the villager with the pitchfork as arrived.
Do we really need to fight inflation?
- Thread starter CoolTrader
- Start date
Government cannot centrally plan an economy, this is an impossible task. There is no shoulda, coulda, woulda. What occurred in 1971* (not 1970) was inevitable. It really is a simple concept, if there are more dollars (which were redeemable in gold, for foreign nations) than gold. The only logical choice from a governmental perspective would be to f*** your foreign creditors instead of your own reserves, and unpeg the dollar from gold. Now, anyone with the slightest historical understanding of fiat currencies could have seen this inflation coming from a mile away. Especially when the underlying economic theories which the monetary authority (The Fed) follow consider inflation as a necessity towards a "strong" economy. Also the headline inflation numbers are as phony as the Lui Vuitton bags sold in Canal Street.
But to conclude, no, we don't need to fight inflation. Just like a fish doesn't need water to survive.
The first two sentences in your post seem correct. Most of what follows those sentences, however, does not. QE does not cause inflation. It is used when demand for money is too low. QE increases bank reserves putting downward pressure on the wholesale price of money either via the old way of controlling the funds rate indirectly, by controlling aggregate bank reserves, or by the new method. Nowadays, the Fed can still use QE if it believes bank reserves are too low, but it also changed the method it uses to control the funds rate. When the Fed wants the wholesale price of money to drop it pays lower interest on reserves, putting a lower floor under the funds rate. It adjusts the discount rate to establish an upper bound for the funds rate. No bank will lend to another at a rate below the risk free rate of return it gets from the fed nor will it pay more for money (usually) than it can borrow via the discount "window". (The funds rate is the wholesale price that banks have to pay for the money they lend.)
You wrote "Fiat [is] worthless" as though you were referring to Bitcoin, but even Bitcoin is not worthless so long as someone wants it. Money, including fiat money, and gold too, is worth what it can be exchanged for, but of course gold also has intrinsic value.
Our Fiat money is directly backed by our government's taxing power --- which is considerable. There will be created enough demand for fiat money as needed to pay taxes, because fiat money is the only thing our government accepts in payment. Beyond that, it's the productivity of nations producing goods and services for sale in U.S. Dollars that backs fiat dollars. More goods services and assets are for sale in U.S. Dollars than are for sale in any other currency. That's quite a strong backing!!!
You also wrote, " If Fed wants a massive QE under gold standard, it has to devalue the dollar first, which makes QE look bad. That's why there is no QE under gold standard."
You may be unwittingly and indirectly referring to how horribly cumbersome a gold standard is. But you are not correct when you write, "If Fed wants a massive QE, it has to devalue the dollar..." Your misunderstanding comes from belief that QE involves increasing the amount of money in the private sector. Actually QE leaves the total money in the private sector unchanged. Instead, it simply changes one form of our money into another form without changing the amount. U.S. Treasuries are just another form of money --- albeit an interest paying form that serves as a store of money. U.S. bonds are still money however, and therefore they are freely convertible to and from bank reserves. In QE all that happens is that X dollars in the form of Treasury securities disappears and is replaced by X dollars in the form of Bank reserves. The total amount of money in the private sector economy is unchanged!
What used to happen when the Government wanted to increase the total amount of money in the private sector without changing the underlying value of its money relative to gold? Under a gold standard the government had to buy more gold. Therefore the government would create, "out of thin air," "gold certificates" which are both legal tender and convertible at the Treasury to gold! It used those certificates it just printed to buy gold. Then the seller of the gold caused the certificates to circulate in the economy when it used the certificates as legal tender. That's right!, the government created gold certificates "out of thin air" and used them to buy gold!!!
