borodog's mistaken understanding of M3...don't listen to his drivel

[ojc02]

[ QUOTE ]
... there are circumstances that can exist where the "printing of money by the fed" doesn't devalue the dollar.

[/ QUOTE ]

I really don't understand how, all else equal, expanding the money supply doesn't devalue the dollar.

I could understand that you might see a situation where the money supply is expanded but less than the market was expecting and the dollar rallies. Also if another country expands its money supply more than we do then our currency should increase in value relative to theirs.

Again, if you were to control for other factors, shouldn't expanding the money supply always lead to a devaluing of the dollar?

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
... there are circumstances that can exist where the "printing of money by the fed" doesn't devalue the dollar.

[/ QUOTE ]

I really don't understand how, all else equal, expanding the money supply doesn't devalue the dollar.

I could understand that you might see a situation where the money supply is expanded but less than the market was expecting and the dollar rallies. Also if another country expands its money supply more than we do then our currency should increase in value relative to theirs.

Again, if you were to control for other factors, shouldn't expanding the money supply always lead to a devaluing of the dollar?

[/ QUOTE ]

i was using that to explain more clearly why the poker example was bad.

here is the intial statement i responded to:

[ QUOTE ]
When we lower interest rates, the value of the currency goes down, because more money is printed. Right?

[/ QUOTE ]

i pointed out that the currency goes down b/c of interest rate diffs. interest rate diffs, assuming it is the US;s thats falling, come from the fed releasing more money (increasing money supply). it is just the clearer way to think about it.

that statement was likely read without understanding the distinction which is why i spoke up in the BFI thread.

we can all clearly agree that when the fed has a low interest rate bias (which it has exhibited for a long time), the value of the dollar, all else equal, will decline relative to its trading partners.

i simply want to make sure we all understand both WHY and WHY NOT. that understanding seems slightly lacking which, again, is why i chimed in.

Barron

[Zygote]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
... there are circumstances that can exist where the "printing of money by the fed" doesn't devalue the dollar.

[/ QUOTE ]

I really don't understand how, all else equal, expanding the money supply doesn't devalue the dollar.

I could understand that you might see a situation where the money supply is expanded but less than the market was expecting and the dollar rallies. Also if another country expands its money supply more than we do then our currency should increase in value relative to theirs.

Again, if you were to control for other factors, shouldn't expanding the money supply always lead to a devaluing of the dollar?

[/ QUOTE ]

i was using that to explain more clearly why the poker example was bad.

here is the intial statement i responded to:

[ QUOTE ]
When we lower interest rates, the value of the currency goes down, because more money is printed. Right?

[/ QUOTE ]

i pointed out that the currency goes down b/c of interest rate diffs. interest rate diffs, assuming it is the US;s thats falling, come from the fed releasing more money (increasing money supply). it is just the clearer way to think about it.

that statement was likely read without understanding the distinction which is why i spoke up in the BFI thread.

we can all clearly agree that when the fed has a low interest rate bias (which it has exhibited for a long time), the value of the dollar, all else equal, will decline relative to its trading partners.

i simply want to make sure we all understand both WHY and WHY NOT. that understanding seems slightly lacking which, again, is why i chimed in.

Barron

[/ QUOTE ]

A currency's value is not simply measured by its exchange rate with other fiat money.

A currency's value is determined by what it can purchase across the board.

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
... there are circumstances that can exist where the "printing of money by the fed" doesn't devalue the dollar.

[/ QUOTE ]

I really don't understand how, all else equal, expanding the money supply doesn't devalue the dollar.

I could understand that you might see a situation where the money supply is expanded but less than the market was expecting and the dollar rallies. Also if another country expands its money supply more than we do then our currency should increase in value relative to theirs.

Again, if you were to control for other factors, shouldn't expanding the money supply always lead to a devaluing of the dollar?

[/ QUOTE ]

i was using that to explain more clearly why the poker example was bad.

here is the intial statement i responded to:

[ QUOTE ]
When we lower interest rates, the value of the currency goes down, because more money is printed. Right?

