Which currency system do you think is best?

[DcifrThs]

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"keeping the money supply 100% fixed does restrain economic growth."

Let's say we went from 1900 to 2000 without a war. 300 million people now. 100 million in 1900? A lot less dollars per person.

Therefore, my father-in-law, who constantly complains about the cost of living, would not be complaining. Correct?

I assume I am correct, because his money would be worth a lot more than it is today.

He built what he has by buying a ranch, fixing it up, buying another, then going thru 4 houses fixing them up, after retiring from the VA police dept.

So, he has a house, worth 350k in a city where the avg house goes for 250k, of which he holds the deed, SSI, retirement from the police dept. and 425k.

So, the Federal Reserve, by creating more, is stealing from him and giving to the rich?

That's what I tell him.

He thinks it was the unions demanding more pay for workers. I can't convince him, but then, he's 85 yrs old. He borrowed to buy his two ranches and never borrowed again.

He never owned a credit card until his wife finally convinced him of the need to maintain a credit history. When she died, they owed a total of about $1500.00 on various cards.

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i have no idea what you're saying. can you sum up your point in a coherent sentence please?

thanks,

Barron

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The money supply has been growing (under the Clinton & Bush Administrations) much faster than the economy, thus deflating the value of the dollar. Right?

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yea there probably aren't any threads about that in this forum.

Barron

[maxtower]

If the money supply doesn't grow, dollars will become more valuable as the population increases. This is deflation.

People have an incentive to save because in the future, their money will be worth more. Borrowing would become difficult, keeping money out of the hands of the most productive members of society, slowing the economy.

[tomdemaine]

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If the money supply doesn't grow, dollars will become more valuable as the population increases. This is deflation.

People have an incentive to save because in the future, their money will be worth more. Borrowing would become difficult, keeping money out of the hands of the most productive members of society, slowing the economy.

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No money will start going only to people who can truly provide real returns on it rather that shot wildly into stock market bubbles and [censored] loans with no hope of repayment. The money is losing value so fast that it has to be pushed out to all kinds of unsavoury characters that noone in their rihgt mind would give loans to in a well run (ie free) society.

[DcifrThs]

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If the money supply doesn't grow, dollars will become more valuable as the population increases. This is deflation.

People have an incentive to save because in the future, their money will be worth more. Borrowing would become difficult, keeping money out of the hands of the most productive members of society, slowing the economy.

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No money will start going only to people who can truly provide real returns on it rather that shot wildly into stock market bubbles and [censored] loans with no hope of repayment. The money is losing value so fast that it has to be pushed out to all kinds of unsavoury characters that noone in their rihgt mind would give loans to in a well run (ie free) society.

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you are definitely not describing deflation.

Barron

[DcifrThs]

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If the money supply doesn't grow, dollars will become more valuable as the population increases. This is deflation.

People have an incentive to save because in the future, their money will be worth more. Borrowing would become difficult, keeping money out of the hands of the most productive members of society, slowing the economy.

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good summary...i pretty much said this though i forgoto to term it as deflation.

which should have been obvious but i missed iti anyways.

Barron

[tomdemaine]

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If the money supply doesn't grow, dollars will become more valuable as the population increases. This is deflation.

People have an incentive to save because in the future, their money will be worth more. Borrowing would become difficult, keeping money out of the hands of the most productive members of society, slowing the economy.

[/ QUOTE ]

No money will start going only to people who can truly provide real returns on it rather that shot wildly into stock market bubbles and [censored] loans with no hope of repayment. The money is losing value so fast that it has to be pushed out to all kinds of unsavoury characters that noone in their rihgt mind would give loans to in a well run (ie free) society.

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you are definitely not describing deflation.

Barron

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Say deflation is 3%. Your money is increasing in value even if you put it under your matress. You are getting a 100% risk free return of 3% every year. Therefore you are only going to lend to people who can offer you very high returns or practically riskless returns of 5-10%. There's no pressure to lend to high risk people because your money is gaining value just sitting there. People looking for money to be lent to them are going to have to make a very good business case. No more bubbles no more lending crises. Many financial problems solved.

[DcifrThs]

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If the money supply doesn't grow, dollars will become more valuable as the population increases. This is deflation.

People have an incentive to save because in the future, their money will be worth more. Borrowing would become difficult, keeping money out of the hands of the most productive members of society, slowing the economy.

[/ QUOTE ]

No money will start going only to people who can truly provide real returns on it rather that shot wildly into stock market bubbles and [censored] loans with no hope of repayment. The money is losing value so fast that it has to be pushed out to all kinds of unsavoury characters that noone in their rihgt mind would give loans to in a well run (ie free) society.

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you are definitely not describing deflation.

Barron

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Say deflation is 3%. Your money is increasing in value even if you put it under your matress. You are getting a 100% risk free return of 3% every year. Therefore you are only going to lend to people who can offer you very high returns or practically riskless returns of 5-10%. There's no pressure to lend to high risk people because your money is gaining value just sitting there. People looking for money to be lent to them are going to have to make a very good business case. No more bubbles no more lending crises. Many financial problems solved.

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that is fair, you are describing deflation. i just read it as all that money being poured to risky borrowers. that isn't deflation.

you've basically polarized the choices. here is the thought behind why i don't think deflation is better than small inflation:

all else equal, economic growth is a good thing. it increases overall employment, improves per capita GDP and generally is termed as the "rising tide" that "lifts all boats."

in a society with total credit outlays (i.e. bank loans, corporate loans etc.) of level X, lets say that this same society has an annualized trend growth rate of Y.

