February 02, 2013 5:45 PM  

"This is Zimbabwe. The people are barely literate. The average IQ is probably 75. Do you really think that shit hole would be a fabulous place if a gold fetishist like you was in charge?"

You are somewhat correct. Your money is given value by how much other people want it. $1 USD buys what it does because people allocate to a $1 bill that much value.

So why does it make sense at all to have imaginary value attached to useless, easily mass-produced paper bills? At least with gold, you have something shiny and which could be used in many applications. Why, in our days of electricity, why is copper not used as official tender? It has real, intrinsic value. Thieves steal copper wiring all the time because of its usefulness (and ergo, value).

Your argument that it's all about sovereign power only works in a Keynesian economic system -- it is a classical "your theory does not work under my theory" fallacy you are making. In Keynesianism, the sovereign power alone determines the value of $$$ because they ENFORCE it. But imagine being able to have at least some objective measure for the value of an object that is more independent of corrupt political processes?

Anonymous Ridip February 02, 2013 5:47 PM  

In 2008 they had 230 million percent hyperinflation?!?

That's putting the Zulu in WZ.

Anonymous kh123 February 02, 2013 5:49 PM  

"The government has ZWD 46.6 quantillion in the bank, which is the equivalent of $217 at the official exchange rate."

The Monty Python moments in current economics never cease, do they.

Obvious solution - but then again, it must be stated so that it comes to pass all the more quickly - is to bring those Zimbabweans over to the United States of Oz, so that they can earn our real monies and send them back to their native economies deep in the heart of...

No, wait; that might sound racist.

Anonymous Blackdragon February 02, 2013 5:50 PM  

Hey, what's to say the U.S. government will never actually try anything like that? Screwing around with another nation's currency, that is.

Nah, we'd never do anything that.

Anonymous Soga February 02, 2013 5:54 PM  

To elaborate on what I mean...

Take copper wiring. Maybe the government claims these have a certain value. Ok. Then some day, you get corrupt politicians who decide to try to hoard all the copper wiring, and so they declare that your wire is worth crap.

People say, "Wait a second... bullshit. I value these wire more than you say they're worth."

And the politicians collectively go, "oh s#%t."

You can't call bullshit on Keynesian dollar bills like that.

Blogger Drew February 02, 2013 5:54 PM  

"A decade ago Mugabe, now aged 88, launched his deeply controversial policy of expropriating white-owned farmland and handing it to blacks.

"The policy, which saw 4,000 white farmers forcibly kicked off their land, was economically disastrous as in many cases the farms' new owners lacked the skills or inclination to run the farms properly.

"It also demolished investor confidence in the country, paralysed production, and prompted international sanctions.

"As a result, Zimbabwe - which was once the fertile 'bread basket' of southern Africa and possesses fantastic mineral wealth - is now one of the continent's poorest countries."

How are them reparations working out for ya?

Anonymous Vae Victus February 02, 2013 6:00 PM  

Unfortunately, the Neo-Keynesian cycles tend to crash quite easily...

Anonymous Erik February 02, 2013 6:04 PM  

"This is Zimbabwe. The people are barely literate. The average IQ is probably 75. Do you really think that shit hole would be a fabulous place if a gold fetishist like you was in charge?

No."



I dunno about gold fetishes specifically, but Rhodesia was a fabulous place, and then it turned into Zimbabwe, not by inevitability or accident, but because ignorant people in power demanded that changes be made. Foseti has written a good deal on this. You could start here: http://foseti.wordpress.com/2012/12/27/review-of-bitter-harvest-by-ian-smith/

Anonymous Rantor February 02, 2013 6:07 PM  

@ Drew,

They are being slower about it, but South Africa is also working at driving out the white farmers. They, of course, will not suffer the problems of Zimbabwe. They are so much superior to the Zimbabwens. ANd there is always the wine. You know it just grows on trees, like money in Zimbabwe

Blogger Serge_Tomiko February 02, 2013 6:17 PM  

"But imagine being able to have at least some objective measure for the value of an object that is more independent of corrupt political processes?"

This is a liberal concept. There is no objective anything, especially not when it comes to human behavior.

Value is determined by people. Large numbers of people will never agree on value, hence money was created and its value as the means of paying taxes was imposed.

I'm always amused by such people. Corruption is the human condition. Civilization is a constant battle between virtue and corruption.

The utopian desire to impose supernatural, godly value on this earth is a dangerous one. It clouds one's understanding of human nature, with mass suffering being the result.

Certainly, this was what caused Keynes to make his case. Gold fetishists ruined the West. Tens of millions of families lost their livelihoods. The combination of this sick worship of the shiny metal with advanced technology and money lending was nothing short of disastrous, and the continued advocacy of it persists soley because of

1) The limited ability of most people to understand complex human behavior
2) The desire to impose supernatural (imaginary) value concepts upon the natural world.

Your duty, if you wish to be a leader, is to understand mankind as he is today and not as you wish him to be.

Our world, our lives, our history, our destiny, all of it - is completely unrelated to some worthless piece of metal.

Anonymous Loki of Asgard February 02, 2013 6:21 PM  

This is a liberal concept. There is no objective anything, especially not when it comes to human behavior.

Your first full stop there should have been a colon.

If you are curious about colons, you may inquire of Tad.

Anonymous zen0 February 02, 2013 6:23 PM  

So if the goal of currency wars is to debase one's currency, Zimbabwe won already, right?

Anonymous Stilicho February 02, 2013 6:32 PM  

So if the goal of currency wars is to debase one's currency, Zimbabwe won already, right?

Winning!

Anonymous Question February 02, 2013 6:52 PM  

Gold as a currency is deflationary. Inflation helps borrowers and hurts creditors. Deflation helps creditors and hurts borrowers. Most poor to middle class people are borrowers. Basic economics that most gold bugs do not understand. Another basic economic fact that loads of people don't understand is that inflation of the US economy is not caused by the government printing money or electronically creating it. Almost all of the inflation comes from increases to M1 and M2 caused by increased lending.

Anonymous sprach von Teufelshunden February 02, 2013 6:59 PM  

Serge, two things come to my mind about sovereignty of nations, and then the state of African third world entities. On the question of sovereignty, it is instructive to listen to Princess Paula, on the subject of Snake Hill, and her successful secession petition to the Queen of England. Second, on the question of Africa (especially including Zimbabwe) it is instructive to understand just who is pulling the strings here. [1] It is way beyond a gold fetish. It is all about commodities and the overall value of the land/earth, and the totality of the natural resources. Aristotle was correct about money. It must be hard/solid, tangible, and have real value. Not some fei-chi’en.

Now, on this whole printing press business. The past IMF Managing Director (Dominique Strauss-Kahn), was set up with fraudulent sexual charges, because he intended for the IMF to eventually start printing their own currency/money vs. the Federal Reserve System. Not necessarily a good thing in the long term, however just an example of the rivalry between central banks on this planet.

