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Guest Post: Inflation: An Expansion of Counterfeit Credit
Submitted by Keith Weiner
Inflation: An Expansion of Counterfeit Credit
The Keynesians and Monetarists have fooled people with a clever sleight of hand. They have convinced people to look at prices (especially consumer prices) to understand what’s happening in the monetary system.
Anyone who has ever been at a magic act performance is familiar with how sleight of hand often works. With a huge flourish of the cape, often accompanied by a loud sound, the right hand attracts all eyes in the audience. The left hand of the illusionist then quickly and subtly takes a rabbit out of a hat, or a dove out of someone’s pocket.
Watching a performer is just harmless entertainment, and everyone knows that it’s just a series of clever tricks. In contrast, the monetary illusions created by central banks, and the evil acts they conceal, can cause serious pain and suffering. This is a topic that needs more exposure.
The commonly accepted definition of inflation is “an increase in consumer prices”, and deflation is “a decrease in consumer prices.” A corollary is a myth that stubbornly persists: “today, a fine suit costs the same in gold terms as it did in 1911, about one ounce.” Why should that be? Surely it takes less land today to raise enough sheep to produce the wool for a suit, due to improvements in agricultural efficiency. I assume that sheep farmers have been breeding sheep to maximize wool production too. And doesn’t it take less labor to shear a sheep, not to mention card the wool, clean it, bleach it, spin it into yarn, weave the yarn into fabric, and cut and stitch the fabric into a suit?
Consumer prices are affected by a myriad of factors. Increasing efficiency in production is a force for lower prices. Changing consumer demand is another force. In 1911, any man who had any money wore a suit. Today, fewer and fewer professions require one to be dressed in a suit, and so the suit has transitioned from being a mainstream product to more of a specialty market. This would tend to be a force for higher prices.
I don’t know if a decent suit cost $20 (i.e. one ounce of gold) in 1911. Today, one can certainly get a decent suit for far less than $1600 (i.e. one ounce), and one could pay 3 or 4 ounces too for a high-end suit.
My point is that consumer prices are a red herring. Increased production efficiency tends to push prices down, and monetary debasement tends to push prices up. If those forces balance in any given year, the monetary authorities claim that there is no inflation.
This is a lie.
Inflation is not rising consumer prices. One can’t understand much about the monetary system from inside this box. I offer a different definition.
Inflation is an expansion of counterfeit credit.
Most Austrian School economists realize that inflation is a monetary phenomenon. But simply plotting the money supply is not sufficient. In a gold standard, does gold mining create inflation? How about private lending? Bank lending? What about Real Bills of Exchange?
As I will show, these processes do not create inflation under a gold standard. Thus I contend the focus should be on counterfeit credit. By definition and by nature, gold production is never counterfeit. Gold is gold, it is divisible and every piece is equivalent to any other piece of the same weight.
Gold mining is arbitrage: when the cost of mining an ounce of gold is less than one ounce of gold, miners will act to profit from this opportunity. This is how the market signals that it needs more money. Gold, of course, has non-declining marginal utility, which is what makes it money in the first place, so incremental changes in its supply cause no harm to anyone.
Similarly, if Joe works hard, saves his money, and gives a loan of 100 ounces to John, this is an expansion of credit. But it is not counterfeit or illegitimate or inflation by any useable definition of the term.
By extension, it does not matter whether there are market makers or other intermediaries in between the saver and the borrower. This is because such middlemen have no power to expand credit beyond what the source—the saver—willingly provides. And thus bank lending is not inflation.
Below, I will discuss various kinds of credit in light of my definition of inflation.
In all legitimate credit, at least two factors distinguish it from counterfeit credit. First, someone has produced more than he has consumed. Second, this producer knowingly and willingly extends credit. He understands exactly when, and on what terms, with what risks he will be paid in full. He realizes that in the meantime he does not have the use of his money.
Let’s look at the case of fractional reserve banking. I have written on this topic before. To summarize: if a bank takes in a deposit and lends for a longer duration than the deposit, that is duration mismatch. This is fraud and the source of banking system instability and crashes. If a bank lends deposits only for the same or shorter duration, then the bank is perfectly stable and perfectly honest with its depositors. Such banks can expand credit by lending, (though they cannot expand money, i.e. gold), but it is real credit. It is not counterfeit.
Legitimate lending begins with someone who has worked to save money. That person goes to a bank, and based on the bank’s offer of different interest rates for different durations, chooses how long he is willing to lock up his money. He lends to the bank under a contract of that duration. The bank then lends it out for that same duration (or less).
The saver knows he must do without his money for the duration. And the borrower has the use of the money. The borrower typically spends it on a capital purchase of some sort. The seller of that good receives the money free and clear. The seller is not aware of, nor concerned with, the duration of the original saver’s deposit. He may deposit the money on demand, or on a time deposit of whatever duration.
There is no counterfeiting here; this process is perfectly honest and fair to all parties. This is not inflation!
Now let’s look at Real Bills of Exchange, a controversial topic among members of the Austrian School. In brief, here is how Real Bills worked under the gold standard of the 19th century. A business buys merchandise from its supplier and agrees to pay on Net 90 terms. If this merchandise is in urgent consumer demand, then the signed invoice, or Bill of Exchange, can circulate as a kind of money. It is accepted by most people, at a discount from the face value based on the time to maturity and the prevailing discount rate.
This is a kind of credit that is not debt. The Real Bill and its market act as a clearing mechanism. The end consumer will buy the final goods with his gold coin. In the meantime, every business in the entire supply chain does not necessarily have the cash gold to pay at time of delivery.
This problem of having gold to pay at time of delivery would become worse as business and technology improved to allow additional specialization and thus extend the supply chain with additional value-added businesses. And it would become worse as certain goods went into high demand seasonally (e.g. at Christmas).
The Real Bill does not come about via saving and lending. It is commercial credit that is extended based on expectations of the consumer’s purchases. It is credit that arises from consumption, and it is self-liquidating. It is another kind of legitimate credit.
For more discussion of Real Bills, see the series of pieces by Professor Antal Fekete (starting with Lecture 4).
Now let’s look at counterfeit credit. By the criteria I offered above, it is counterfeit because there is no one who has produced more than he has consumed, or he does not knowingly or willing forego the use of his savings to extend credit.
First, is the example where no one has produced a surplus. A good example of this is when the Federal Reserve creates currency to buy a Treasury bond. On their books, they create a liability for the currency issued and an asset for the corresponding bond purchase. Fed monetization of bonds is counterfeit credit, by its very nature. Every time the Fed expands its balance sheet, it is inflation.
It is no exaggeration to say that the very purpose of the Fed is to create inflation. When real capital becomes more scarce, and thus its owners become more reluctant to lend it (especially at low interest rates), the Fed’s official role is to be the “lender of last resort”. Their goal is to continue to expand credit against the ever-increasing market forces that demand credit contraction.
And of course, all counterfeit credit would go to default, unless the creditor has strong collateral or another lever to force the debtor to repay. Thus the Fed must act to continue to extend and pretend. Counterfeit credit must never end up where it’s “pay or else”. It must be “rolled”. Debtors must be able to borrow anew to repay the old debts—forever. The job of the Fed is to make this possible (for as long as possible).
