tag:blogger.com,1999:blog-6616959642391988608.post8304247461124441751..comments2024-03-28T00:18:25.641-07:00Comments on Calafia Beach Pundit: No shortage of money (5)Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-6616959642391988608.post-55965291407457527272008-12-21T13:59:00.000-08:002008-12-21T13:59:00.000-08:00Waterlooen,The central bank together with fraction...Waterlooen,<BR/><BR/>The central bank together with fractional reserve banking is the problem. Mainstream economists do not buy all the Austrian arguments about the damage caused by inflation, but I am convinced the Austrian School arguments have it mostly right.<BR/><BR/>The solution is problematic because these institutions are now taken for granted around the world. And why not? Banking in Tom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-41337257964346184912008-12-21T09:31:00.000-08:002008-12-21T09:31:00.000-08:00Tom and Scott,The discussion is very interesting, ...Tom and Scott,<BR/><BR/>The discussion is very interesting, thanks. Tom - you make strong arguments that the fed monetary policies(with it's inflationary bias) are a major problem. At least to me, it begs the question "so what should the feds role be?" Not necessarily in the current crisis, but in general. It seems outrageous to argue there should be no centralized monetary policy making. I Randy Rhttps://www.blogger.com/profile/12552423724893790184noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-24920741352549147392008-12-21T05:13:00.000-08:002008-12-21T05:13:00.000-08:00Scott,In the early 20th century and before, inflat...Scott,<BR/><BR/>In the early 20th century and before, inflation/deflation was defined as an increase/decrease in the money supply. Mises and others have discussed this change of definition at length. <BR/><BR/>Mises also argues that there really is no such thing as the "general price level." Prices change all the time for many reasons, as you know. The impact on your standard of living depends onTom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-181847295600360422008-12-20T13:09:00.000-08:002008-12-20T13:09:00.000-08:00Tom: I meant to say "Deflation in the purest sense...Tom: I meant to say "Deflation in the purest sense is when the general price level falls." Thanks for catching that.<BR/><BR/>I don't think deflation has ever been defined as a shrinking supply of money. <BR/><BR/>A short-hand way to judge whether you have inflation or deflation is to watch the price of gold or the value of the dollar. If the dollar gains purchasing power relative to other Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-25536360349661361842008-12-20T12:58:00.000-08:002008-12-20T12:58:00.000-08:00Scott,It depends on your definition of deflation. ...Scott,<BR/><BR/>It depends on your definition of deflation. Until the Fed redefined inflation/deflation to mean changing "general price levels" these concepts were in fact just names for a growing/shrinking money supply. <BR/><BR/>It certainly is true, though, that you can have falling prices without a net reduction in money. I believe you have a typo in your statement about the "purest Tom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-33910469853985642272008-12-20T12:07:00.000-08:002008-12-20T12:07:00.000-08:00Tom: Deflation does not require a net reduction in...Tom: Deflation does not require a net reduction in money. Indeed, deflation can happen when the demand for money soars but money supply doesn't increase sufficiently. Deflation in the purest sense is when the general price level rises, and it is very likely that the value of the currency is rising against other currencies, gold, and physical assets. I think it is critical to look at the value of Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-2901023477253738122008-12-20T04:58:00.000-08:002008-12-20T04:58:00.000-08:00There are always losers and winners with inflation...There are always losers and winners with inflation/deflation. Why the US government thinks debtors deserve to benefit while savers deserved to be ruined, I am not sure. If there were a general deflation, savers and dollar holders in general would benefit, although there is no reason to think that deflation would exactly reverse the damage caused by inflation all these years. <BR/><BR/>With the Tom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-74509350595305188942008-12-19T21:07:00.000-08:002008-12-19T21:07:00.000-08:00Tom Burger wrote:((the induced inflationary proces...Tom Burger wrote:<BR/><BR/>((the induced inflationary processes will not cancel out the deflationary processes - they will simply coexist and we will suffer simultaneous relative price distortions from both monetary