What is even more interesting, is what is going on with the current Managing Director Christine Lagarde. This is complicated and most complex. It cannot be explained in a soundbite, a paragraph, or even a short essay. A book with at least 20 chapters or so will only suffice. Such a book exists.

I know no better way than to disseminate this information than to introduce the author of the book, and let others listen to her, and let her speak for herself. In fact, via the podcast I point to, the subject/person of the book, that explains the larger financial picture, actually joins the conversation, in a surprise phone call, to everyone's (except probably the AP perpetuating the questioning) delight and satisfaction.

Pocast of Marilyn Macgruder Barnewall (make sure you are listening to the 1/31/13 broadcast)

I am simply trying, with every ounce of my being to get this message out, to those who simply are not aware of this to date. Please listen to the message. Pay smaller attention to the messenger(s).

The bottom line here, is that we are talking amounts of $30 TRILLION (actually in excess of). That is verified by Barnewall via the podcast. This is not a pipe dream or elaborate fantasy. This is real. The courts (and yes, Rule of Law does exist) have ordered and affirmed it. Praying to Our Father in Heaven is certainly advised concerning our economic condition. However, what will put people back to work in this nation and abroad, are these protocols/funds. You can be a party, to making that happen for yourself, and your posterity. [2]




---------
[1] Use your find key (Ctrl-F). Search "Jesuit Square." Learn who controls Africa. (And generally the entire planet. It is a good thing [system] within a certain context.)


[2] Yes, post and with the protocol implementation, prosecutions will begin, and those criminals will be served justice, as much as a temporal system can serve that justice.

* Why Denninger et al have not been informed on this, is beyond me. I can only think that he is being duped by the "ABCs" with the likes of Alex Jones et al. Denninger et al express and want a need for this solution. Then why, why are they not proclaiming it?

Anonymous Tallen February 02, 2013 7:04 PM  

Inflation helps borrowers

If your definition of "help" means increases the prices of consumer goods for folks on a relatively fixed income perhaps.

Anonymous Question February 02, 2013 7:13 PM  

Tallen: Inflation helps borrowers

If your definition of "help" means increases the prices of consumer goods for folks on a relatively fixed income perhaps.


Basic, basic stuff. If you have a loan and the currency is deflating then the price of paying off that loan increases. That's all there is to it. You can argue that there is a lag between wages and prices when inflation occurs but that is only temporary. Fixed income is only an issue because of government assistance and only because conservative morons refuse to approve sufficient cost of living increases to S.S., disability and such.

Anonymous Question February 02, 2013 7:24 PM  

Just to reiterate under a deflationary economy wages would stagnate or even decrease yearly instead of increasing. Your wages are just as effected by inflation or deflation as the prices in stores.

Anonymous 11B February 02, 2013 7:33 PM  

I believe this is a demographic issue much more than a consequence of any economic or political policy, other than the political policy that led to majority rule and drove out the productive element.

Anonymous CJ February 02, 2013 8:09 PM  

We got 3 inches of snow today. I asked the Zimbabwean woman at my church if she wished she was back home. She said "no" and looked at me like I was crazy.

Anonymous Anonymous February 02, 2013 8:28 PM  

you're an asshole

Anonymous p-dawg February 02, 2013 8:29 PM  

@Serge: "Gold fetishists ruined the West."

You worship at the altar of FDR, no doubt. Odd how "gold fetishists" kept prices stable for 100 years, not to mention being the currency of the world for thousands of years, and then just a few years after paper currency was introduced, the West was ruined, and it was blamed on "gold fetishists". Every time it is introduced, paper currency leads to ruin - every single time it's been tried. The US went from third-world struggling country to powerhouse with metal currency, and from powerhouse to the largest debtor nation in the world on paper. But sure, it's the "gold fetishists" who ruin things. If only history, logic, and common sense agreed with you, you might have a point.

Anonymous JW February 02, 2013 8:54 PM  

" ZWD 46.6 quantillion in the bank, which is the equivalent of $217 "

OK so there's the answer for the 17 Trillion US debt. Buy the 46.6 quantillion for &217; give it to the US Federal reserve "on account". 46 quadrillion is way more than 17 trillion. The US would be debt free and still have a huge balance against which they could borrow more dollars. It's all so simple...can I be Treasury Secretary (and not have to pay my taxes)?

Anonymous DonReynolds February 02, 2013 8:55 PM  

C'mon Krudman....tell them! They only have $217 bucks. They obviously have not printed enough money. (Snicker)

Anonymous 11B February 02, 2013 8:56 PM  

Gold fetishists ruined the West.

I would give that award to the immigration fetishists.

Anonymous DonReynolds February 02, 2013 8:59 PM  

And the question just lurks around the room like a ghost....why pester anyone to pay ANY taxes as long as the government can be financed on Obama's American Excess card?....with no limits and no monthly payments....indefinitely. Seems like a total waste to collect taxes at all. Not to mention that it costs a lot of money to claw back all that money as taxes..but then, who would enforce the Obamacare requirements if there were no IRS?

Anonymous DonReynolds February 02, 2013 9:03 PM  

Gold fetishists ruined the West.

11B...."I would give that award to the immigration fetishists."

I agree, 11B. Just so a few people can eat peppery food in a restaurant, the next border fence will be across my front yard....and I am hundreds of miles from Mexico.

Anonymous Stilicho February 02, 2013 9:08 PM  

Gold as a currency is deflationary

Why?

Anonymous Ferd February 02, 2013 9:08 PM  


How do you say "Buddy, can you spare a dime?" in Zimbabweian?

Anonymous Godfrey February 02, 2013 9:12 PM  

God help us. Idiots rule us.

Save yourself.

Anonymous Come Down From Your Tower February 02, 2013 9:14 PM  

Question:

Just to reiterate under a deflationary economy wages would stagnate or even decrease yearly instead of increasing. Your wages are just as effected by inflation or deflation as the prices in stores.

So in your truncated worldview, deflation must be chronic during periods of inflation because wages have been stagnant or eroding for a couple of decades.

Anonymous Godfrey February 02, 2013 9:33 PM  

Ok... according to Neo-Keynesian logic, does this make Zimbabwe the wealthiest country in the world?

Anonymous zen0 February 02, 2013 9:35 PM  

Gold is a barbaric, useless relic. That is why central banks are continuing to accumulate and fight over it, and hoard it, so that the people are not tempted to throw away their sovereignly backed snot tissue for it.

Big Brother loves you, and Question is his Prophet.

Anonymous Question February 02, 2013 9:39 PM  

Stilicho:Gold as a currency is deflationary

Why?


The whole appeal of gold is that its has a relatively stable supply, sure you can dig more up but not anywhere near the rate the economy produces more goods. More goods same amount of gold means gold is worth more. A certain amount of gold buys more goods than in the past the definition of deflation.