Next, let’s look at duration mismatch in the financial system. It begins in the same way as the previous example of non-counterfeit credit—with a saver who has produced more than he has consumed. So far, so good. He deposits money in a bank, and this is where the counterfeiting occurs. Perhaps he deposits money on demand and the bank lends it out. Or perhaps he deposits money in a 1-year time account and the bank lends it for 5 years. Both cases are the same. The saver is not knowingly foregoing the use of his money, nor lending it out on such terms and length.
This, in a nutshell, is the common complaint that is erroneously levied against all fractionally reserved banks. The saver thinks he has his money, but yet there is another party who actually has it. The saver holds a paper credit instrument, which is redeemable on demand. The bank relies on the fact that on most days, they will not face too many withdrawal demands. However, it is a mathematical certainty that eventually the bank will default in the face a large crowd all trying to withdraw their money at once. And other banks will be in a similar position. And the collapsing banking system causes a plunge into a depression.
There are also instances where the saver is not willingly extending credit. The worker who foregoes 16% of his wage to Social Security definitely knows that he is not getting the use of his money. He is extending credit, by force—i.e. unwillingly. The government promises him that in exchange, they will pay him a monthly stipend after he reaches the age of retirement, plus most of his medical expenses. Anyone who does the math will see that this is a bad deal. The amount the government promises to pay is less than one would expect for lending money for so long, especially considering that the money is forfeit when you die.
But it’s worse than it first seems, because the amount of the monthly stipend, the age of retirement, and the amount they pay towards medical expenses are unknown and unknowable in advance, when the person is working. They are subject to a political process. Politics can shift suddenly with each new election.
Social Security is counterfeit credit.
With legitimate credit, there is a risk of not being repaid. However, one has a rational expectation of being repaid, and typically one is repaid. On the contrary, counterfeit credit is mathematically certain not to be repaid in the ordinary course. This is because the borrower is without the intent or means of ever repaying the loan. Then it is a matter of time before it defaults, or in some circumstances forces the borrower to repay under duress.
Above, I offered two factors distinguishing legitimate credit:
1. The creditor has produced more than he has consumed
2. He knowingly and willingly extends credit
Now, let’s complete this definition with the third factor:
3. The borrower has the means and the intent to repay
Every instance of counterfeit credit also fails on the third factor. If the borrower had both the means and the intent to repay, he could obtain legitimate credit in the market.
A corollary to this is that the dealers in counterfeit credit, by nature and design, must work constantly to extend it, postpone it, “roll” it, and generally maintain the confidence game. Counterfeit credit cannot be liquidated the way legitimate credit can be: by paying it back normally. Sooner, or later, it inevitably becomes a crisis that either hurts the creditor by default or the debtor by threatening or seizing his collateral.
I repeat my definition of inflation and add my definition of deflation:
Inflation is an expansion of counterfeit credit.
Deflation is a forcible contraction of counterfeit credit.
Inflation is only possible by the initiation of the use of physical force or fraud by the government, the central bank, and the privileged banks they enfranchise. Deflation is only possible from, and is indeed the inevitable outcome of, inflation. Whenever credit is extended with no means or ability to repay, that credit is certain to eventually become a crisis that threatens to harm the creditor. That the creditor may have collateral or other means to force the debtor to take the pain and hold the creditor harmless does not change the nature of deflation.
Here’s to hoping that in 2012, the discussion of a more sound monetary and banking system begins in earnest.
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'Here’s to hoping that in 2012, the discussion of a more sound monetary and banking system begins in earnest.'
What's with the hope?
Ain't happening Weiner unless by some remote chance Paul is elected.
Damn dude you sound like A.R.J. Turgot (1727-1781). Good job.
I hope MDB and the Keynesians read this because this EXACTLY explains what an Austrian economist understands about the relationship of money, time, capital users, and consumers. Contrasted with a Keynesian 4th grade mentality of printing, spending, and "pushing" demand to create "full employment."
This is why Austrian economist have zero respect for a Keynesian economist, they are like stupid kids telling dad how things will be.
Read Steve Keen or better yet Hyman Minsky, since they capture a 'grey' area in the field of economics without the dogma of neo-classical Keynesian or Austrian doctrine.
Hyman Minsky is terrifiic! Just goes to show you that a Marxist can be quite licud.
You mis-spelled "Likud."
I can never trust any man named "Hyman".
They all tend to be twats.
Hey guys! Listen to this clip, you'll love it! :)
http://www.youtube.com/watch?v=jJYzLaiBHqc&sns=em
Best line in the song - Silver in my pocket, paper in the caaaaan!
Cute.
WTF do you think Ron Paul as President would do about it? Talk?
Talk is cheap. And if he tries to do anything more than that they'll pull an Oswald on his ass.
You mean a William McKinley (1843-1901-25th President), who was assasinated because he was a strong supporter of the gold standard by Leon Frank Czolgosz .
Let's assume there's no assasination. A Ron Paul presidency wouldn't mean shit anyway.
Oligarchs transferred wealth quite efficiently over time in countries that had a gold standard and a weak or no central banks.
It's a club and you ain't in it. They take care of their own.
If pigs fly and RP becomes president and ends the FED, it won't make a damn bit of difference.
Look at the principal actors, cause and result of Shay's Rebellion for a clue.
Three thumbs up. Great analysis.
I wish he had tied it in to the other axiom: "credit that is used for productive purposes (plant, equipment) will increase the standard of living. Credit that is used to finance consumption can be nothing but inflationary".
And, the inflation resulting from said purchase of unproductive asset (McMansion) will be delfationary when the creadit is defaulted, or even more inflationary when money printing is used to make the lender whole.
Where's Corzine?
He's "Chasin' 'Ol Shep"....you need not worry about the threat of competition....
....you got him beat by one vowel.
In Belize sipping a couple of Belikin Stouts with Kenny Boy...
this article is fabulous and a serious and welcome contribution to intelligent discussion of credit and money....i especially enjoyed the reference to real bills - i know that antal would smile.
Good point! Corzine is pumping MUD in South America!
UPdate: Corzine will die of " Jungle Rot"!
Let the Sunshine In
http://www.youtube.com/watch?v=-5-Q8igwxDw
Aquarius and Let the sunshine in - Hair Musical on Broadway - David Letterman TV Show
http://www.youtube.com/watch?v=xPLg5gA-9ck
Hair - Let the sunshine in
http://www.youtube.com/watch?v=ekOEXzspRkQ
In 1978 my dad could buy a new chevy pickup for $3,500......with 7.5 $470 calves.
Today it costs around $27,000 for a base model chevy pickup and my improved calves are selling for $800....Thats 33 calves for a new pickup.
I would submit that calves and lots of other production need to be priced higher or shortages will ensue....Production deserves to be respected and should be paid. My family is still ranching and I am the 4th generation raising the 5th. We haven't purchased a new picup since 1985......Don't get me started with everything else. Tractors, fencing, etc.
I have been lurking/ reading for two years..........be gentle first post
Welcome! My prediction: You will get three pickups for one of your calves in a future not so far.
Be gentle? Ha! If I were in a better mood I'd give ya a proper introduction to Fight Club.
Just too tired and worn out right now to whoop yer ass.
I'll just say "Welcome!" instead.
Sorry RR, I would have called off the Blue Ticks had I known it was you!