Now do you see why Gold Standard money is really not fundamentally different from Fiat money, but just ridiculously more cumbersome. A gold standard is so cumbersome that Franklin Roosevelt could not wait for new gold certificates to be printed, used to buy gold, allowed to circulate as legal tender, and then perhaps be converted to non-gold-convertible federal bank notes later. He needed to expand the money supply in a hurry as the Nation was still in the grips of a depression. The quickest way to do that was to devalue the dollar by printing and spending more dollars into the economy without bothering first to acquire more gold. The government did call in privately held gold. Roosevelt had massive unemployment on his hands. He had to create many new jobs, put the nation back to work, and get money circulating once again. Technically he did not take us off the gold standard but simply engaged in a massive devaluation, which the furious central bankers nevertheless characterized as taking us of the standard. . It worked just as Keynes told Roosevelt it would.
Fiat money makes infinitely more sense than a money based on a commodity. The latter requires that the issuer of commodity based money be able to control the market for the commodity into which their money is convertible. We will never go back to commodity base money. When J.P. Morgan said "Only gold is money", he was wrong. But how could he know better?, because the World thought as he did for centuries.
Some people believe Noah loaded one of every animal species on earth onto his Ark, which is impossible. And some people will, I suppose, always think we should go back to a gold standard, despite that being impossible too. . .
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The definition of inflation contrary to popular belief is an expansion of the money supply. Increasing prices is not inflation, this is merely a result of inflation. Therefore QE is inflation just like monetary easing is inflation. As the Fed is required to create reserves out of thin air in order to artificially decrease the natural rate of interest through an artificial expansion of the credit supply. Which increases demand. However, this increase in demand is fueled by malinvestments. Resulting in an artificial boom which inevitably results in a bust.
But since your such a smart economist I'm sure your an expert on business cycle theory and saw the Subprime collapse from a mile away. May I ask, how many credit default swaps did you purchase my good friend?
I assume you majored in economics, is my assumption correct, Mr. Keynes?
I never wrote "Fiat [is] worthless."
I don't know where you got this sentence from, but it certainly wasn't from me.
As for the following paragraph I will say two things:
Taxation is theft, and your in for a very rude awakening my friend. That's ok however, as we live and learn, and you have much to learn.
Our Fiat money is directly backed by our government's taxing power --- which is considerable. There will be created enough demand for fiat money as needed to pay taxes, because fiat money is the only thing our government accepts in payment. Beyond that, it's the productivity of nations producing goods and services for sale in U.S. Dollars that backs fiat dollars. More goods services and assets are for sale in U.S. Dollars than are for sale in any other currency. That's quite a strong backing!!!
Again I never wrote what you claim I wrote " If Fed wants a massive QE under gold standard, it has to devalue the dollar first, which makes QE look bad. That's why there is no QE under gold standard."
The reason QE cannot work under a gold standard is because gold reserves cannot be printed out of thin air. Unlike fiat.
Your wrote: Your misunderstanding comes from belief that QE involves increasing the amount of money in the private sector.
Are you stupid or confused? I assume both.
The the only reason QE exists is to increase the money available in the private sector!
When the Fed purchases such securities from the open market, it increases the reserves of banks, thereby increasing their capacity to lend. Banks than extend more loans to businesses and consumers. Now, you tell me pal, does this increase the money supply in the private sector?
"That's right!, the government created gold certificates "out of thin air" and used them to buy gold!!!"
Wow, its that simple isn't it.
"Now do you see why Gold Standard money is really not fundamentally different from Fiat money, but just ridiculously more cumbersome."
The exact same.
"He needed to expand the money supply in a hurry as the Nation was still in the grips of a depression."
Are you familiar with the forgotten depression of 1921? I assume not, for anyone reading this I urge you to look it up. Notice how that depression had no government intervention, than look at the great depression and the New Deal which according to our history teachers and Keynesian economists "saved" America.
"Fiat money makes infinitely more sense than a money based on a commodity."
Money is a commodity by its nature.
"When J.P. Morgan said "Only gold is money", he was wrong."
He was credited with saying "gold is money" however, that's not what he said. He actually said the opposite, "money is gold, and nothing else."
I hope one day you come to realize whatever bs you were taught by whomever taught you this was fatally wrong. I'm not here to try and change your opinion, I don't really care. Without people who are wrong no one could be right. In return the business of speculation would cease to exist. I assume one day, probably when you lose a whole lot of money, you will come to realize your mistakes. Good day, sir.