Come Down From Your Tower:Just to reiterate under a deflationary economy wages would stagnate or even decrease yearly instead of increasing. Your wages are just as effected by inflation or deflation as the prices in stores.

So in your truncated worldview, deflation must be chronic during periods of inflation because wages have been stagnant or eroding for a couple of decades.


I can't believe I even have to bother to find a citation for this since its so obvious but Median Household Income in the United States it was 49k in 2011 and 19k in 1983, there are also inflation adjusted figures there to if you want them but its pretty fucking clear wages haven't been stagnant or eroding for a couple of decades. Only someone so obsessed with promoting their ideology that they blot out reality would say that.

Anonymous Question February 02, 2013 9:46 PM  

zen0:Gold is a barbaric, useless relic. That is why central banks are continuing to accumulate and fight over it, and hoard it, so that the people are not tempted to throw away their sovereignly backed snot tissue for it.

Big Brother loves you, and Question is his Prophet.


And paper currency is a worthless, imaginary fraud. That is why the government seems so intent on extracting it from us with taxes and why conservatives are so obsessed with holding onto it. Whenever I meet someone talking about paper money being worth nothing in real life I tell them to take out their wallet, open it and give me all of that trash they have in there. No one has taken me up on my generous offer to help them clean out their pockets.

Anonymous Idle Spectator February 02, 2013 9:49 PM  

Ben Bernanke and Paul Krugman: Lost ANOTHER loan to Ditech!


They are being slower about it, but South Africa is also working at driving out the white farmers. They, of course, will not suffer the problems of Zimbabwe. They are so much superior to the Zimbabwens. ANd there is always the wine. You know it just grows on trees, like money in Zimbabwe

Anyone who is a caucasian farmer and still living in South Afrika or Zimbabwe is a complete fucktard. This isn't The Good Earth. "Don't sell the land! The land is all we have!" Pack your shit on the firewagon (train) and leave fifteen minutes ago.

Anonymous kh123 February 02, 2013 9:57 PM  

"How do you say "Buddy, can you spare a dime?" in Zimbabweian? "

Depends on how well the Pimsleur approach has prepared one to translate AK fire.

Anonymous zen0 February 02, 2013 10:11 PM  

Question puffed:

I can't believe I even have to bother to find a citation for this since its so obvious but Median Household Income in the United States it was 49k in 2011 and 19k in 1983, there are also inflation adjusted figures there to if you want them but its pretty fucking clear wages haven't been stagnant or eroding for a couple of decades.

When we consider all working-age men, including those who are not working, the real earnings of the median male have actually declined by 19 percent since 1970. This means that the median man in 2010 earned as much as the median man did in 1964 — nearly a half century ago.

Women started at a lower level so as they approach equality, the median rises.

Of course, one would have to be a fucking ideologue to ignore that particular item.

Blogger IM2L844 February 02, 2013 10:17 PM  

Question, according to your own source, the median household income, adjusted for inflation, has gone from $50,661.00 in 1995 to $50,054.00 in 2011. So over the course of the last 16 years or so the evidence indicates that household purchasing power and disposable income has remained stagnant or gone down slightly. Do you really want to quibble over the language of the "last couple of decades" as compared to the "last decade and a half"?

Anonymous zen0 February 02, 2013 10:17 PM  

Question

And paper currency is a worthless, imaginary fraud.

Very disingenuous of you. I hope you are not being informed by your ideology. It is fiat currency. It works ok til it doesn't. Thing is you aren't in control of when that is going to happen.

Just like your driver's license is a fiat license, until they say it isn't.

Anonymous Question February 02, 2013 10:20 PM  

zen0:When we consider all working-age men, including those who are not working, the real earnings of the median male have actually declined by 19 percent since 1970. This means that the median man in 2010 earned as much as the median man did in 1964 — nearly a half century ago.

Women started at a lower level so as they approach equality, the median rises.

Of course, one would have to be a fucking ideologue to ignore that particular item.


Real earnings are inflation adjusted. You said wages have stagnated or eroded for the past couple of decades. That is so factually false its not even funny. Real earnings may have fallen for men but their wages have definetly increased. No one today is making what they made in 1970. And you even pinpointed probably the main cause for the decrease in real median income for men. A significant increase in the labor pool. But hey we don't need to make women not work if they don't want to, me and plenty of people would be willing not to work in order to make your wages higher but of course you would have to support us with your increased income.

Anonymous Question February 02, 2013 10:25 PM  

zen0:And paper currency is a worthless, imaginary fraud.

Very disingenuous of you. I hope you are not being informed by your ideology. It is fiat currency. It works ok til it doesn't. Thing is you aren't in control of when that is going to happen.


Maybe you don't understand how this works. You disingenuously implied that I thought "Gold is a barbaric, useless relic" and I pointed out how stupid this by disingenuously saying you thought paper money was worthless. Clearly gold is worth something and is useful part of supporting confidence in the government but its not a appropriate thing to be used as currency in a modern economy.

Anonymous Outlaw X February 02, 2013 10:30 PM  

The whole appeal of gold is that its has a relatively stable supply, sure you can dig more up but not anywhere near the rate the economy produces more goods.

This is why we had the "Free Silver Movement" in the late 1800's and early 1900's. The Bankers had squeezed the money supply with the control of gold and caused a horrible depression.

Anonymous Question February 02, 2013 10:36 PM  

IM2L844:Question, according to your own source, the median household income, adjusted for inflation, has gone from $50,661.00 in 1995 to $50,054.00 in 2011. So over the course of the last 16 years or so the evidence indicates that household purchasing power and disposable income has remained stagnant or gone down slightly. Do you really want to quibble over the language of the "last couple of decades" as compared to the "last decade and a half"?

Real household purchasing power did go down by 1% during the period you mention but wages went from $33k to 49k. Inflation is not destroying people's purchasing power because wages have followed prices fairly closely.

All this was in response to zen0:So in your truncated worldview, deflation must be chronic during periods of inflation because wages have been stagnant or eroding for a couple of decades.

Wages have not been stagnant or eroding can we at least agree that the very clear chart shows that?

Anonymous zen0 February 02, 2013 10:41 PM  

Clearly gold is worth something and is useful part of supporting confidence in the government but its not a appropriate thing to be used as currency in a modern economy.

A modern economy being one that destroys the industrial base and bankrupts the nation.

Ok, we can agree there, I suppose.

Anonymous Question February 02, 2013 10:41 PM  

Outlaw X:The whole appeal of gold is that its has a relatively stable supply, sure you can dig more up but not anywhere near the rate the economy produces more goods.

This is why we had the "Free Silver Movement" in the late 1800's and early 1900's. The Bankers had squeezed the money supply with the control of gold and caused a horrible depression.