LMAO! I love the " Hulkster"!
Thanks! maybe next time
It is the same all over the world rancher.
One of the ponzi schemes great illusions is it's ability to get people to work for nothing while making them think they are getting ahead.
Everybody wants to get. ahead but if you are ranching how can you increase production fast enough to keep up with 7 Or 8 % real inflation.
In a hard money regime a production gain would go into your pocket...
Instead it goes into paying your higher input costs....
There's no way out ...we are all stuck in the same situation.
Your labour has been stolen...
Just a new rendition of the same old song.
http://www.youtube.com/watch?v=jIfu2A0ezq0
it takes a lot more to make a truck these days in terms of shit that goes into it.
The cars of yesteryear were far simpler but ZOMG they didn't have 3 point belts with airbag curtains and a few more people died as a result.
So you haven't seen a robotic production line, or a CAD system or anything else apparently... Figures...
Exactly. If anything, automobile prices should have went down, relative to "inflation" of course.
But, but, airbags save 12 lives a year! (And take 15 lives a year from short people who have them explode in their face.) Ain't progress grand?
You need the airbags more when you're surrounded by plastic instead of steel.
however do they allow motorcycles on the road without all that steal-plastic-airbag protection?
and aeroplanes have to have seatbelts too... thank fuck for public transport (buses, trams and trains) ...no airbags or safety belts needed there
If your calves were equipped with as many government-mandated systems as the pickup the calves would sell for $8000 apiece. For example, airbags, catalytic converters, emissions control, anti-lock brakes, seat belts, restraints, interlocks, etc. Go get an environmentalist to get Congress to pass some special legislation and soon you'll get your $8000 apiece.
How'd you like to be the guy who installs catayltic converters on calves?
Didn't you know cow farts cause global warming.
http://ginovieto-globalwarming.blogspot.com/2009/03/cow-farts-causing-gl...
Cattle are allergic to palladium!
actually it's cows burping/belching that produces more CO2 and methane than farting
once again the ignorant hysterics of Govt/Oil financed global bullshit that fucks up yet again and has the wrong end of the stick/cow/sheep
Trav777. I always enjoy your post. However, I beg to differ. About two months ago, I clicked the touch screen to SR tab (SIRI) and discovered my contract ended. My 600 watt THX-II sound system with 14 speakers told me to call a 800 number to renew. I barely used the feature in the first place. In fact, this Lincoln Navigator has an Elite package. I can sit in the back and watch movies… Never have used that feature because I drive it.
Moral of my story, car manufactures subsidize unnecessary features to create windfall profits under aftermarket renewal revenues. SIRI can hold their breath for a long time.. I won't be calling.
BTW, I didn't TD you
Price of Grass fed beef Retail 1978 - Ground Beef - $1.11 Up 38% from 1977.
Right now its $6.99 or more than a 700% increase since 1977- Just like your pickup truck.
The price of food in America is too high, not too low. The entire food chain is making out like banksters and many are, in fact, just that - banksters.
All this BS will end when the Fed no longer has the ability to increase our preposterous debt. They will not hyper-inflate. Instead, we will have deflation in everything. It has already started in housing and will wind up deflating everything that has any sort of leverage or financialization.
Not quite... You are quoting a retail price from a niche product that very few ranchers produce for. Most of the commodity beef is produced for the big agribusinesses who run the calves through huge feedlots in the cornbelt. Grassfed is a small niche that is healthy and is therefore more expensive.... the latest usda beef report has ground beef at $1.90-$2.16 .......http://www.ams.usda.gov/mnreports/lm_xb403.txt Confusing wholesale ground beef price with a retail advertised price is apples and oranges
Too high? Hardly, growing animals or vegetables isnt as easy as urbanites think and less people want to do it. Most prefer to sit in an office shuffling electrons and being generally useless. Government subsidies and illegals it keep the cost artifically cheap for the amount of time and effort that goes into it.
Wait till you see what beef costs at the end of this year.
I'll say. There's always some pest that is looking to consume the fruits of your labour. And then there's the government.
O my god we are neighbors , I live in N Dakota.
You are in a government supply chain. It's kind of like the doctors chain. They stuff the channel with very greedy suppliers. Doctors pay 800 bucks for a pole to hang a IV drip bag off of. You pay way too much for medicine for cattle etc etc etc. Difference is the doctors get access to big fat money pools of government. You don't.
Production is controlled by simply putting you entirely in debt and either giving you the paper to produce or not. Or if you own the farm like you said it's 4th generation. You are competing against people who are controlled by big business. And they hedge and sell and buy futures and sell futures and act basically like very sophisticated wall street types. So they are going to get more money for their sales and buy stuff cheaper.
your right they tptb have been pushing consolidation in the name of efficiency...a lot of neighbors have quit and moved to town. Ranches around here used to be one family and 2000-3500 acres and 70-80 cows ...now they are all at least 10,000 acres and no one can get it all done. Some of us are rebelling .....buy some healthy bison meat! www.thebuffaloguys.com
80 cows on 2000 acres!?!?? Why is it so low?
"He keeps his herd together as a group as it rotates through about 100 paddocks on the ranch. He runs on average one head per acre." from http://www.tx.nrcs.usda.gov/news/lonestarlink/archives/09/grazing_ws.html
Is wherever you are that much less productive?
It's a genuine question :O)
Your citation is referring to mob grazing on rotating grass paddocks- often cows see one paddock once a year(except spring when they may see four paddocks a day). There are other people that graze large areas without paddocks. The numbers are much different because the amount of grass per acre is so much less.
We are in the beginning of trying out some of these new grazing techniques. The reality is that mob grazing is great but very labor intensive. I move my herd about 4-5 times per year and they graze on large open pastures from 1000-2500 acres each. Mob graziers move every day or at least every 2-3 days and then manage to stay off the land for the next year....takes time, fencing, planning, and capital, but it looks like it works. I have been to two different holistic management seminars that are preaching these types of systems and it looks promising. I also am managing 300 hd of bison and 300 hd of cows at the same time on different land. There is a limit on what one man can do.
Most cattle today live in feedlots and are fed a diet consisting of pellets consisting of dried grass, chicken shit, corn husks, grain, lime, and antibiotics. The antibiotics are needed because the diet and living conditions are so bad they'd die of diseases. The antibiotics also cause intestinal perforations and result in a massive buildup of lymphatic tissue and visceral fat. More pounds for more money. Are you hungry for a steak?
What you say makes no sense. It takes a half acre to feed a person planting much higher quality food than grass. There is no way a cow could live on that unless it was 30 lbs.
"Doctors pay 800 bucks for a pole to hang a IV drip bag off of."
Doctors don't pay for it, virtually every American citizen pays for it through: medicare, medicaid, and reduced compensation due to high insurance premiums/and or high workers comp premiums, etc, etc, etc...
As a physician I must ask, how do I get "access to big fat money pools of government."? Do you mean that I am paid by Medicare a government conduit for medical care?. I do. I would not describe it as "big, fat" however.
It is not keeping up with costs and it is not reliable. This year we were threathened with a 29% cut. That would have killed the program (and all private practices caring for the elderly) so I did not worry about that one.
I'm in Shenzhen PRC...sucks not being able to link y•outube or several of the other links.
