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Re: Dow in free fall [Re: zouden]
    #9296416 -

Joseph T. Salerno from mises.org speaking of the business cycles.  Audiofile.


http://mises.org/Controls/Media/MediaPlayer.aspx?Id=2848

My friend, you talked about a little bit of inflation being good for the economy...  You were observing a market effect without understanding the consequences.

Creating inflation in the economy causes us to live with  borrowed prosperity.  There is always a downturn in the economy later (after the market adjusts to the influx of paper).  The end result is total economic collapse!

The "prosperity" created by inflation comes with a hefty price tag friend!


--------------------
Ludwig von Mises Institute,Campaign for Liberty.,The Oath Keeper's

Edited by Mr.Al (11/23/08 11:20 AM)

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Re: Dow in free fall [Re: Mr.Al]
    #9297282 -

Some excellent books,
:EDIT: These are all in pdf form btw

An Introduction to Economic Reasoning; David Gordon

The Case Against the Fed; Murray N. Rothbard

A NEW HISTORY OF LEVIATHAN; Murray N. Rothbard

Pillars of Prosperity: Free Markets, Honest Money, Private Property; Ron Paul

Gold, Peace, and Prosperity; Ron Paul

The Case for Gold; Ron Paul

Freedom Under Siege; Ron Paul

Profit and Loss; Ludwig von Mises

The Causes of the Economic Crisis, and Other Essays Before and After the Great Depression; Ludwig von Mises

Human Action(Scholars Edition); Ludwig von Mises

The Theory of Money and Credit; Ludwig von Mises

Omnipotent Government: The Rise of Total State and Total War; Ludwig von Mises

There are many other excellent books, videos, and audio lectures as well, not just on economics but libertarianism, foreign policy, history, and more.


--------------------
Ludwig von Mises Institute,Campaign for Liberty.,The Oath Keeper's

Edited by Mr.Al (11/23/08 03:08 PM)

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Re: Dow in free fall [Re: Mr.Al]
    #9297666 -

Quote:
The information you have learned in studying "macroeconomics" is very obviously derived from keynesian economics.  That is usually the only form of economics taught in universities today.


Where on earth do you get that notion? I have a feeling you haven't actually studied any economics.

Quote:
Now, you have spoken about a correlation of wealth and inflation...  What you are not looking at is that there would be no inflation if the money supply stayed stable.



Sure, if the economy wasn't growing. But it does grow, and thank god it does, since the population grows too.

Trepiodos said:
Quote:
When the country does well and its people prosper, they have more wealth. If everyone has more wealth, the price of goods will rise.


Only if the supply decreased relative to demand of the individual goods.


Which it does. Generally, supply increases to keep up with demand, not the other way around. There's always a bit of lag, and that accumulates in the form of inflation. As I said before, inflation occurs regardless of the gold standard. It's not the "government printing money" that causes inflation - they print money in response to it.


--------------------
I know... that just the smallest
                                                part of the world belongs to me
You know... I'm not a blind man
                                                    but truth is the hardest thing to see

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Re: Dow in free fall [Re: zouden]
    #9297881 -

zouden said:
Trepiodos said:
Quote:
When the country does well and its people prosper, they have more wealth. If everyone has more wealth, the price of goods will rise.


Only if the supply decreased relative to demand of the individual goods.


Which it does. Generally, supply increases to keep up with demand, not the other way around.


Uh, I'm not sure what you are saying.  First you say 'Which it does' to, 'if supply decreased relative to demand,' then you say, 'Generally, supply increases to keep up with demand, not the other way around.'  What is your point?

Quote:
There's always a bit of lag, and that accumulates in the form of inflation.


What is your definition of inflation?  If it is merely 'an increase in price'?  This can be caused just by printing money (decreasing the value of the currency by increasing the supply).  I suggest that you put 'Weimar Republic Hyperinflation' in a google search box and read up on the subject.

Quote:
As I said before, inflation occurs regardless of the gold standard.


Not if the supply of money (whatever it is based on) does not increase to keep up with the supply of goods, then you have deflation.

Quote:
It's not the "government printing money" that causes inflation - they print money in response to it.


You are wrong.  If governments print money in response to inflation, they INCREASE the supply of money, which in turn, DECREASES the value of the monetary unit, which in turn, leads to a demand for a higher number of units of a currency because the currency is worth less - FURTHER price inflation. 

Think of supply and demand in regards to a certain monetary unit.  If you increase the supply, you lower the relative value of the monetary unit.  Players in the market respond by asking for a greater amount of currency to purchase the same items - price inflation.


--------------------

And as things fell apart,
Nobody paid much attention...
- David Byrne, '(Nothing But) Flowers' from the Talking Heads' album, 'Naked'

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Re: Dow in free fall [Re: Trepiodos]
    #9297960 -

Quote:
Uh, I'm not sure what you are saying.  First you say 'Which it does' to, 'if supply decreased relative to demand,' then you say, 'Generally, supply increases to keep up with demand, not the other way around.'  What is your point?


Sorry if I wasn't more clear. I'm saying that supply does decrease relative to demand, because demand always increases in a growing economy (for the whole market, not individual commodities of course). It increases faster than the supply can.

Quote:
Not if the supply of money (whatever it is based on) does not increase to keep up with the supply of goods, then you have deflation.


True. But deflation is the nightmare scenario, and all governments must try and fight it at all costs.