William Jennings Bryan and don't crucify me on this cross of gold. Deflationary pressure caused by the gold backed currency was destroying farmers who had large loans. Free coinage of silver would cause inflation or at least decrease the deflation and give the farmers a chance. People today are so economically naive all they can fanatasize about is how deflation would make whatever small amount of money they have on hand buy more stuff but totally ignore the large house, car and credit card loans they have that would increase at the exact same deflationary rate as their meagre liquid funds.

Anonymous Outlaw X February 02, 2013 10:52 PM  

William Jennings Bryan and don't crucify me on this cross of gold. Yes, and I highly recommend a DVD called "The Secret of OZ" by Bill Still. Most people don't know the real history of money.

http://www.amazon.com/The-Secret-Oz-James-Robertson/dp/B002WLS890/ref=sr_1_1?ie=UTF8&qid=1359863417&sr=8-1&keywords=the+secret+of+oz

Anonymous Outlaw X February 02, 2013 10:54 PM  

I screwed that up, try again.

William Jennings Bryan and don't crucify me on this cross of gold.

Yes, and I highly recommend a DVD called "The Secret of OZ" by Bill Still. Most people don't know the real history of money.

http://www.amazon.com/The-Secret-Oz-James-Robertson/dp/B002WLS890/ref=sr_1_1?ie=UTF8&qid=1359863417&sr=8-1&keywords=the+secret+of+oz

Anonymous Jake February 02, 2013 11:02 PM  

Question is from the crackpot school of economics where if wages rise in proportion to prices that's great, but if wages fall in proportion to prices that's very very bad.

Tell me Q, what's wrong with a currency that increases in value by a small and consistent amount annually. Given the astonishing increases in productivity that have been realized over the past 100 years shouldn't we EXPECT to see our dollars buy more on a yearly basis?

And why should we say "but deflation is bad for debtors" like that's an argument? So what? Inflation is bad for creditors. Why do you concern yourself more about the debtor than the creditor? At least under gold you have a very consistent, predictable, and small deflation that is easy to account for when making economic decisions. Under fiat money you have no idea how much a dollar might buy in 10 years.

Anonymous Question February 02, 2013 11:11 PM  

Jake:Question is from the crackpot school of economics where if wages rise in proportion to prices that's great, but if wages fall in proportion to prices that's very very bad.

Tell me Q, what's wrong with a currency that increases in value by a small and consistent amount annually. Given the astonishing increases in productivity that have been realized over the past 100 years shouldn't we EXPECT to see our dollars buy more on a yearly basis?

And why should we say "but deflation is bad for debtors" like that's an argument? So what? Inflation is bad for creditors. Why do you concern yourself more about the debtor than the creditor? At least under gold you have a very consistent, predictable, and small deflation that is easy to account for when making economic decisions. Under fiat money you have no idea how much a dollar might buy in 10 years.


Like I said earlier most poor to middle class people are debtors in some fashion for most of their lives. Inflation helps the poor and middle class and deflation helps the rich. The rich don't need help. In addition deflation discourages investment since just sitting on your money has a rate of return while under inflation stuffing money under you matress loses you money over time.

Anonymous Outlaw X February 02, 2013 11:21 PM  

Like I said earlier most poor to middle class people are debtors in some fashion for most of their lives. Inflation helps the poor and middle class and deflation helps the rich. The rich don't need help. In addition deflation discourages investment since just sitting on your money has a rate of return while under inflation stuffing money under you matress loses you money over time.

Question the problem with your theory is yes the debtor is advantaged by inflation, but the retirement of the middle class is destroyed by the same. The answer is a difficult one and it is neither Austrian, Monetarists nor Keynesian's. I am no economic genius in any way but I can see how these arguments commence depending on ones point of view and station in life. I don't have the answers, neither have I heard anyone that does.

Anonymous Question February 02, 2013 11:33 PM  

Outlaw X:Question the problem with your theory is yes the debtor is advantaged by inflation, but the retirement of the middle class is destroyed by the same. The answer is a difficult one and it is neither Austrian, Monetarists nor Keynesian's. I am no economic genius in any way but I can see how these arguments commence depending on ones point of view and station in life. I don't have the answers, neither have I heard anyone that does.

If your retirement is effected by inflation you're doing it wrong. You need to dig the money out of whatever hole you buried it in and invest it. And as I've said earlier people on fixed income from government pensions aren't suffering from economics they're suffering from politics and people refusing to vote sufficient cost of living increases.

Anonymous Jake February 02, 2013 11:41 PM  

I challenge your assertion that the poor and middle class are the beneficiaries of inflation. The poor and middle classes are not the major debtors in this country, they actually have to pay back their loans usually. Additionally, the poor and middle class see the negative effects of inflation (higher prices) before they see the offsetting increase in their wages. The people who benefit from the inflation (other than debtors) are the people who get the money first, the people connected to the government and the banks which are the engines of inflation. That's not the poor Q, that's wall street, government contractors, bankers, etc. Let's be serious here... Do you really think the Fed is worried about the working class folk when they talk about how scary deflation is and how they'd like to maintain a certain % inflation?

Finally, I disagree that deflation is a negative because it discourages investment. Firstly, you've got your work cut out for you if you're going to try to convince me that it's a GOOD thing that ma and pa who saved up money for 40 years have to keep their retirement funds in the stock market lest it shrink due to inflation. There's nothing wrong with people putting their savings under a mattress, they ought to be able to take the money they've earned and hold on to it, not have gamble with it in the hopes returns that keep up with inflation.

Secondly, you can't have investment (not really) without first having savings. And inflation penalizes savings. Under an inflationary environment the benefit to saving money is diminished, less deferred consumption (i.e. savings)=less surplus to invest in future productivity increases.

Tell me this, which is better:

1) A monetary supply which may be inflationary or deflationary, but is only mildly so and at very constant rate even over very long periods of time (decades)

2) A monetary supply which may on net be inflationary or deflationary, but fluctuates greatly over spans of just a few years, sometimes deflationary, sometimes inflationary, often far more strongly in either direction than the more constant option above.

Now, which option above resembles fiat money and which resembles a metallic currency?



Anonymous Question February 03, 2013 12:02 AM  

Jake:I challenge your assertion that the poor and middle class are the beneficiaries of inflation. The poor and middle classes are not the major debtors in this country, they actually have to pay back their loans usually

Saying this makes me doubt how much you understand of what I wrote. It doesn't matter what the total of amount of debt the poor and middle class carry is, what matters is the amount of time they carry a debt versus the amount of time they serve as creditors for the same amount of money. For the poor and middle class they carry larger amounts of debt for longer periods of time than they ever have savings to be loaned out.

Jake:Finally, I disagree that deflation is a negative because it discourages investment. Firstly, you've got your work cut out for you if you're going to try to convince me that it's a GOOD thing that ma and pa who saved up money for 40 years have to keep their retirement funds in the stock market lest it shrink due to inflation. There's nothing wrong with people putting their savings under a mattress, they ought to be able to take the money they've earned and hold on to it, not have gamble with it in the hopes returns that keep up with inflation.