But since your such a smart economist I'm sure your an expert on business cycle theory and saw the Subprime collapse from a mile away. May I ask, how many credit default swaps did you purchase my good friend?
I assume you majored in economics, is my assumption correct, Mr. Keynes?
I never wrote "Fiat [is] worthless."
I don't know where you got this sentence from, but it certainly wasn't from me.
As for the following paragraph I will say two things:
Taxation is theft, and your in for a very rude awakening my friend. That's ok however, as we live and learn, and you have much to learn.
Our Fiat money is directly backed by our government's taxing power --- which is considerable. There will be created enough demand for fiat money as needed to pay taxes, because fiat money is the only thing our government accepts in payment. Beyond that, it's the productivity of nations producing goods and services for sale in U.S. Dollars that backs fiat dollars. More goods services and assets are for sale in U.S. Dollars than are for sale in any other currency. That's quite a strong backing!!!
Again I never wrote what you claim I wrote " If Fed wants a massive QE under gold standard, it has to devalue the dollar first, which makes QE look bad. That's why there is no QE under gold standard."
The reason QE cannot work under a gold standard is because gold reserves cannot be printed out of thin air. Unlike fiat.
Your wrote: Your misunderstanding comes from belief that QE involves increasing the amount of money in the private sector.
Are you stupid or confused? I assume both.
The the only reason QE exists is to increase the money available in the private sector!
When the Fed purchases such securities from the open market, it increases the reserves of banks, thereby increasing their capacity to lend. Banks than extend more loans to businesses and consumers. Now, you tell me pal, does this increase the money supply in the private sector?
"That's right!, the government created gold certificates "out of thin air" and used them to buy gold!!!"
Wow, its that simple isn't it.
"Now do you see why Gold Standard money is really not fundamentally different from Fiat money, but just ridiculously more cumbersome."
The exact same.
"He needed to expand the money supply in a hurry as the Nation was still in the grips of a depression."
Are you familiar with the forgotten depression of 1921? I assume not, for anyone reading this I urge you to look it up. Notice how that depression had no government intervention, than look at the great depression and the New Deal which according to our history teachers and Keynesian economists "saved" America.
"Fiat money makes infinitely more sense than a money based on a commodity."
Money is a commodity by its nature.
"When J.P. Morgan said "Only gold is money", he was wrong."
He was credited with saying "gold is money" however, that's not what he said. He actually said the opposite, "money is gold, and nothing else."
I hope one day you come to realize whatever bs you were taught by whomever taught you this was fatally wrong. I'm not here to try and change your opinion, I don't really care. Without people who are wrong no one could be right. In return the business of speculation would cease to exist. I assume one day, probably when you lose a whole lot of money, you will come to realize your mistakes. Good day, sir.
Alan Greenspan had "religion", lost it (during his Fed Daze) now found it again:-
Alan Greenspan Admits Ron Paul Was Right About Gold
https://mises.org/mises-wire/alan-greenspan-admits-ron-paul-was-right-about-gold
Alan Greenspan Admits Ron Paul Was Right About Gold
https://mises.org/mises-wire/alan-greenspan-admits-ron-paul-was-right-about-gold
You said "Unlike fiat" first, then "The exact same". Can you explain?
I was being sarcastic, however, I can see how this might be unclear. Its not worth the time to debate someone who believes gold is "not fundamentally different from Fiat money." The claim itself is so ridiculous as it proves his ignorance of both real economic ideology and history.
QE is actually abusing money printing power to screw up currency holders. But they won't accept the abuse forever, they can choose gold over USD as reserve. That's why Fed is fighting inflation through QT:
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
How far they should go is a big question. We need high inflation to shrink the national debt. That's the dilemma we are facing.
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
How far they should go is a big question. We need high inflation to shrink the national debt. That's the dilemma we are facing.
I'm sure Jerome checks in with Ron Paul often for advice.
On a more serious note the amount of ignorance re money and the gold standard here on ET is fast approaching encyclopedic levels.