It seems pretty open here so that makes these blackouts seem weird. Like society is fine but there is some curmudgeon who does not like some particular idea so he gets to bleep it out for 1.3 billion folks.
You're in china? I'm talking about america.
rancher...you cannot compare directly the prices of the 1978 chevy to the 2012 chevy. You need to adjust for the fact that the new truck has additional technologies like antilock brakes, traction control, mp3 player, elctrodimming mirror...etc. Calves haven't changed their feature set as much in those years. It is true that adjusted for technology, truck prices have inflated and beef prices have deflated...but it is not quite as severe as the numbers you used.
A good question to ask is why isn't there a truck offered at a price point, say for around 12-14 calves. I think financing is far more profitable than margins on low-end trucks.
All that new technology doesn't mean shit. It's still a bucket of bolts getting one from point A to point B.
Why is a 7.3L Ford with more miles on it worth more than a newer Ford truck with less miles and more bells. whistles and other new technology?
Exactly!
WHY is it impossible to buy a SIMPLE car or pickup nowadays? I do NOT need all the fucking gadgets and bells-and-whistles of leather seats, cruise control, power windows, automatic starters, GPS, etc. etc. etc. I resent this constant, non-stop ratcheting-upward of what is considerd "standard" and "necessary" in a vehicle.
Who knows, maybe Kia will enter the US market with a truck around $15k USD (c. 2012).
Of course, by the time I click "save" on this comment, that price will have gone up by 25%. Hooray for a central bank hell-bent on inflation. Everyone needs to timestamp price estimates to the second these days. Or microseconds.
I wonder how I ever survived in my no seatbelt Chey Nomad. Car makers can still build a basic truck cheap if they want to. Why everyone thinks they have to have the latest do-dad is beyond me. I am not impressed and vehicles these day are ugly as hell. Fuckyou, George Jetson.
As a rancher and independent you are most welcome here, but if you have not found out yet you are "an enemy of the state. Welcome to the burgeoning club!:)
@rancher from SD. What's worse, with this infernal drought, a lot ranchers in my area had to sell off 2/3 of their herds. Grass is expensive to boot.
Good post.
Thx der da post.
Nice, and post again.
I don't have a clue, you much of them ...
Nice work Goldilocks! You get it!
This definition of social security completely misses the purpose, intent and function of the social security system. It is not designed to be a savings/repayment on retirement system. Social Security is a form of wealth redistribution on a national scale. It is designed to provide all those who reach retirement age a certain, baseline standard of living. It was never intended to be simply a system where you get back what you put in + interest. Some may receive more than they put in. Most will receive less than they put in. But, all will enjoy a certain minimum standard of living-that was the intent.
Some may receive more than they put in. Most will receive less than they put in. But, all will enjoy a certain minimum standard of living-that was the intent.
*************
If you contributed dollars monthly for the last 40 years-
The 1970 dollar was worth much more in buying power than what a 2010 dollar buys-meaning-your pension contribution has been robbed from you via inflation
Milton Freidman rocks on everthing but monetary policy.
http://www.youtube.com/watch?v=rCdgv7n9xCY
That happens until it doesn't
The govts debt burdens will trickle down to the serfs eventually....my guess thru austerity...and a serious slash of entitlements.
When that dynamic comes around....then you will see the real symptoms of inflation
The govt. will remain pre-occupied with posting "colorful" statistics about "new workers" and "jobs created"
What they won't tell you is how they engineered class warfare....with older people becoming direct competition with the unemployed younger generations. I don't sense levels of optimism right now. It sure won't get anymore optimistic should they decide to print their way to servicing their debt loads....and unleash the vicious effects of inflation on a wider range currently feeling the pinch.
Of course the "Prechterites" will argue that Deflation is in the cards this time around...and my response would be (?...time will tell).
I'm submitting a scenerio where inflation has alot more damage to deal out to the sheep than has already been felt thus far. It's levels could stair step rather evenly....like the pot of "bath water" for the frog....until a time when it decides shift into a higher gear. That's when strange days force people to really learn the true definition of inflation.
The American landscape is not so resilient and hardened like generations past. I doubt they will do a very good job coping with any increases in their financial hardships.....whatever direction our "Social and CB Planners" decide to take us.
I'm submitting a scenerio where inflation has alot more damage to deal out to the sheep than has already been felt thus far.
***********
I think we are feeling the effects of a past inflation mania-
There has been little passthrough of money printing into the broad economy from all the money expansion of the last 4 years-velocity has collapsed and unemployment is climbing and wealth/personal balance sheets are contracting-
This will bring about lack of affordability by consumers to support higher prices and i believe prices will fall hard as demand decreases-
What's gunning future prices at this point is taxpayer bailout funds in the hands of hot money bankers who are speculating in commodity markets-
In the end--it's us peasants and our "sentiment in mass" that makes the market and what we do will eventually have a far more powerful influence on prices than a few printed trillion here and there
While I agree wholeheartedly with your core, I don't think we have to "slash entitlements."
There are plenty of voluntary scanarios where people who've paid in can opt out or be bought out.
Happens all the time in corporate america...
I am frustrated that we use binary language, whern there are an array of solutions that would also
give people choices. In exchange for "resigning" social security's commitment to you, one could:
Take out all that you've paid in, tax free.
Calculate the expected SS payout and take a discounted lump sum up front.
To sweeten the pie, do the same as above, and offer it federal tax free.
Do the same as above and roll discounted SS payments into your children's or grandchildren's Roth or IRA's.
Jeeze, I'm not an actuary, but there are alot of mathmatical solutions that would be appealing to many people...
AND still keep that Gubment payout for the sheeple who like that kind of stuff.
I argue it here largely because you talk about class warfare of older vs younger and social security....
"But, all will enjoy a certain minimum standard of living-that was the intent."
Yup, all those who receive social security before the entire balance is raided and used to fund the upcoming Iran war will get a minimum standard of living. The rest of us? Not so much.
The purpose of the SS system is to rob you. They dress it up in communism red, but the reality is you would have been better off investing your money. Forcing me to pay for someone else's retirement and then forfeiting my savings if I don't live long enough to receive it is criminal theft and fraud.
The only people who benefit are the politicians that guarantee their jobs with handouts, the free riders that don't have to work and the bankers that collect the interest of the debt created when the government spent the money, instead of saving it.
You might want to check your pollyanna at the door...
The Fed is falling way behind the curve.
If they would simply print more money, then the dollar will start rising just as fast as the Yen.
Japan gets it. The U.S. Fed is woefully inept. The ECB is even worse.
The reason the Euro is tanking is because stubborn technocrats from the Austrian school are trying to hold back the ECB from printing any money whatsoever.
If Bernanke would simply step on the gas and firewall it, then the U.S. Dollar would explode to new highs very soon.
WTF, over.
I think Dodotraiter has finally flipped...
Nope, he has been saying that for a year now, and it ain't sarcasm...
Yo, Hulk! I know, I think the guy actually believes what he posts. It will be interesting to see who he blames when the market crashes over the next two months.
Guy? So I shouldn't hold out thinking it's the chick with the tits?
I think SuddenDebt should change avatars with Robotrader. Unfortunately, as best I can tell, SuddenDebt's avatar is actually him...
I have convinced myself that is a self photo. Please don't destroy my fantasy:) Since she refers to her father as "dude" I refer to her as "dudette".