Secondly, you can't have investment (not really) without first having savings. And inflation penalizes savings. Under an inflationary environment the benefit to saving money is diminished, less deferred consumption (i.e. savings)=less surplus to invest in future productivity increases.


This is so confused I really doubt that you understood what I wrote. Investment is taken to be a good thing by every economist that I know of far right facists to far left communists. If people are not investing their money the economy is not growing and everyone is worse off. I'm sorry that Ma and Pa don't understand this new fangled investing but I'm not going to watch our economy stagnate because they're stupid. And money does not need to be hoarded into a large glob before it can be invested, even a savings account at a bank is an investment where do you think they get the money to loan to people?

Anonymous Jake February 03, 2013 12:53 AM  

It doesn't matter what the total of amount of debt the poor and middle class carry is, what matters is the amount of time they carry a debt versus the amount of time they serve as creditors for the same amount of money. For the poor and middle class they carry larger amounts of debt for longer periods of time than they ever have savings to be loaned out.

Show me, I'm skeptical. Your average American has a lot of debt, but not compared to the federal gov. And you can't ignore the Cantillion effect (my spelling may be wrong) in which inflation penalizes those who see the price increases before the wage increase, and benefits those who get the new money before the prices rise. Who gets the inflated money first?

Investment is taken to be a good thing by every economist that I know of far right facists to far left communists. If people are not investing their money the economy is not growing and everyone is worse off. I'm sorry that Ma and Pa don't understand this new fangled investing but I'm not going to watch our economy stagnate because they're stupid.

I know investment is good, though if that's your argument I'm not sure you that the disconnect isn't on your end. Firstly sound-investing is good, what we see a huge amount of in the past decade however (a direct result of inflationary policy) is MALinvestment, your econ text may not even consider that investments may be good or bad, but obviously we've seen a lot of BAD investments, and the economy certainly would be better if all those people buying houses, etc. had stuff their money under a mattress instead. In addition, the money under the mattress isn't as bad as you think. See, even putting the money on the mattress has a similar effect. Just abstaining from consumption of goods (not spending that money) means more goods are available for investment projects. The effect manifests itself in the form of lower prices for raw materials, labor, etc. rather than more money available for new projects, but the end result is the similar.

I do appreciate your honesty though, glad to know you support robbing working people who save their money to help inflate the latest greatest bubble. No concept of the idea that people should be free to use, or not use, their property as they see fit without having it stolen from them in increments. The rare individual these days who's actually earning their way must be sacrificed for the good of Wall Street and your portfolio. Most of the many people who believe that try not to admit it.

Anonymous Question February 03, 2013 1:12 AM  

Jake:I do appreciate your honesty though, glad to know you support robbing working people who save their money to help inflate the latest greatest bubble. No concept of the idea that people should be free to use, or not use, their property as they see fit without having it stolen from them in increments. The rare individual these days who's actually earning their way must be sacrificed for the good of Wall Street and your portfolio. Most of the many people who believe that try not to admit it.

And thats just it the Ma and Pa you're describing are rare people. Most working people don't save for 40 years, they end up paying off their house and children's education costs just shortly before retirement. The vast majority of people that have large amounts of money on hand are rich, its kind of goofy I even need to say that having lots of money means you're rich. I don't necessarily dislike rich people but I don't think we should do anything that helps them at the expense of the poor and middle class.

Anonymous Jake February 03, 2013 1:24 AM  

You're still just asserting what I've asked you several times to support. That the poor and middle class benefit from inflation. I've given you one very sound reason why I doubt this is the case (Cantillion effects) and reasons why I'm skeptical of your other reason (that the poor/middle class are the debtor class).

Unless you do something to support this assertion I don't think there is anything more to discuss.

Anonymous Question February 03, 2013 1:56 AM  

Jake:You're still just asserting what I've asked you several times to support. That the poor and middle class benefit from inflation. I've given you one very sound reason why I doubt this is the case (Cantillion effects) and reasons why I'm skeptical of your other reason (that the poor/middle class are the debtor class).

Unless you do something to support this assertion I don't think there is anything more to discuss.


First result in google for average american savings here. The average american household is in debt. I'll admit I didn't first say that poor/middle class people are the nations debtors with hard statistics to back it up because it seems so obvious from my everyday experience and common sense. The people without money aren't lending money they don't have to people with money. Payday loans, title loans, high-interest rate credit cards, and variable-rate mortgages are all targeted at poor/middle class people. If you have money you don't need to borrow it, I don't know how else to say it.

Anonymous Breeze February 03, 2013 2:02 AM  

@ Vox:

I just found Rebel Moon second and read the entire book and now I have two questions:
1. How much of the story was inspired by Heinlein?
2. Does the moniker Spacebunny come from the Bunny character in Rebel Moon?

More importantly, a few threads back (where you were arguing with Ed) you mentioned that Italy now has an EU appointed ruler and all the farce of democracy is out the window. Did you see this coming before you moved to Italy?
Secondly, why did you move to Italy? Did you believe it would be safe from the coming collapse? Do you have a different opinion now?
Why did you choose Italy over everywhere else?

Anonymous Outlaw X February 03, 2013 2:15 AM  

If you have money you don't need to borrow it, I don't know how else to say it.

Question. the responsible people are the one that suffer the most planning for retirement. They may work ten hours a day building our houses, fixing our cars or working on our plumbing. These people are not Karl Denniger who can spend 60 hours a week trying to learn how to invest properly. They just save as best they can while all their wealth is stolen by inflation.

If everyone was a a day trader you couldn't get your plumbing fixed. Then you have to ask the day trader to take the time to to learn how to fix the plumbing or their car. You have a narrow view, or not, I believe of how economy works. The Blue collar man shall not be crucified on the cross of investment. His money should have the same labor value from when he started saving until today. Unfortunately this is not how it works and hasn't been since the 1970's.

Anonymous Gen. Kong February 03, 2013 2:17 AM  

Guess in Mugabeland they can't print it fast enough to keep up with the pace of inflation. I really think that D'Won should nominate Mr. Biti to be our next Treasury secretary. We need to go into full conflagration mode. Götterdämmerung on roids, with Lance Armstrong singing in the final aria before the great flaming Amurikan funeral pyre, and Krugman diving in at the last possible minute in a glorious act of suttee.

Anonymous Yahweh February 03, 2013 3:01 AM  

"Thousand years since my last taste of vagina. No wonder my Almighty cock is harder than my son's rotting corpse."--God Himself

Anonymous Stilicho February 03, 2013 7:18 AM  


The whole appeal of gold is that its has a relatively stable supply, sure you can dig more up but not anywhere near the rate the economy produces more goods. More goods same amount of gold means gold is worth more. A certain amount of gold buys more goods than in the past the definition of deflation.


Leaving aside the differences between monetary and price deflation, Why do you think the deflation you described is a bad thing?