processes))<BR/><BR/>The concurrent happening notion implies one part of the population benefits while another suffers?Gene Prescotthttps://www.blogger.com/profile/01749854994321888028noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-46950612429264844312008-12-19T18:50:00.000-08:002008-12-19T18:50:00.000-08:00Gene,The monetary error, in this case, is the arbi...Gene,<BR/><BR/>The monetary error, in this case, is the arbitrary interest rate and banking reserve manipulation. <BR/><BR/>It's a well known fact that our banking system increases or decreases the money supply through a leveraged extension of the banking reserves. Scott referred to this phenomenon himself in a recent post, saying something like "whether or not the money supply grows is now Tom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-79831090079165451422008-12-19T17:07:00.000-08:002008-12-19T17:07:00.000-08:00((Tom: inflation or deflation doesn't come from th...((Tom: inflation or deflation doesn't come from the public's demand for debt, it comes from a monetary error. ))<BR/><BR/>Just wondering whether Tom accepts this notion.Gene Prescotthttps://www.blogger.com/profile/01749854994321888028noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-89620227191456978322008-12-19T14:24:00.000-08:002008-12-19T14:24:00.000-08:00Tom: inflation or deflation doesn't come from the ...Tom: inflation or deflation doesn't come from the public's demand for debt, it comes from a monetary error. I question whether we are in a deflation in any event, but I know the markets are terrified of deflation. And for good reason, since it makes debt much more onerous to repay. The Fed can absolutely fight deflation, even though it is fraught with difficulties and, as you say, many unintendedScott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-88733678488173465002008-12-19T12:52:00.000-08:002008-12-19T12:52:00.000-08:00"Does this make sense?"Not to my mind. I believe a..."Does this make sense?"<BR/><BR/>Not to my mind. I believe all market interventions fail to achieve their intended purpose.<BR/><BR/>This idea that you can just dump money into the economy to overcome deflation comes, I think, from the Keynesian macro-economics and the equation of exchange (PT=MV, and variations). The components of this equation cannot even be rigorously defined, and in any eventTom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-91020539951149375252008-12-19T12:10:00.000-08:002008-12-19T12:10:00.000-08:00I don't want to appear to advocate easy money, sin...I don't want to appear to advocate easy money, since I know first-hand, from my four years spent in Argentina, the havoc that inflation can cause. But to the extent that the Fed's easy money policy neutralizes the risk/fear of deflation, then I think it is a positive.<BR/><BR/>The market is clearly obsessed with the risk of a prolonged recession/depression, and adding the risk of deflation to Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-50491989246618322782008-12-19T08:14:00.000-08:002008-12-19T08:14:00.000-08:00Read yesterday that the bailouts are - inflation a...Read yesterday that the bailouts are - inflation adjusted - larger than all of our wars combined. Certainly larger than all the money that has ever been spent through NASA...<BR/><BR/>The increasing M2 could be likened to the expanding beachfront in advance of a tidal wave - should I be feeling like the owner of a sandcastle at low tide? <BR/><BR/>I hope not...Brian Hhttps://www.blogger.com/profile/14869071526968957308noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-39715815656685218892008-12-19T05:17:00.000-08:002008-12-19T05:17:00.000-08:00And if people do use the easy and cheap money to b...And if people do use the easy and cheap money to bid up house prices, or if hedge funds once again use leverage to levitate financial asset prices? How is this a good thing? The distorted relative prices will once again cause bad investments galore and set us up for the next crisis. <BR/><BR/>Maybe the cows are not coming home soon, but they will come home. The chickens will eventually come home Tom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-7433391450345451882008-12-19T04:31:00.000-08:002008-12-19T04:31:00.000-08:00Hi Scott,I think the only thing missing in the Fed...Hi Scott,<BR/>I think the only thing missing in the Feds Q-easy plan ( pronounced queasy as in it's making me sick) is a target.<BR/><BR/>They are going to ease until what? The cows come home.<BR/><BR/>This has been the feds problem for years, no target or the the wrong target.<BR/><BR/>How about a dollar/gold target of lets say $500 per oz.davehttps://www.blogger.com/profile/01173750820649272172noreply@blogger.com