Yo, WonderDawg! It will be crickets you hear from RoboTrader when reality catches up to us...
If he really ACTUALLY believes what he types, he must be very close to suicide, the poor guy. If it gets half as bad as we all expect, he'll die of starvation, shivering, looking into a corner.
You've got the ECB part right. If the ECB prints, the Euro will rise because right now the fear is in the Euro falling apart.
The dollar, on the other hand, will drop when more printing commences. I say more because they're already doing quite a bit of printing as I type.
TheSilverJournal.com
Robot Trader that is a big "F" in macroeconomics. Ouch!
As with everything, it's the 'supply & demand' that governs value.
The more paper dollars in the system; the more the existing supply is devalued by dilution. Simple.
So, as you say if Bernanke "firewalls" it with the printing, then you have false credit and inflation by way of devalued currency induced cost push.
Either way; it does not end well. The only protection is owning physical gold, silver and guns, with plenty of ammo!
could at least put on a sexier av
japan gets it in more ways than one - since 1989 i'd say?
ref: "The Myth of Japan's Failure" by eamonn fingleton 1-6-12 [nytimes]
http://www.nytimes.com/2012/01/08/opinion/sunday/the-true-story-of-japan...
Ps. caution: for those of us that can't responsibly handle our finances,... social security & medicare are wonderful programs --- no one knows what tomorrow brings - now does one? case in point, ayn rand!
Robot, I mean "dudette", you are incredible and a sight for sore eyes!
RobotTrader...what's the reasoning behind the thesis that printing will lead to dollar strength?
Through the scam of counterfeiting gold, or printing more notes redeemable in gold than actual gold exists, value was stolen from actual gold and transferred to the counterfeit notes. When the counterfeit notes become worthless, much of the stolen value will be returned to actual gold. The Fed is in control of the greatest scam ever pulled and the scam is in the process of being revealed.
TheSilverJournal.com
Those who care, or could prepare for the inevitable, already know. The rest will just have to do the best they can. The scam is revealed and has been for a generation. When J6P gets wind of the consequences there will be blood. One does not have to actually understand why he is starving, or that his family is in jeopardy, for action to take place. It just does... and will.
I'd submit that the Fed's paper price suppression scheme is not limited to just gold, but is applied to all paper traded commodities. The big 5 banks have 90% of the $700+ Trillion in derivatives exposure and act as intermediary "buffers" to conduct the trades for the central banks and use the massive leverage available (and unregulated) to suppress commodities prices. It's the best way to explain how inflation has been "managed" during the unprecedented post 2008 monetary expansion (inflation formulary changes aside). It also helps explain the $100+ Trillion increase in derivatives exposure in the first half of 2011. I recall reading an article that estimated that it would only take $250-$300 billion in fiat, using the leverage from the derivatives contracts, to control the entire commodities market (I believe that was on an annual basis, but not sure). The pricing reset for all commodities will be very swift and very painful if/when the monetary WMDs that are the derivatives market finally meltdown.
J. P. Morgan Chase holds $93,000,000,000,000.00 in derivatives. The annual world economy is $60,000,000,000,000.00. I am not sure, but I think we are fucked!?
Correct....JPM is the Govt....and the taxpayer will be picking up the tab on their folly.
There's no way out....besides calling a worldwide "Jubilee" event.
I'm not sure our creditors will approve of such a maneuver.
No worries....Politicos love to send off to war...it's sons and daughters to die in vain...and for no good reason.
i sincerely do not believe the bwankers $600$700 Trillion in bets/insurance going tits up tomorrow will have any impact on the global real economy
if your local bookies and insurance Co goes bust it has little impact on the High Street or farmers market
let the gambling junkies, and the Govt debt junkies, implode in their own sewer.. who gives a fuck!
CA is so fucked
Brown’s Budget Sends ‘Ransom Note’ to California Voters on Tax Increases
http://www.bloomberg.com/news/2012-01-06/brown-budget-sends-ransom-note-...
Funny how socialist systems tend to get less and less services.
Weird, money from the government comes from a hole. The same hole where all the endless oil, silver, copper, etc comes from. How can the money run out? BTW it is next to the bottomless hole where all of our garbage and toxic wast goes into. It is all magic.
Seriously though, the thing I find underhanded is the whole give me money or your kid gets less school. They hit their people under the belt. Aren't there 20 other places were they can cut (union pensions, fire, police, subsidies, etc)? Politicians are the scum of the earth. This year I am moving them to the top of my list. Lawyers are now number 2.
Since 75% of the politicians are lawyers there is no reason to modify your ranking.
As lawyers are "officers of the court" does that not place them in the judicial branch of government? How can they legally serve in either of the other two branches without first resigning from the bar?
Don't faint, but there is no Constitutional requirement for a U. S. Supreme Court Justice to be an attorney!
Gov. Moonbeam allowed state workers to unionize back in the day. Unfortunately some americans have short term memories and allow the same fuck ups back into office. California is full of takers that prey on the productive members of society I am glad I left.
Gov. Moonbeam allowed state workers to unionize back in the day. Unfortunately some americans have short term memories and allow the same fuck ups back into office. California is full of takers that prey on the productive members of society I am glad I left.
A fine suit costs 6k minimum.
The prices of suits are affected by what is produced by slave labor under the guise of free trade.
Elastic demand goods prices don't transmit reliable data when slave labor is used to produce. Only inelastic demand good prices transmit proper information.
i would not call it slave labour because, you know, in most cases people do actually agree to work for those "slave level" wages willingly.
EXACTLY.
Either you believe in free markets or you believe in central economic planning and price controls (wage controls, interest rate controls etc).
Should Apple pay chinese people more than a 'slave' wage? if the market demands a good but is only willing to pay X for the labour to manufacture it, then that is the free market price. The fact that Apple makes a profit on the iPad is because it has created an integrated system of software, services and lastly hardware. People look at the hardware manufacturing and equate that with the value chain in the iPad, then say that Apple should pay more more more, or bring those jobs to the USA. Maybe you can sell the iPad for the same price, but then Apple will make less. Say they only break even on all the iPads, where is the incentive then for them to invest into better research, hardware and software (Operating System) development?
If what Apple does is so 'wrong' and if they are making so much money off the iPad why doesn't a free market competitor come along, sell it at less than Apple and take away its profits? Oh wait, HP, Blackberry, Toshiba, Motorola etc. have ALREADY TRIED. They cannot undercut Apple's price and they offer inferior products.
Compare the tablet computer (highly profitable for Apple, many competitors) to the LCD TV market where a place like Best Buy makes $20-50 a set that they sell, and the manufacturers only break even. There is massive industry consolidation in the LCD TV space and.. DUH... people are LOSING JOBS. Whereas tablet manufacturers are hiring like crazy.
Austrian economics don't believe in a minimum wage.
Libertarians believe in free markets, to the extent that if you wish to work for free under adverse conditions, provided its not coerced, then so be it. What if you wanted to work under Bill Gates in the 90's or Steve Jobs in the 2000s and they weren't willing to hire you, I bet I could easily find 100 people who would have worked under either of them for free, to learn from them. Would that be slavery? Would a free person not have the choice to do that?