Anonymous DT February 03, 2013 8:12 AM  

What Zimbabwe needs to do is mint a ZWD 100 quantillion coin and deposit it in the central bank. That should solve all their problems.

Anonymous JW February 03, 2013 10:26 AM  

"How do you say "Buddy, can you spare a dime?" in Zimbabweian? "


Yo! Stick 'em up @#$%^!

Anonymous Cederq February 03, 2013 11:45 AM  

Soga= new or old Tad?

Cederq

Anonymous Cederq February 03, 2013 11:49 AM  

My apologies... Serge not Soga... I will take my whipping now..

Anonymous Anonymous February 03, 2013 1:28 PM  

Wow, I believe this is the first time I have actually observed someone silly and gullible enough to use the Daily Mail as a reference when arguing economic policy. What's next? The National Enquirer?

Priceless! Please keep it up!

Blogger Galt-in-Da-Box February 03, 2013 2:47 PM  

Loki,
Do the Khazar thing and LOAN them the 3 bills, then you can take over when they near default,
Just like America.

Anonymous allyn71 February 03, 2013 3:19 PM  

"And money does not need to be hoarded into a large glob before it can be invested, even a savings account at a bank is an investment where do you think they get the money to loan to people?"- from Question February 03, 2013 12:02 AM


Your statement to the effect that people depositing/investing into the banking system is the mechanism providing the funds necessary for capitalization of loans is so far removed from the reality of finance under the Federal Reserve system that it totally discredits anything else you say.

Vox has written many posts about the true nature of monetary expansion. Additionally, there are many other economic/finance writers that have done similarly, any cursory glance on a search engine would allow you educate yourself to your failed understanding. If you believe that deposits are necessary to enable lending you know nothing about how money/credit is created under our current system.

Your explanation of deposits funding loans is the equivalent of saying "Mr. Smith goes to Washington" is an accurate assessment of the workings of the US Congress.


Anonymous allyn71 February 03, 2013 3:29 PM  

"Wow, I believe this is the first time I have actually observed someone silly and gullible enough to use the Daily Mail as a reference when arguing economic policy. What's next? The National Enquirer?" Anonymous February 03, 2013 1:28 PM

What, the article showing the object proof of where your Keynesian/Marxist dreams lead hit a little to close to home? Can stand the message so you have to discredit the messanger?

Last I checked the National Enquirer broke the John Edwards story that ended his politcal career and led to his confession of the existence of the reported love child.

Truth is truth, sorry if the dream didn't work out for you and Zimbabwe is a broke shithole do to following the fiscal path of Keynes and the economic path of Marx.

Anonymous allyn71 February 03, 2013 3:32 PM  

Damn, to much Superbowl prep. Please excuse the grammatical and spelling errors contained in the two posts above.

Anonymous Anonymous February 03, 2013 4:58 PM  

You're hereby excused. At any rate, how did you conclude that I am some sort of Marxist/Keynesian, pray tell? Just because I try not to rely on a publication more known for countless articles/photos dedicated to Kim Kardashian's ass doesn't make me Marxist.

And no, my comment has nothing to do with the message, whatever it might be. Moreover, the particular messenger in question has done quite a good job discrediting itself without my help.

As to the National Enquirer, I guess you're of the opinion that a publication that specializes in exposing extramarital affairs of celebrities (and does that rather poorly, I might add, judging by the number of lawsuits the NE has lost/settled out of court), is somehow well-equipped to report on economic matters?

Let me make one final point to you, allyn, my dear friend. Do make an effort to think for yourself rather than spouting the usual slogans and labels. Just I don't like to swallow the bullshit published by idiots hook, line and sinker doesn't make me the Devil.

Anonymous Stilicho February 03, 2013 5:10 PM  

Anonymous, pick a name, any name, so that the discussion can proceed without confusion (i.e. multiple "Anonymous" handles in same thread). Second, regardless of the source, do you disagree with any of the factual assertions in the quoted portion of the article?

Anonymous Question February 03, 2013 5:53 PM  

allyn71:Your statement to the effect that people depositing/investing into the banking system is the mechanism providing the funds necessary for capitalization of loans is so far removed from the reality of finance under the Federal Reserve system that it totally discredits anything else you say.

Vox has written many posts about the true nature of monetary expansion. Additionally, there are many other economic/finance writers that have done similarly, any cursory glance on a search engine would allow you educate yourself to your failed understanding. If you believe that deposits are necessary to enable lending you know nothing about how money/credit is created under our current system.


If deposits aren't necessary to enable lending why do banks bother to let people deposit money? There are sizable administration costs on top of whatever interest they pay you. If they don't need your money to lend out why do they take it?

Anonymous Stilicho February 03, 2013 6:29 PM  

Question: please read Keen's "Roving Cavaliers of Credit" re: the relationship between bank reserves and bank lending (contrary to MMT, lending precedes reserves). It's not that banks don't need deposits as reserves, but that they will lend without them if they have what they consider to be credit worthy borrowers seeking loans.

Now, back to my question: why do you consider the deflation you described above to be a bad thing?

Anonymous allyn71 February 03, 2013 8:31 PM  

Question see Stilicho's comment. As I said, if you think that deposits allow banks to capitalize loans your understanding banking and finance under the Federal Reserve system is severely flawed.

There are numerous reasons that banks take deposits from individuals. One of the more profitable is the idea of allowing deposits as a hook. Customers have a normalcy bias that causes them to conduct business with a known entity that they already have established a relationship with. Most people don't want to hassle with numerous accounts and go to the bank/CU that they have their money deposited in for their first stop when searching for a credit arrangement. Allowing deposits and absorbing the overhead (which will be mitigated through various fees and subprime interest returns) has far more to do with milking the muppets and creating debt slaves than it has anything to do with capitalizing loans.

Anonymous allyn71 February 03, 2013 9:01 PM  

Anonymous, my assumption that you were a Keynesian/Marxist is based on a prediction system wherein I made an assumption that you wouldn't come here to criticize Vox for using a specific media source on a collaborated story. The most logical conclusion is that you objected to the general storyline as only a pedantic fool would argue the veracity of this particular story.

Is your objection really based upon the fact that it was published in a format that includes pictures of Kim Kardashian's ass? Are you arguing the accuracy of this story? Was the National Enquirer article about John Edwards inaccurate?

Anonymous Question February 03, 2013 9:45 PM  

Stilicho:Question: please read Keen's "Roving Cavaliers of Credit" re: the relationship between bank reserves and bank lending (contrary to MMT, lending precedes reserves). It's not that banks don't need deposits as reserves, but that they will lend without them if they have what they consider to be credit worthy borrowers seeking loans.

