|
|
#11
07-25-2007, 05:42 PM
|
|||
|
|||
Re: IM Conversation
"Can you explain this business of artificial constraint in more detail? I'm just now learning about all this stuff so I'm not sure I get it yet. Backed currencies don't necessarily have to be backed by only one commodity do they?"
They don't have to be backed by only one, but adding other commodities doesn't solve the problem. A commodity suitable for backing a currency has to be difficult to produce by definition. Once someone learns to extract salt from seawater in virtually limitless quantities, what happens to salt as a basis for exchange? That necessary attribute for a commodity can (and did) lead to constraints on economic production. Multiple backings still must be constrained to be suitable. "It seems like if there was a demand for more currency and all the gold was already tagged and in circulation the market would produce other types of currency to meet this demand no? Say silver backed currencies, land backed currencies, currencies that are basically stakes in mutual funds, wall-mart could make it's own backed currency that could be exchanged for a certain quantity of goods that it sells, etc. It seems like there are virtually limitless possibilities for backing a currency, so how does a free market get artificially constrained by a backed currency? " You seem to jump around here between multiple currencies and multiple backing for a single currency. They are similar but each have their own consequences. Multiple currencies are obviously viable...when they are backed by something that the markets trust. They are somewhat inefficient, a problem the Euro tries to address by consolidating the several currencies into a single standard, but ultimately the markets have to trust the underlying issuers, because that is the primary backing..the good faith and credit of the countries. Silver backed currencies...the Hunt brothers showed how easy it is to manipulate the price of silver and constrain supplies. Land backed currencies...too illiquid to serve as backing, it really isnt much different than backing by a promise. Mutual fund currencies...the seemingly most secure investments underlying mutual funds have come and gone. AT&T stock was "as good as gold" (actually better since it appreciated a heck of a lot more steadily and reliably), but if your currency was based on AT&T stock massive devaluation would have occurred. A basket of companies spreads the risk, but also ensure some devaluation. Wal-bucks is just substituting the good faith and credit of an entity that relies on demand for its products for the good faith and credit for an entity that has the power to tax. Which is more reliable? http://www.econ.ucla.edu/workingpapers/wp830.pdf 
|
|
#12
07-25-2007, 05:43 PM
|
|||
|
|||
|
Re: IM Conversation
[ QUOTE ]
Wow, great read. I've been reading about all this stuff recently but this really helped me get it straight in my mind. Of course, I'm more scared now than I was before, so it's bitter-sweet. Do you have any suggestions Boro about what we should do with our money given the likely hyper-inflationary period ahead? Should I start buying gold? [/ QUOTE ] Let me be clear, it will NOT be hyperinflationary; the 1970's were not hyperinflationary, just much more inflationary than normal. The term hyperinflation is reserved for things like what happened to the Weimar Republic in 1923. Also, I do not particularly recommend buying gold, especially as an all-the-eggs-in-one-basket investment, as there is no guarantee that gold will not simply be seized again. Having some gold can't be too bad of a risk, though, since it has never been worth nothing (well, until Roosevelt stole it). A friend of mine who is an actual Austrian economist simply buys market index funds, and doesn't worry too much about it. He invests for the long term, not the short. The stock market gets inflated with every boom, is then corrected with every bust, but is not corrected down to the previous level, because of real gains in productivity over time. The real scary question is whether or not we are actually in a period of capital consumption; in which case real productivity would cease to increase, and infact would begin to decrease, over the long term. We may already be well into this period, as real wages (which track with productivity) have been stagnant for some time. Also, most Austrians will tell you that there is simply no foolproof method for turning theory into a recession-beating scheme. If there was, we wouldn't have recessions. Just try not to be the last person holding the bag when the music stops playing.
|
|
#13
07-25-2007, 05:47 PM
|
|||
|
|||
|
Re: IM Conversation
[ QUOTE ]
Borodog also underestimates the sheer hegemony of a monetary and military monopoly. It is like trying to move the moon to break it. I don't think he or many other people understand the lengths that the US will go to to protect it. Politicians will always please the people. The people need bread and circuses to keep them happy. Nations will be in ashes to make that happen. That simple. [/ QUOTE ] I don't underestimate this at all. It is perfectly true. There IS in fact a nation in flames because of it RIGHT NOW. Unfortunately, that only reinforces my point.