Instead people complain about 'slave wages'. Well don't take the job then. The argument should be why is the VALUE of the money ANYONE earns worth less and less each year?
I laffed, no one Willingly works for slave wages.
please note all the shrill cries about "slave labour" come from Govt funded hysterics who are paid twice private sector wages
Govts primary role is to tax productive (private) society... Govts main business is extortion
therefore all shrill tossers on double private sector wages (and benefits and pensions) should be ignored as a matter of standard diplomacy as over-paid extortionists
i do not care about your inflation (defined as credit expansion) i care about prices of the goods i buy.
So call it whatever you like but most people are interested in monitoring prices so they naturally tend to call that process inflation and not your way of defining it
No matter how one defines the terms the underlying processes are the same
TY Great article!
Bingo-in-a-nutshell and very clearly written. I actually printed this off because I think that some of the ostriches might be able to understand the nature of the beast we're all dealing with if they read it (enough times, with the tv off).
My point is that consumer prices are a red herring. Increased production efficiency tends to push prices down, and monetary debasement tends to push prices up. If those forces balance in any given year, the monetary authorities claim that there is no inflation.
*************
Creating more money (not printing) but extending "credit money" like we've seen-is what pushes prices up eg: housing bubble
More paper chasing the same amount of goods and services-
The reason that we escaped this so long was that increasing house prices for people who bought on crazy credit leverage made them feel like they were becoming wealthy and also-outsourcing manufacturing and then importing cheap Asian products masked the stagnating wages and decrease in dollar buying power-
Now that it has all blown up-we simply do not have enough currency to cover the deflating credit supply-
http://research.stlouisfed.org/fred2/series/SBASENS
http://research.stlouisfed.org/fred2/series/TCMDO
Exactly!! Finally someone who gets it. Money is created through credit expansion, not, printing a la raising bank reserves (monetary base). The US economy alone needs to delever ~ $25 Trillion worth of credit money to return to a sustainable debt level. The $2 Trillion the Fed added to the monetary base will be gobbled up by banks as they write down huge chunks of bad debts. This is all DEFLATIONARY.
I remember during the 1980’s when huge and precarious sovereign debt of Latin American countries was threatening the solvency of major international banks, much like the debt of some European countries today. A joke was being floated by some Latin debtors that went, “We never pay off our old debt, and we let our new debt become old”. It would seem the Fed has learned a valuable lesson from our southern neighbors.
The Masters of the Bait And Switch, the Shell Game, and the various forms of statistical manipulation continue the deception. The holes get filled with more and bigger lies. The Consumer Price Index is a myth. People know that everything costs more than they used to pay. The other pincer in this squeeze in loss of purchasing power. It's only a dwindling time before the lies catch up with the liars.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
I have a different definition, since the primary role of a bank is to monetise debt:
Inflation is the monetisation of counterfeit debt
Deflation is the demonetisation of counterfeit debt
Hyperinflation is the demonetisation of the most counterfeit debt of all... the government.
So, as I've said many times before inflation IS deflation & deflation IS inflation.
Bingo!
Inflating the currency supply, deflates the currency value.
That depends whether the supply is of counterfeit debt or not. If the supply is of Real Bills there is no deflation of the currency value.
You will soon have an up close and personal encounter with what REAL deflation means.
No Thanks! Fukushima was enough! Hint, Hint?
DSK down, Lagarde in, Treasury TG to France in early November , Dexia ,of France-Belgium, died on the toxic general rations and went down in flames, Greece 110% odds on fail, riot act in force to global ATM World ....500 B euros appear as if out of US nowhere swap holes and 3-years to reset a new fakebook economics is the new trial balloon to the buffoons. We're bigger than Japan and bleed lies longer.
End Corps's inHuman Rights interposition and nullification.
A most excellent and clear discourse. It is interesting to guage by how much the taxpayer/voter is complicit in this fraudulent credit creation. Is it axiomatic that there must be fraudulent inflation creation to correct willing taxpayer excess and that this is a "force of nature" or why democracy is better than say, socialism or communism? I think a lot more attention could be paid to the sleights of hand that go for monetary economics.
There are the usual posers of "why not just have the Fed buy up all Government debt then cancel it?" and "if monetisation of deficits is a legitimate mechanism, why do we ever pay tax?"
There are a couple of "real world" issues that I think are being missed here. I am using BEA stats released on 22 December 2011, next release is 27 January 2012) for the following. There are also some great charts here:
http://blogs.forbes.com/michaelpollaro/files/2011/12/RGovFin-12-13.pdf
The census data estimates are here with actual data for 2010 (projections to 2050):
http://www.census.gov/population/www/projections/summarytables.html
Firstly, it is a fact that the gross US debt outstanding of $15tn, carries is paying $450 billion a year in interest and has a 5 year maturity. The interest bill of $450 billion is a charge against the voter, not the tax payer of course, but the voter. Nonetheless, the $450 billion represents the current annual cost of cumulative fiscal excesses totalling 15 trillion. This is a scary number for those voters who pay taxes; these voters’ personal taxes sum to just under $1.5 trillion, making the interest bill being foisted on the voting tax payer of 30%! This is hardly equitable. Luckily, companies are now paying just under $400 billion (up from a meagre $185 billion in 1q2009) and also the taxes raised on "production and imports" raise another $1,100 billion for total income of $3,200 billion. Nonetheless, the $450 billion out of $3.2 trillion is an interest burden of 14% of the total tax take. What relevance does the Fed control of interest rates have to do with this? We can make the number a little more palatable by engaging on the fool’s errand of focussing on net debt instead, as around $5tn is intra government. This leads nicely onto the next point as to why this a fool’s errand.
The next rate that has nothing to do with smoke and mirrors and is a future burden is the "drawdown rate". I will leave the accurate maths to someone else, but it seems to me that the unfunded nature of the pension burden is subject to a drawdown equal to the percentage of the population who will rely on the Government for the full source of their income in retirement.
From the census data, there were 40 million over 65 in 2010 (out of 152 million. By 2015, the projections are for 47 million (out of 160 million) and 55 million in 2020 out of 180 million. The percentages in retirement out of the total population are 13% for 2010, 14% for 2015 and 16% for 2020. They magically peak and stabilise at 20% of the population from 2035 to 2050. I wonder why.
It is not the percentages so much as the 2010 dollars that will be spent out of the tax payers (not voters) pockets. I don’t know the exact number, but say half of those in retirement are entirely Government funded. I am going to assume that these people get sufficient to pay utilities, food, city rates and health and probably be c. $18,000 a year each. That means that in 2010, 18,000 times 40 million times 50% were receiving retirement benefits from the tax-payer. This equates to $360 billion for 2010. In 2015, this could be $423 billion and $495 billion by 2020. This drawdown rate for 2010 was equal to the amount paid divided by the tax take (for those voters who pay taxes), that is, $360 billion divided by $3.2 trillion comes to a draw down rate of 11%.
This makes the burden of debts and promises borne by the tax paying voter a sum of 14% plus 11% or 25%. Now let’s talk about personal debt on top of this ¼ of income as the debt burden faced by tax paying voters and talk about democracy for those who pay taxes, not those who don’t!
http://www.youtube.com/watch?v=7zotYU21qcU&feature=share
As it is!!!!!!!!!!!