If a bank issues a loan without adequate reserves they're committing a crime and unless there is some massive conspiracy to keep the American economy going thats not how the majority of banks operate. I'm tired of looking shit up that is fucking basic so I'm just going to state that the majority of bank reserves is customer deposits and if one of you want to disprove me with hard figures feel free. Now there may be some validity to the macro idea that increased bank lending leads increased deposits in the overall economy but that has nothing to do with the basic operation of a bank giving a loan to an individual.

Stilicho:Now, back to my question: why do you consider the deflation you described above to be a bad thing?

I answered the same question in a previous comment to Jake here: Like I said earlier most poor to middle class people are debtors in some fashion for most of their lives. Inflation helps the poor and middle class and deflation helps the rich. The rich don't need help. In addition deflation discourages investment since just sitting on your money has a rate of return while under inflation stuffing money under you matress loses you money over time.

allyn71:Question see Stilicho's comment. As I said, if you think that deposits allow banks to capitalize loans your understanding banking and finance under the Federal Reserve system is severely flawed.

There are numerous reasons that banks take deposits from individuals. One of the more profitable is the idea of allowing deposits as a hook. Customers have a normalcy bias that causes them to conduct business with a known entity that they already have established a relationship with. Most people don't want to hassle with numerous accounts and go to the bank/CU that they have their money deposited in for their first stop when searching for a credit arrangement. Allowing deposits and absorbing the overhead (which will be mitigated through various fees and subprime interest returns) has far more to do with milking the muppets and creating debt slaves than it has anything to do with capitalizing loans.


Rofl, so in response to my severly flawed understanding of finace you post some crank bullshit about how bank deposits amount to an advertisement to get people to use a bank for loans? And why do you keep mentioning the Federal Reserve, the idea of banks using their deposits to issue loans is not some peculiarity of the American economy, it's fundamental to the whole idea of banks. A good question, if banks don't use your deposits to issue loans what the heck is a bank run? Since presumably you think that all your money is sitting in a vault why can't everyone take out their money at the same time? Why do we even need FDIC insurance on our deposits since they aren't invested? Why were peoples savings wiped out during the 1930s bank failures since according to you the banks don't use that money to invest?

Anonymous allyn71 February 04, 2013 12:46 AM  

That is one reason that banks are willing to take retail deposits. Generating revenue off of retail customers via future loans and investments as a result of establishing customer loyalty is one reason for them to take deposits. Another is to cover for derivative gambles. See the MF Global case or the BofA move to have retail deposits cover derivative exposure.

See here if your not up to speed.

http://www.nypost.com/p/news/business/sleight_of_hand_uy96iNSbW99JHMRnbxgvfL

As I said there are many reasons that banks take retail deposits, none of them have to do with the need to capitalize loans. As has already been explained to you, the loans come first then the funds to capitalize it. The reason the Federal Reserve system is mentioned is that they are the "lender of last resort". Members of the Reserve system have access to basically free money via being a member.

If you doubt me take it from Uncle Benny as he explains the Fed's proposal for zero reserve requirements.

http://www.federalreserve.gov/newsevents/testimony/bernanke20100210a.htm#fn9

Being willfully ignorant of how credit is created in our financial system is not going to strengthen your position. Vox and others has written voluminously in how private sector credit deflation/stagnation is the primary driver our current economic malaise despite central bank intervention and Government debt expansion. These efforts are undertaken in order to attempt to offset the lack of demand and growth in private sector debt which has stubbornly shown no growth except for the student loan sector.

I would very much appreciate your offer to show in hard numbers how deposits are a necessary precursor for credit expansion. In your presentation please include how Z1 grew from $355 billion in 1946 to $54.6 trillion in 2012 with a corresponding growth of only $2.3 trillion in M1.

As a point of correction I never said that banks don't invest your money. I pointed out that banks don't need deposits for capitalization of loans.

Anonymous allyn71 February 04, 2013 1:04 AM  

I see that I misread the section of your post about the request for "hard figures". I thought you said you would provide them but I see you were really saying that you don't need to educate yourself on the issue and would only accept "hard numbers" as proof of refutiation.

Well luckily for you and I Vox has already done the hard work for us both. If you would look at the left side of the blog page you will see a subject tag on there called "economics". If you open that identifier you will see numerous posts that provide the exact kind of data you requested. Or you could read "The Return of the Great Depression" where Vox also takes extreme care in pointing out the exact kinds of "hard numbers" you request.

If you don't believe Vox's research Karl Denninger is another that has gone through the credit expansion process in exhaustive detail. Or you could take Stilicho's advice and read Keen. All of the above have explained modern credit expansion with "hard numbers".

I will give you a cliff note version based upon your previously shown unwillingness to educate yourself on the issue. No where is it shown that deposits are needed to capitalize loans and enable credit expansion. All that is needed is a central banking scheme as a "lender of last resort" and the ability to print/digitally create the cash.

Anonymous Question February 04, 2013 1:11 AM  

allyn71:I would very much appreciate your offer to show in hard numbers how deposits are a necessary precursor for credit expansion. In your presentation please include how Z1 grew from $355 billion in 1946 to $54.6 trillion in 2012 with a corresponding growth of only $2.3 trillion in M1.

As a point of correction I never said that banks don't invest your money. I pointed out that banks don't need deposits for capitalization of loans.


Sigh, credit expansion and capitalization of loans are two different concepts. Credit expansion can be powered by unicorn farts but the fundamental fact is that loan capitalization is facilitated by the reserves a bank has on hand which are primarily customer deposits. There can be temporary reserve deficits that the bank can solve using the discount window and other banks but there is a reason its called the overnight rate. Credit expansion is a macroeconomic feature that much verbiage has been written about but capitalization of loans is a simple buisness procedure that banks perform everyday using the reserves they have which are nothing besides the deposits they have taken in.

Anonymous Question February 04, 2013 1:24 AM  

Maybe I'm coming at this the wrong way. If the money for the capitalization of loans isn't coming from deposits where is it coming from? Do you think that the long term capitalization of loans done by banks is funded by them being in debt to the Federal Reserve for long periods?

Anonymous allyn71 February 04, 2013 2:13 AM  

It is coming from the legal tender laws that allow the Federal Reserve to create fiat currency. Look at the expansion of the money supply since 1971 and Nixon unpegging the dollar.

What is a current dollar unpegged from the Bretton-Woods agreement? You are making the same mistake of all the keynesian's that don't look at debt.

You are should read some of the suggested reading. Every bank in the US and really Western Civ is associated to the Fed and the fiat dollar.

Anonymous 007 February 04, 2013 7:24 AM  

Stilicho, you may call me Bond, James Bond... There I've always wanted to say that.