|
|
#14
07-25-2007, 05:52 PM
|
|||
|
|||
|
Re: IM Conversation
[ QUOTE ]
A commodity suitable for backing a currency has to be difficult to produce by definition. Once someone learns to extract salt from seawater in virtually limitless quantities, what happens to salt as a basis for exchange? [/ QUOTE ] The irony here is . . . exquisite.
|
|
#15
07-25-2007, 05:57 PM
|
|||
|
|||
|
Re: IM Conversation
speaking of aim, if anyone on the board wants my sn just pm me, id be interested in talking with a lot of you in a dialogue different than on this board, where discussions turn stupid really quick.
|
|
#16
07-25-2007, 06:25 PM
|
|||
|
|||
|
Re: IM Conversation
[ QUOTE ]
[ QUOTE ] " Borodog: and the structure of production is generally producing what people want [14:29] Borodog: everyone is happy." The rest of the conversation assumes that level of production is optimal [/ QUOTE ] No, it doesn't. The structure of production can never be "optimal", for any reasonable definition of optimal. <font color="red"> Of course it does. You started with the given that the initial state of the system made everyone happy, implying that that is the "right state". Everything that followed discussed changes to those initial conditions.</font> [ QUOTE ] , it isn't, just because "everyone is happy" "Businessmen see lower interest rates. Without fake money, the interest rate might be 8%. [14:33] Borodog: Any project where you have to take out a loan to start it, and will only return 7%, will be unprofitable. A waste of resources. [14:33] Borodog: So the credit expansion artificially lowers the interest rate to 6%." The language here is self-serving and propagandist. There is nothing "fake" about additional money supply that fuels business, [/ QUOTE ] Why is it a crime to print your own money? <font color="red"> I assume you arent trying to confuse the issue of competing currencies and counterfeiting here. The problem with allowing competing private currencies is that to the extent they arent backed by something (including a governments power to tax) they are prone to fraud, and policing those currencies an uneccessary burden. </font> [ QUOTE ] and there is nonthing "artificial" about an interest rate that encourages investment. [/ QUOTE ] Lol. Lowering the interest rate discourages investment. Do you see why? <font color="red"> Your own conversation talks about increasing the money supply, lowering interest rates and the result that investments are made that would not otherwise have been made. Trying to confuse the issue? But I was only addressing your characterization of any given level of interest rates as "artificial" which is a value judgement based again on your assumption that the initial conditions were the right ones. </font> [ QUOTE ] A rigid monetary standard pegged to a commodity is just as "artificial" because it subjects all other goods and services to a (necessarily) constrained supply of money. [/ QUOTE ] So? What is the "correct" amount of money? The answer of people like you seems to be simply "more than we have now". <font color="red">No the correct amount is the amount needed to efficiently conduct business and allow for growth in the economy. Growth of the money supply commensurate with productivity increases isn't in and of itself inflationary. </font> [ QUOTE ] That has the converse effect of making what would otherwise be profitable enterprises unprofitable, denying their entry into the market, which hurts the consumer. [/ QUOTE ] How? And how does printing money magically making an unprofitable business profitable, beyond the obvious profitability of being the counterfeiter? <font color="red"> Delete the counterfeiting, which isnt an issue, and you answered your own question earlier..lower interest rates make investments more profitable. </font> [ QUOTE ] "14:35] Borodog: He must bid all of these factors of production away from other businesses, because the factors of production are at any one time finite. That bids up the prices for the factors of production, the so-called "input prices", the prices of things used to produce other things. " Just because inputs are "finite" doesn't mean there isnt a sufficient supply. Well run businesses can just as well have anticipated the demand and have sufficient inventories to meet it. [/ QUOTE ] No, they can't. <font color="red">Yes, the can and do, all the time. </font> That is the entire point of an entire exchange that you apparently missed. They don't have those inputs because they do not exist; for them to exist consumption must have been deferred to accumulate them, but