X and Y are proportional for small-medium sized changes in X (large increases in X can, after longer lags, hurt the overall growth rate).

so a marginal increase in the amount of borrowing in a society results in a marginal increase in growth.

if you introduce deflation into this society, X will fall. and thus Y will fall.

further, you are making a thick line (polarizing) between "deflation" and "huge increases in the money supply" where even the riskiest borrowers are getting loans since the money needs to find a home.

by taking it more slowly and seeing it as a spectrum from deflation to massive money supply inflation you can see that in the deflation case, money is being kept out of the hands of otherwise productive borrowers.

look at it this way: there are 10 borrowers who would add value to the economy at the earlier levels of X. if you reduce X, one or more of those 10 borrowers would not be able to add value to the economy and growth would slow.

alternitively, starting from X-n, you see that as you reduce the value of n, more productive borrowers can contribute to the growth rate of the society.

as n turns negative (and TCO increases) more productivity does occur, though returns to it are marginally decreasing.

risky borrowing doesn't relaly occur until n is significantly negative.

the choice as i see it described in this thread is between a "fixed" money supply (which causes deflation) and a money supply that grows at the rate of trend growth minus trend productivity increases.

i don't see how anybody could make the choice of deflation here. personally i think you may have a predisposition against any inflation given the wording of your response.

Barron

[Kaj]

There's a lot of talk here about which system is "good for the economy". To me, this is the wrong question.

To quote Nielsio (sometimes he's right despite the flak)... "Is it voluntary?"

If we are going to have a federal govt issuing money, at least it should not be a criminal offense for someone to issue their own notes of tender. If people want to use Bob Dollars and exchange them for goods with other people who voluntarily trade with them, there's no reason in a free society that they should go to jail for it. Having an alternative promotes competition and may allow for better systems to emerge and gain acceptance on their own accord rather than be forced on everyone through law and threat of force. And if no alternative is as good as the US dollar, then so be it, people will choose to use the dollar almost exclusively without needing to be forced to do so.

This happens all the time. We use the wrong metric to define "good". Economic progress has become the only standard of good in this country and people need to realize that if we use the metric of "free", the economic progress will generally follow anyway, but even if not quite as high (doubtful, but let's assume possible), the standard of living will still be impacted in other ways -- like living more freely and responsibly like a nation of free men and women. Imagine that.

So to sum up: I don't have any specific objection to public tender in a democracy so long as it isn't forced on everyone through the threat of force as the only alternative. This is basically my stance on most govt programs.

[bobman0330]

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Say deflation is 3%. Your money is increasing in value even if you put it under your matress. You are getting a 100% risk free return of 3% every year. Therefore you are only going to lend to people who can offer you very high returns or practically riskless returns of 5-10%. There's no pressure to lend to high risk people because your money is gaining value just sitting there. People looking for money to be lent to them are going to have to make a very good business case. No more bubbles no more lending crises. Many financial problems solved.

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I think this is what's usually described as a liquidity trap...

[Moseley]

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If the money supply doesn't grow, dollars will become more valuable as the population increases. This is deflation.

People have an incentive to save because in the future, their money will be worth more. Borrowing would become difficult, keeping money out of the hands of the most productive members of society, slowing the economy.

[/ QUOTE ]

No money will start going only to people who can truly provide real returns on it rather that shot wildly into stock market bubbles and [censored] loans with no hope of repayment. The money is losing value so fast that it has to be pushed out to all kinds of unsavoury characters that noone in their rihgt mind would give loans to in a well run (ie free) society.

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you are definitely not describing deflation.

Barron

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Say deflation is 3%. Your money is increasing in value even if you put it under your matress. You are getting a 100% risk free return of 3% every year. Therefore you are only going to lend to people who can offer you very high returns or practically riskless returns of 5-10%. There's no pressure to lend to high risk people because your money is gaining value just sitting there. People looking for money to be lent to them are going to have to make a very good business case. No more bubbles no more lending crises. Many financial problems solved.

[/ QUOTE ]

that is fair, you are describing deflation. i just read it as all that money being poured to risky borrowers. that isn't deflation.

you've basically polarized the choices. here is the thought behind why i don't think deflation is better than small inflation:

all else equal, economic growth is a good thing. it increases overall employment, improves per capita GDP and generally is termed as the "rising tide" that "lifts all boats."

in a society with total credit outlays (i.e. bank loans, corporate loans etc.) of level X, lets say that this same society has an annualized trend growth rate of Y.

X and Y are proportional for small-medium sized changes in X (large increases in X can, after longer lags, hurt the overall growth rate).

so a marginal increase in the amount of borrowing in a society results in a marginal increase in growth.

if you introduce deflation into this society, X will fall. and thus Y will fall.

further, you are making a thick line (polarizing) between "deflation" and "huge increases in the money supply" where even the riskiest borrowers are getting loans since the money needs to find a home.

by taking it more slowly and seeing it as a spectrum from deflation to massive money supply inflation you can see that in the deflation case, money is being kept out of the hands of otherwise productive borrowers.

look at it this way: there are 10 borrowers who would add value to the economy at the earlier levels of X. if you reduce X, one or more of those 10 borrowers would not be able to add value to the economy and growth would slow.

alternitively, starting from X-n, you see that as you reduce the value of n, more productive borrowers can contribute to the growth rate of the society.

as n turns negative (and TCO increases) more productivity does occur, though returns to it are marginally decreasing.

risky borrowing doesn't relaly occur until n is significantly negative.

the choice as i see it described in this thread is between a "fixed" money supply (which causes deflation) and a money supply that grows at the rate of trend growth minus trend productivity increases.

i don't see how anybody could make the choice of deflation here. personally i think you may have a predisposition against any inflation given the wording of your response.

Barron

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When it comes to increasing the money supply for the purpose of having money available for new production, doesn't the U.S. have to first make up for the export of its dollars due to the trade deficit?

Or why can't they just borrow it from the countries with the trade surplus with us? China has a 2.4 trillion war chest to invest with don't they?