Another way to look at inflation is that is just a tax in disguise. One of the reasons governments love fiat currencies is that the can disguise what is basically a tax. This is the reason they hate PM backed currencies, if they want to raise a tax they actually have to call a spade a spade, pass an increase in taxes, and take heat from voters for doing so.
One of my pet peeves is the tort lawyer tax. When you buy a car made in the US you are buying the manufacturers various liability insurances on it. Those insurance payments end up in tort lawyers pockets who pass a good portion of it on as campaign contributions and lobbying money.
I recommend a crash course in Semiotics and yet another read of Charles Mackay's 1841 classic "Extraordinary Popular Delusions and the Madness of Crowds"
Combined with the excellent ZeroHedge, final victory is assured.
Inflation is an expansion of counterfeit credit.
True, another is to say 'Value Dilution' Either way, it is NOT increased demand.
Sound money or fiat wealth, same choice as liberty or security. Same false choice, once you give up liberty or sound money you get desperate poverty in extreme insecurity in return.
A Stable Government, Medium of Exchange and a Value fixed and Guaranteed by the Government.
What Is Money And Its Functions? Educational Documentary Film (1947)
YOU DON'T SAY?
/sarc
MMT crackheads
Inflation is a Feds Dreamscape
whats the sence of debating it all the time ... lets face we are Fucked .
Hope you have gun or 3 ..ammo .. Pms ..worthless papper just to whipe your ass with ,,good neighbors or freindsFam.. food ..you get it . One way or the othe a shity time is coming period.
It sucks to said but there is no math methodical way you can other then defaul..or crash.
sorry for typos
"R" - "u" Timmahs ( Right hand man)?
No gear box ... to manny scotches in my right hand..
like I said sorry for the typos and mis-spells
"In a nutshell" Fuck the Fed
Gold is gold.
And stay away from Candy.
She will get you in trouble.
And steal your Gold.
http://www.infowars.com/obamas-new-jobs-plan-110000-unpaid-positions/
people have been misunderestimating 'inflation' forever.
this article is pointing not to the nonsensical idea of redefining an already dubious notion of what inflation ---but pointing to the far far more important notion in understanding economics from the monetarist perspective.
while everyone and every economist is trying to 'figure' out whether there is inflation or not, there are bankers, treasuries, governments, and large corporations redistributing massive ammounts of capital through equity and credit.
the ability to manufacture new equity and new credit out of thin air , and then find or 'produce' a buyer for it is really just another way of creating new money into existance for the purpose of channeling economic activity into certain sectors or purposes.
what's important in a slow down is not weather or not there is 'inflation' , it is whether or not 1) there is new money being created 2) how it is being used.
the reason capitalism is so succesful is that even when new money is created for corrupt reasons, this mechanism of manufacturing 'demand' into a system that is falling apart seems to engender less hostility and seems to be more efficient as solving social problems than dictators who simply ORDER people to do things differently, or to keep doing what they are already doing instead of stopping to do it voluntarily.
you gotta realize, the human network of social control exists with or without the many different types of money. it's about the exchange of goods and services and the most special service of all violence .
thanks for this article though. i just thought i'd help out. in redifining what everyone out there should have known for a long time---inflation is besides the point.
Nicely said, allow me to summarize. The dollar needs to exchange hands X amount of times daily for capitalism to function productively. Once constraints are imposed on Dollar circulation, medium of exchange alters to other forms of commercial bartering.
Inflation is not rising consumer prices.
Correct. I've been saying that a long time.
One can’t understand much about the monetary system from inside this box. I offer a different definition.
Inflation is an expansion of counterfeit credit.
Wrong.
Inflation is expansion of the currency supply relative to GDP. It's first year Econ 101. It can be in the form of cash or credit or numbers in a computer, it doesn't matter, it all spends like cash.
Prices can be affected by two things: Supply / demand, and currency value.
I've created a formula to show the relationship:
Price = Demand / Currency value
If demand rises while currency value is steady, price goes up.
If demand is steady while currency value drops (inflation), price goes up. This is what we've seen in gas and grocery prices since '08. Demand holds relatively steady while currency value drops, resulting in prices rising.
If demand holds steady while currency value rises (deflation), price drops.
If demand drops while currency value holds steady, price drops.
Now here's a tricky one, but the formula handles it: If demand drops and currency value drops correspondingly, price remains steady. This is what Bernanke is trying to do. Keep prices stable in a collapsing economy with collapsing demand for many things. He does it by debasing the currency about the same rate as demand drops, resulting in prices remaining more or less stable.
But housing is unique. Demand for housing is dropping way faster than the currency is losing value, so housing prices have dropped around 30%
If Bernanke wasn't debasing the currency, housing prices would be down 50 - 60%, the real estate market would just fucking implode ...and banks heavy in real estate paper would just fucking collapse.
How does Bernanke debase the currency, make it lose value?
Simple. By printing way more of it, way more than the increase in GDP ...which is actually falling, not rising, making the dollar debasement even worse.
This is how a central bank hides an economic collapse. By debasing the currency as demand drops, keeping prices relatively stable ...just as the formula shows.
But Bernanke isn't doing so well at it. Multi-trillion dollar bank bailouts and financing massive government deficit spending is forcing Bernanke to print mountains of currency in a shrinking GDP, resulting in heavy currency debasement and big price increases ...just as the formula shows ...and just as we're seeing at the gas station and grocery store.
Bernanke can't defy the laws of mathematics, and he can't rebuild an economy by fucking with the currency.
Rebuilding this economy requires (a) bringing manufacturing back to America, restoring those millions of lost jobs, rebuilding America's productivity, (b) cutting way back on government spending, taxes, and government borrowing, and (c) stop bailing out the damn banks, let them bankrupt.
Why doesn't this government do these 3 things?
I don't have a clue.
Rebuilding this economy requires (a) bringing manufacturing back to America, restoring those millions of lost jobs, rebuilding America's productivity, (b) cutting way back on government spending, taxes, and government borrowing, and (c) stop bailing out the damn banks, let them bankrupt.
**********
I agree with that-but doing it is impossible with current global wage pressures and competing lax environmental standards-
***********
If demand is steady while currency value drops (inflation), price goes up. This is what we've seen in gas and grocery prices since '08. Demand holds relatively steady while currency value drops, resulting in prices rising.
************
On an index weighted basis-the dollar is exactly where it was at in 07-
http://finviz.com/fut_chart.ashx?t=DX&cot=098662&p=w1
imo--what has happened is hot money in the futures market-gunning prices-nothing more-
On an index weighted basis-the dollar is exactly where it was at in 07-
How can you be so FUCKING STUPID?
DXY rates USD against OTHER DEBASING CURRENCIES you STUPID MORON.
DXY rates USD against OTHER DEBASING CURRENCIES you STUPID MORON.
*******
Well-you're the only person that's called me that name-and--
i suspect it's because i just kicked your ass-
Currencies are fungible-"meaning" they float and compete-got it???
Oil/Gold/wheat etc prices are indexed to "floating currencies"
so--what other measurement do we have?
Gold?
Yep---
Oil is at $100 USD's-
Oil in 2007 was...(gasp) $100
http://finviz.com/fut_chart.ashx?t=CL&cot=067651&p=w1
Got it yet? mouthy fuckwit
so--what other measurement do we have?