As to your question, what particular assertion are you asking about? The assertion that the Zimbabwe Finance Minister seriously said that they had $217 in the bank? Yes, I disagree, since more credible sources, such as the Telegraph (which, if you have to know, is one of our Conservative, right-leaning papers), state that this was an unfortunate joke/hyperbole. The implicit assertion that the Zimbabwean economy, after decades of mismanagement, is a complete and utter train wreck? Of course, I don't disagree. Another implicit assertion that it's solely the money-printing policies that have caused this ongoing economic calamity? I find that one difficult to swallow, since, as I'm sure you know, the RBZ hasn't been printing new Z$ for a while now (in fact, Z$ doesn't really circulate any more). Moreover, given than the RBZ is, essentially, just another arm of Mugabe's regime, how do you figure which of the regime's policies is a cause and which is just irrelevant?

Anonymous 007 February 04, 2013 7:31 AM  

allyn, I'd rather be a pedant than be found referring to the Daily Mail. Unless it's a conversation about Kim Kardashian's ass, of course.

And I have to inform you that, sadly, your "prediction system" is flawed. I am neither a Keynesian nor a Marxist, although I am not really sure what this terminology even means.

As to your last couple of points, pls see my response to Stilicho above. Regarding NE & John Edwards, I have no clue. I don't read NE and I don't follow US political/celebrity gossip.

On that note, I am outta here. Gotta go deal with some people for Her Majesty, you know...

Anonymous Stilicho February 04, 2013 7:34 AM  

Question, even if you believe that fractional reserve banking works exactly as advertised (banks only lend 90%of deposits, etc.) you have to admit that new fiat money is literally created out of thin air with successive deposits and loans based on the same initial deposit at bank 1.

Second, let's look at your case for inflation:
Like I said earlier most poor to middle class people are debtors in some fashion for most of their lives. Inflation helps the poor and middle class and deflation helps the rich. The rich don't need help. In addition deflation discourages investment since just sitting on your money has a rate of return while under inflation stuffing money under you matress loses you money over time.

You say that this shows why the deflation you described is a bad thing. Let's look at your hypothetical poor/middle class debtor. He takes out a loan for 100 quatloos that he can repay over time because he has an income of 300 quatloos per year. If price deflation occurs, he can still repay his loan. In fact, he is more able to repay his loan because the purchasing power of his 300 quatloo income has increased leaving a larger surplus after his regular debt servicing payments and he can, if he chooses, use that additional surplus to pay down his debt faster. If available goods and services grow faster than the money supply, your hypothetical debtor's income purchases more than it did before leaving him relatively better off.

Moreover, in your scenario, gold is not deflationary, it is merely more resistant to attempts to inflate the money supply than a fiat currency. FRB still inflates the money supply even if you have a a classical gold standard.

Anonymous Stilicho February 04, 2013 9:58 AM  

Thanks 007, there is no dispute that Zimbabwe's problems extend far beyond ridiculous amounts of money printing. In fact, it was the other problems that led to money printing being employed as a "solution". Of course, the solution created additional problems of its own that distract somewhat from the original problems.

Anonymous Question February 04, 2013 10:32 AM  

Stilicho:Question, even if you believe that fractional reserve banking works exactly as advertised (banks only lend 90%of deposits, etc.) you have to admit that new fiat money is literally created out of thin air with successive deposits and loans based on the same initial deposit at bank 1.

I don't have to admit any such thing because thats not how it works. There is not any link between fractional reserve banking and fiat money, the US was on a gold standard for close to 200 years and had fractional reserve banking for that whole period of time. No new fiat money is created out of thin air, demand deposits are created out thin air. If me and you had a gold Krugerrand that we passed back and forth 20 times while keeping accounts the M0 of our little economy would remain the same but the M1 would of increased by forty gold Krugerrands. An increase in the money supply out of thin air without any need of fiat money. Of course in my example we had no reserve requirement but I would argue that a reserve requirement is a government deformation of the market from pure capitalism and besides a similiar example could be created with a reserve requirement but it just wouldn't be as dramatic since no reserve requirement effectively makes the money multiplier infinite.

Stilicho:You say that this shows why the deflation you described is a bad thing. Let's look at your hypothetical poor/middle class debtor. He takes out a loan for 100 quatloos that he can repay over time because he has an income of 300 quatloos per year. If price deflation occurs, he can still repay his loan. In fact, he is more able to repay his loan because the purchasing power of his 300 quatloo income has increased leaving a larger surplus after his regular debt servicing payments and he can, if he chooses, use that additional surplus to pay down his debt faster. If available goods and services grow faster than the money supply, your hypothetical debtor's income purchases more than it did before leaving him relatively better off.

Jesus christ do you think deflation and inflation magically effect only prices and not wages? Sure if thats the case deflation is a great thing, the government should stop printing money all together and watch as deflation beautifully increases everyones purchasing power. Shit even burn some of the money they receive in taxes, the decrease is services could be offset by our friend deflation. Of course in the real world wages closely follow prices with a slight lag and a fixed loan effectively has its interest rate subtracted or added by whatever the current inflation or deflation rate is.

Anonymous Stilicho February 04, 2013 3:48 PM  

Question, FRB creates new money, regardless of the media. You even admit this with respect to a gold standard yet you cannot bring yourself to admit it with respect to fiat. Curious.

As for deflation, I was merely employing the model you described above. However, wage deflation does not necessarily follow the natural price deflation we see via technological advance or even the increased purchasing power that occurs via goods and services growing faster than the money supply.

Further, you seem to be operating under the misapprehension that lenders will not bear the cost of deflation through defaults. Speaking of lags, there is also an observable lag between price inflation and wage inflation that harms the debtors who have to purchase goods and services at inflated prices with non-inflated wages. If inflation continues, the lag always leaves them just a bit behind (or a lot behind depending on the rate: see Weimar for another extreme example, see Argentina for a less extreme example). If inflation were truly the answer to unsustainable debt, then governments should just print until all debts are effectively erased and then hit the magic reset button. Now here's the 65 trillion dollar question: can Bernanke and company induce the the just-right, Goldilocks amount of inflation to effectively wipe out the bad debts without crashing the whole house of cards? I do not think so, but time may tell. Either way, deflation or inflation, that which cannot be repaid, will not be repaid. It is only a matter of which form the default will take and whether it will favor savers or borrowers. Banks lose in the deflationary default scenario, but can win big in the inflationary scenario if they can make new, sound, loans at a sufficient rate in the inflated dollars to overcome the real losses (but not nominal losses) that they incur by virtue of being paid back in less valuable dollars. Of course, the banks have to worry that those new loans will themselves become relatively worthless if inflation increases too fast.

It is not a matter of a deflationary crisis not being a bad thing, it is a matter of it being the less bad alternative to an inflationary crisis that ends in the historic collapses we see. Unless, of course, you really believe that inflation magically decreases debt without decreasing purchasing power.

Anonymous Stilicho February 04, 2013 3:55 PM  

Question: fair point re: currency vs demand deposits via FRB. I was referring to the demand deposits, but I was imprecise in my description.

Post a Comment

NO ANONYMOUS COMMENTS. Anonymous comments will be deleted.

Links to this post:

Create a Link

<< Home

Newer Posts Older Posts