Could Someone Please Explain the Money Supply?

[Arnfinn Madsen]

I am not so into where to find information in the US, but I give you a link to the Norwegian Federal Reserve which is quite good and actually more relevant to what you ask for than the US Federal Reserve as in Norway there is a stated inflation target (2,5% annually) which the Federal Reserve constantly tries to achieve but usually fails in one direction or another:

Link

EDIT:
Found one chart there:

[mosdef]

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If, however, you want to save some money (which is perfectly rational), then any amount of inflation is a bad thing.

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Not if you save by buying inflation-linked bonds.

[Nielsio]

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Could someone please explain the money supply?

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Bill Still - The Money Masters
http://video.google.com/videoplay?do...34454816686947
http://video.google.com/videoplay?do...15773877500927

Mises Institute - Money, Banking and the Federal Reserve
http://thefreedomchannel.blogspot.co...l-reserve.html

[Brainwalter]

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But remember, inflation applies to prices and wages. So a little inflation is a good thing, but too much is a very bad thing.

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No amount of inflation is ever a good thing. Inflation only doesn't affect you if you spend your wages immediately, or get paid with some other good (kinda the same thing).

If, however, you want to save some money (which is perfectly rational), then any amount of inflation is a bad thing.

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Let me put it another way...inflation is a byproduct of a healthy economy where people are trading money for goods and services, and they are receiving interest payments for their deposits. It indicates that people are, on average, making more money which buys fewer goods, and businesses are getting more money for their goods. They have faith in the economy, and prices and wages rise accordingly. A credit-based economy (like the U.S.) should have an inflationary bias.

Contrast that to deflation. Businesses are getting less money for their goods. As a result, they have to pay their workers less money, but they can afford more goods. Those businesses and workers have less access to money because they cannot afford to take on additional debt. They know that their debt payments right now may be manageable, but may become unmanageable in the future when their income levels drop and their payments remain constant.

As for banks, the real cost of funds (difference between interest rate and inflation rate) increases during a deflationary period. If the interest rate was 8%, and the inflation rate was - 3% (deflationary) then the real cost of funds would be 11%. Interest rates can only drop so much to compensate, and they can't go below zero.

ScottieK

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I'd rather have more goods than more money.

"A little inflation is a sign of a healthy economy" and its corrolary, "When the economy is TOO good inflation gets too high" are misleading results of Fed policies which attempt to pass off money-supply related growth as real economic growth. Think about it for a second, with a static money supply, and a strong real economy, which means increasing productivity, and more goods to go around per capita, prices must fall, not rise. Inflation is a purely monetary phenomenon.

[ianlippert]

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It really struck me because last night because I went to sleep watching CSPAN coverage of Bernake's testimony. Paul's opening comments were disturbing...every fiat currency system in history is failed.

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Could you expand on this a bit more? Is there somewhere were I could a transcript, or could you give a cliff notes version?

I recently read some of a book by bernanke about how countries that got off gold and onto fiat during the great depression recovered faster. I always thought he would be a supporter of fiat monies.

[pvn]

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Also, if our money is getting diluted at the benefit of others, isn't that a type of theft from people that are holding American currency?

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You are onto something, it is a sort of theft. Every note or coin you have in your pocket loses value all the time, but you are told this. If you ask Bernanke if he can promise you you will get the same for 1k as you get today in 5 years time he will tell you that his aim is to make it so that you get less. So nobody cheats you unless they do something to pump up inflation above what they have signalled.

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So as long as I tell you in advance that I'm going to steal your stuff, it's OK?

[Arnfinn Madsen]

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So as long as I tell you in advance that I'm going to steal your stuff, it's OK?

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That would be stealing but not fraud [img]/images/graemlins/wink.gif[/img].

[ianlippert]

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Could someone please explain the money supply?

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Bill Still - The Money Masters
http://video.google.com/videoplay?do...34454816686947
http://video.google.com/videoplay?do...15773877500927

Mises Institute - Money, Banking and the Federal Reserve
http://thefreedomchannel.blogspot.co...l-reserve.html

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Thanks for the link Nelsio, I watched the money masters this morning. It really goes to show that the other thread going on in this forum about capitalism is pretty pointless. It seems like the majority of poverty is caused by world banks and the sick thing is, is that nobody understands whats going on.

However, in that documentary he actually made a good arguement for not going back onto the gold standard like many ACists make. The documentary claimed that 2/3 of all the worlds gold was in the hands of the world banks, so that a change to the gold standard wouldnt change much. The documentary then goes on to talk about interest free money printed by the american government. Is there no money in the american economy that isnt backed by debt? I'm having a little trouble understanding this point. When the american government issues money through bonds what exactly are they issuing?

Also what might be interesting to this thread was the talk in that documentary about the Island of Guernsey, which has no privately owned central bank. From wikipedia

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Unlike many countries Guernsey has not delegated money-creation to the central bank and has instead issued interest-free money since 1816. As a result the government has not had to use increasing amounts of tax revenue to repay debt to the central bank, which has led to low income tax rates, no goods and services tax and no capital gains tax.



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Can anyone make a good arguement for the existance of a privately owned monopolistic bank that controls our money supply? I'm coming up real short on this one.

[Arnfinn Madsen]

There is nothing that stops you from starting printing your own money, you can do it in many ways, you can i.e. issue bonds and connect them to gold or another currency or whatever you want. Many companies and banks do this. There isn't a legal government monopoly on it, just a practical one.

[ianlippert]

The Federal Reserve is the only corporation that is allowed to print american dollar bills though, right?