Gold?
Absolutely you stupid blind dipshit.
Gold has been the defacto standard against which all fiat currencies are measured, going back as far as fiat currencies have existed.
Oil still at $100? That's your "proof" USD is holding it's value?
In 2007 oil was is in a speculative bubble just like housing.
Today's $100 oil is actually $67 in '08 dollars, because that speculative bubble burst just like the housing speculative bubble burst when this economy went into the fucking depression it's in now.
But these facts are ignored by you fiat currency cheerleaders
...who hate and detest the fact that gold is (and always has been) the defacto standard fiat currencies are measured against.
And yes gold is showing your rapidly declining USD to be the fucking fraud it is ...despite gold's price being heavily suppressed by the very people wanting to hide USD's rapid debasement ...using all manner of FRAUDULENT and ILLEGAL methods I might add.
People around the world are losing faith in your rapidly declining fucking fraud fiat paper currency.
Deal with it.
Gold?
Absolutely you stupid blind dipshit.
Gold has been the defacto standard against which all fiat currencies are measured, going back as far as fiat currencies have existed.
Oil still at $100? That's your "proof" USD is holding it's value?
,,,****************
Don't try and deflect the subject onto gold-
I have likely been in the gold market as long as anyone has-but that's not the point you brought up-or what i commented on-
Believe it or not-gold isn't a medium of exchange at this time-so we do not buy oil or any other commodity in gold-we purchase them in dollars or euros or whatever currency is acceptable and no one was arguing about the fact that all currencies are devaluing against gold-
If you were paid $100/day in 07--you could buy 1 barrel of oil/day-with your wage-
If you were paid $100/day in 2012--you can still buy 1 barrel of oil/day with your wage
Comprehende?
We are living in a wasteland. If you factor in the increases in production efficiency due to technology, the dollar is probably worth less than .25 cents (as in 1/4 of a penny) compared to 100 years ago. Think of it. What a simple retirement plan if we had an honest money system. Just save money. Even at zero interest, your saved money buys 5-10 times more when you spend it during retirement, then when you first earned it, due to continual increases in production efficiency. It think our system is far more fucked up than we can even imagine.
If you factor in the increases in production efficiency due to technology, the dollar is probably worth less than .25 cents (as in 1/4 of a penny) compared to 100 years ago.
Increases in production efficiency have no effect on currency value. It simply reduces manufacturing costs, which may or may not be passed along to the consumer in the form of lower prices.
Increases in production efficiency are offset by higher input costs, higher employee costs, higher overhead costs, higher costs of complying with government regulations, and higher taxes.
The US dollar is worth 2 cents compared to 1913. That entire loss of value is due to currency printing, debasing the currency.
This is why saving money for retirement is a futile pursuit. The Fed will continue debasing the currency till it's worthless, and all those dollars you saved up will be nearly worthless or completely worthless.
... unless you're saving for retirement in something the Fed can't print and debase, like gold and silver.
Geezer- your reply is postcard perfect. You completely missed my point. My scenario assumes a PM monetary system, and by implication, a government that is much less intrusive than it has been. Production efficiency does not affect currency value. Agreed. It simply makes goods relatively cheaper so you can buy more with the PM money you saved at an earlier date. With our current fiat system, increased production efficiency masks price inflation. Hence, in hard money terms, a loaf of bread that costs 5 cents 100 years ago should now cost 1 cent in terms of reduced manpower required to produce it. Instead, it now costs $3 instead od 1 cent. Massive inflation is masked, because $3 is 60 times greater than 5 cents, but 300 times greater than 1 cent.
Geezer- your reply is postcard perfect. You completely missed my point.
Then you come right back and agree with me. :)
No, production efficiency does not make goods cheaper when all the other costs rise and completely offset the efficiency savings.
Nothing gets cheaper when you have a top-heavy bloated government imposing all kinds of additional costs ...plus all the additional costs imposed by unions ...plus all the additional costs of insurance for everything under the sun ...plus all the additional costs of our fucked up money hungry legal system ...plus all the additional costs of sky high executive pay and bonuses.
That would be the case in a PM based currency too.
This is WHY American manufacturing is being sent overseas where all these other costs are way lower.
See, your declining price argument allowing retirement savings to buy more is bogus. Regardless of PM based currency or not.
If you factor in the increases in production efficiency due to technology, the dollar is probably worth less than .25 cents (as in 1/4 of a penny) compared to 100 years ago.
This statement is completely bogus.
You're trying to draw a relationship between two completely unrelated things.
Manufacturing efficiencies are one thing. Currency debasing is another thing. They're not related.
...By definition and by nature, gold production is never counterfeit. Gold is gold, it is divisible and every piece is equivalent to any other piece of the same weight.
Gold mining is arbitrage: when the cost of mining an ounce of gold is less than one ounce of gold, miners will act to profit from this opportunity...
Many miners are content to allow the gold to remain in the ground as the knowledge and ownership of the deposit is valuable in its own right. Political risk cannot be understated, as the rule of law, personal property rights and regulatory roadblocks are an even greater threat to a successful mining venture than nature’s weather, climate and geophysical challenges.
While the recent TV series on gold mining shows many of the hardships associated with strictly gold mining ventures in difficult regions, nothing is shown from the successful mining associated from aggregate operations that produce the lion’s share of current production.
Private sand and gravel operations in CA for instance, (Teichert, Granite), can produce decent amounts that can remain off the books indefinitely. No stockholders to answer to, no records to be reported and answerable only to God. It’s as close to living the life of a central banker as anything else on earth. Imo.
I prefer the term "undercollateralized credit" to better explain what makes credit counterfeit or not. As long as credit (even fractionally reserved) is based on correctly-valued collateral, all is well. When the value of collateral falls and margin calls on the corresponding credit do not occur, we have fraud or inflation.
I take issue with the idea that the marginal value of gold is constant. Look at the golden age of Spain for an example of what happens to gold value in a glut of gold. Gold is subject to supply and demand pricing just like any other commodity. If the worldwide gold supply were doubled, its value would certainly drop.
Gold coinage did not provide economic stability. Only prevention of the creation of undercollateralized credit can provide that.
+1. in the Ascent of Money Niall Fergusson writes that cheap conquistador gold and silver
actually caused Spanish currency collapse. England, on the other hand, evolved a system
of money based on credit, which scaled and fluctuated better than attachement to physical.
It's not the nature of fiat currency that's a problem. It's the lying, cheating, and mispricing.
The issue isn't simply economic but political-economy itself. If the basis of Western Democracy has been Taxpayer Control of the Purse Strings it is clear that creation of credit is a means of the Executive slipping out of the straitjacket of spending what they raise in taxes and no more than they tax.
Having watched CapEx restrictions circumvented by executives who thought Leasing was outside CapEx Controls; I watch Governments using PFI (Private Finance Initiatives) to take on Capital Leases through Banks for Public Infrastructure but account for them as Operating Leases. It is incredible just how much Budgetary Spending is no longer discretionary but contractually bound without being capitalised.
The whole financial structure from Government through to Corporation is infected with Accelerated Revenue Recognition and Deferred Liabilities hidden off-sheet. If anything, the past 30 years have been an era of BANKS marketing Off-sheet Scams to all and sundry to the point where Assets are no longer attached to Liabilities