because of the artificially lowered interest rate, consumption is incentivized at the expense of savings, and those reserves will not exist. More "houses" are started than there exist "bricks" and "lumber" to complete. <font color="red">ORLY. Those guys at Standard Pacific and Hovnanian must be really stupid to speculate on future supplies. </font> [ QUOTE ] The rest of the conversation is the same doom and gloom about the "impending crash" that has been selling books for the last 40 years and making money for no one but the authors and publishers. [/ QUOTE ] I don't know if you've noticed, but the "impending crash" has actually crashed, over and over and over, exactly as predicted. <font color="red">lol, sure it has </font> [ QUOTE ] The real lesson in this OP is that by choosing assumptions and placing your own value judgement on them, you can prove that the alternatives are "bad". [/ QUOTE ] The lesson here is that someone who does not understand a theory will make himself look foolish when he attempts to criticize it. <font color="red"> No, its that someone who has a politcal agenda that he confuses with economic theory grasps at straws to try and defend it, and looks foolish in the process. </font> [ QUOTE ] Start out with an artifically constrained money supply and you will reach exactly the opposite conclusions. [/ QUOTE ] You said this before. What is "artificially constrained"? Is a money supply where nobody is allowed to counterfeit "artificially constrained"? How it that one needs to create money by artifice to avoid "artificially constraining" the money supply? How much money is the "right" amount? Let me guess: more, more, more. <font color="red"> answered above </font> [ QUOTE ] If your agenda is the malevolence of the government and the Fed you obviously aren't going to show both sides. [/ QUOTE ] There is only correct and incorrect. If you would care to actually explain how printing money magically makes everyone better off, be my guest. [/ QUOTE ] <font color="red"> Why would I explain a claim that I never made. </font>
|
|
#17
07-25-2007, 06:49 PM
|
|||
|
|||
|
Re: IM Conversation
[ QUOTE ]
The problem with allowing competing private currencies is that to the extent they arent backed by something (including a governments power to tax) they are prone to fraud, and policing those currencies an uneccessary burden. [/ QUOTE ] why wouldn't private currencies be backed by that private company's reserve of whatever precious commodity they chose? if they arent backed or are prone to fraud, no one will buy that currency on the free market. if you saw a private currency get counterfeited, would you use it in the future? of course not, and that is a sufficient incentive for the company to prevent fraud.
|
|
#18
07-25-2007, 07:03 PM
|
|||
|
|||
|
Re: IM Conversation
[ QUOTE ]
[ QUOTE ] The problem with allowing competing private currencies is that to the extent they arent backed by something (including a governments power to tax) they are prone to fraud, and policing those currencies an uneccessary burden. [/ QUOTE ] why wouldn't private currencies be backed by that private company's reserve of whatever precious commodity they chose? if they arent backed or are prone to fraud, no one will buy that currency on the free market. if you saw a private currency get counterfeited, would you use it in the future? of course not, and that is a sufficient incentive for the company to prevent fraud. [/ QUOTE ] I said "to the extent that it isn't backed", not that it couldnt be backed. You then apparently missed the issue of the cost of enforcement. First there has to be acceptance of the currency, then there has to be a failure of that currency that is public enough to deter use of the currency, then there has to be investigation, arrest, trial, punishment and reimbursement. The market is generally not responsive enough to avoid the victimization of large numbers of people that is curtailed by the knowledge that there is one currency backed by each government. Look at internet fraud. How many fraudulent websites are out there that collect money and dont deliver whatever has been purchased? Even the search gophers can't keep up with them, and its caveat emptor..if the price is too good to be true, it probably isnt. There are a number of "near currencies" which serve legitimate purposes of commerce and are becoming more accpeted by the public (various forms of E-cash, T$ in our narrow little world for example) for limited purposes. They have been quite sufficient without abandoning the currency laws.
|
 |
|
|
Linear Mode