[/ QUOTE ]

i pointed out that the currency goes down b/c of interest rate diffs. interest rate diffs, assuming it is the US;s thats falling, come from the fed releasing more money (increasing money supply). it is just the clearer way to think about it.

that statement was likely read without understanding the distinction which is why i spoke up in the BFI thread.

we can all clearly agree that when the fed has a low interest rate bias (which it has exhibited for a long time), the value of the dollar, all else equal, will decline relative to its trading partners.

i simply want to make sure we all understand both WHY and WHY NOT. that understanding seems slightly lacking which, again, is why i chimed in.

Barron

[/ QUOTE ]

A currency's value is not simply measured by its exchange rate with other fiat money.

A currency's value is determined by what it can purchase across the board.

[/ QUOTE ]

this is definitely a discussion we can have. arguably, for those that consume in US dollars, a weaker currency does little to alter their standard of living.

the value of the dollar vs. other currencies is broken down by:

~50% interest rate diffs
~30% growth diffs
~20% CA diffs
~10% momentum/other

#s might be off but it is from a bernstein study on the decomposition of currency returns.

Barron

[Ineedaride2]

I almost never talk like this but....well..



lol this thread is dum.

[Zygote]

[ QUOTE ]
arguably, for those that consume in US dollars, a weaker currency does little to alter their standard of living.


[/ QUOTE ]

What if domestic prices rise significantly?

[Orlando Salazar]

[ QUOTE ]
arguably, for those that consume in US dollars, a weaker currency does little to alter their standard of living.

[/ QUOTE ]
Cause all goods Americans consume are produced in the US, right?

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
arguably, for those that consume in US dollars, a weaker currency does little to alter their standard of living.

[/ QUOTE ]
Cause all goods Americans consume are produced in the US, right?

[/ QUOTE ]

nope. but overall the effect is minimal on those who consume in dollars. corporate profit margins change by way more than consumers' lives are changed.

inflation in terms of price increases on the stuff we (in the US for example) buy on a regular basis is definitely a problem if it gets out of hand. despite the govt's 'manipulation' of CPI (mainly by choosing not to use the 'clinton era' version of it that takes about 3% points off), flows through to CPI are definiltey indicitive of price changes. but we haven't seen massive inflation in the past.

it may be that we are now at the turning point and the inflection will dislodge the current system or plunge us into a type of stagflation. another outcome is that we lumber along and continue distorting one asset price after another.

asset prices aren't in the CPI though (other than housing and some commodity prices) and this distortion is definitely noticeable...though from the fed's perspective, it is tough to be a pricker of bubbles though some are pushing it that way. unlikely it'll happen...

one interesting thing that may be happening that dampers the effect huge increases in M2 has on real economic price changes is that the excess money flows to investments rather than goods and services so the prices of them may not reflect the "true" inflation if asset prices are all taken into acct.

one thought is that money supply has been increasing at a very fast pace for a very long time and US prices haven't received the push they should given the expected flow through. we should definitelyb e seeing increases in CPI that we haven't had all that money poured into the economy and was searching for a home, right?

Barron

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
arguably, for those that consume in US dollars, a weaker currency does little to alter their standard of living.


[/ QUOTE ]

What if domestic prices rise significantly?

[/ QUOTE ]

i kind of touched on this in the post above but 'significant' price rises, if orderly, won't have a big impact b/c wages may also rise. a very fast rise in inflation (price changes) is very detrimental to wage earners though since wages are far stickier than the prices for goods and services, like stuff....and things.

this is a tough discussion to have in a vacuum though since the fed's decision to handle one aspect of the issue over another produces a feedback look that isn't touched on above.

Barron

[Zygote]

[ QUOTE ]

i kind of touched on this in the post above but 'significant' price rises, if orderly, won't have a big impact b/c wages may also rise. a very fast rise in inflation (price changes) is very detrimental to wage earners though since wages are far stickier than the prices for goods and services, like stuff....and things.


[/ QUOTE ]

price rises are never orderly.

secondly, you forget about those in fixed wage contracts, those who gave out fixed rate loans, most forms of fixed income and cash savings etc.

Service quality also declines initially because that's easier to adjust than a price rise.

A whole array of negative problems also come when prices actually should fall since the economy is crunching and purging the over expansion. Unions try keep wages high which causes mass unemployment, as one example.

There are so many disastrous things to many people's standard of living when prices rise due to inflation.