--------------------
I know... that just the smallest
                                                part of the world belongs to me
You know... I'm not a blind man
                                                    but truth is the hardest thing to see

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Re: Dow in free fall [Re: zouden]
    #9297991 -

zouden said:
But deflation is the nightmare scenario, and all governments must try and fight it at all costs.


It is not a nightmare scenario, it is a natural response to overproduction and misallocation of resources.  Hyperinflation is historically much worse.  Compare the deflation of the Great Depression in the United States vs hyperinflation in the Wiemar Republic during the same downturn.


--------------------

And as things fell apart,
Nobody paid much attention...
- David Byrne, '(Nothing But) Flowers' from the Talking Heads' album, 'Naked'

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Re: Dow in free fall [Re: zouden]
    #9298061 -

zouden said:
Quote:
It's not the "government printing money" that causes inflation - they print money in response to it.

:rofl2:

The government prints the money (which in this case is backed by nothing) and then spends it.  At the time that the government spends it inflation (the market devaluation to the money in circulation) has not yet set in and the government is able to spend this newly created money at it's present value.  By the time the newly printed cash reaches us inflation has set in and the PUBLIC has been ROBBED! 

The very temporary increase in economic activity causes by the influx of  cash in the economy is a phenomenon that is only attributable to the fact that THE MARKET HAS AT THAT POINT NOT YET ADJUSTED!  The money, until the market adjusts, is still worth something for a short period of time.  After the market adjusts the individual dollar has been devalued! 

Inflation is INSTITUTIONALIZED ROBBERY OF THE PUBLIC!

These boom and bust cycles increase in frequency and shorten in duration until TOTAL ECONOMIC COLLAPSE! 

Oh and BTW, you are incorrect about the population growing along with the money supply.  The inflation we are talking about here is expressed best by an exponential curve!  This is what has always happened historically!


You think inflation is a good thing??  It causes economic collapse!!!

Inflation is devaluation of money, it is NOT a good thing.

This is not a religious topic this is common sense and mathematics!


--------------------
Ludwig von Mises Institute,Campaign for Liberty.,The Oath Keeper's

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Re: Dow in free fall [Re: Trepiodos]
    #9298119 -

Phi1618 knows much more than me on this topic, but my understanding is that deflation is self-propelling while inflation is not. It's only hyperinflation if the economic situation continues to get worse - it's a symptom, not a cause.

In contrast, deflation rapidly makes things worse. It is a cause of economic demise.

A. Consider: you have $100. The inflation rate is so high, that next week it'll only be worth half as much. Therefore you must try and double your money - find an investment that gives 200% return - by next week.

B. You have $100. There's a mild deflation rate, so by next week your money will be worth a bit more than it is - $101. So why even spend it? Just by holding on to it, you're getting richer. In fact, you should spend as little money as possible, and there's little point investing it.

It's easy to see that scenario B (deflation) is considerably worse for the economy. Inflation encourages investment. Deflation discourages it and discourages spending. Without investment or spending, the economy slows and production decreases. This leads to more deflation.

Hence, a little bit of inflation is a good thing. A little bit of deflation can lead to catastrophic destruction of an entire economy.

Quote:
Mr.Al said:
Oh and BTW, you are incorrect about the population growing along with the money supply.  The inflation we are talking about here is expressed best by an exponential curve!


Unlike population?


--------------------
I know... that just the smallest
                                                part of the world belongs to me
You know... I'm not a blind man
                                                    but truth is the hardest thing to see

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Re: Dow in free fall [Re: zouden]
    #9298178 -

Quote:
Mr.Al said:
Oh and BTW, you are incorrect about the population growing along with the money supply.  The inflation we are talking about here is expressed best by an exponential curve!


Unlike population?


Yes, it's a bit different.  Lincoln caused the U.S. to have 13000% inflation following the civil war.  In Germany after WWII you couldn't buy a loaf of bread with a wheel barrow full of cash. 

I have already posted numerous instances of inflation causing total economic collapse in various nations and time periods.  Can you please give me an example of deflation causing economic collapse???  Also, Zimbabwe recently had inflation in TRILLION percentages (that's actually hard to conceptualize, isn't it???).


--------------------
Ludwig von Mises Institute,Campaign for Liberty.,The Oath Keeper's

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Re: Dow in free fall [Re: Mr.Al]
    #9298198 -

But did you read what I said? I'm saying that hyperinflation is a symptom of a failing economy. Normal inflation is not.

China has sustained double-digit inflation for several decades. It's quite possible. But it is not possible to sustain double-digit deflation for that period of time. It's an incredibly destructive force. Thankfully, it's very rare.

Edit: I'd love to stay and converse some more, but I have to get to work. My experiments won't run themselves :grin:
Have a good day, gentlemen, or night, depending on where you are :smile:


--------------------
I know... that just the smallest
                                                part of the world belongs to me
You know... I'm not a blind man
                                                    but truth is the hardest thing to see

Edited by zouden (11/23/08 05:51 PM)

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Re: Dow in free fall [Re: zouden]
    #9298281 -

Like I said before; it is an exponential curve so you don't see the hyperinflation before it has already annihilated the economy!

So to answer my previous query, you have no single instance of this rare terrifying deflation monster destroying an economy???

Nixon took us completely off the gold standard in August 15 1971.  To the best of my understanding a fiat currency lasts no longer than approximately 40 years before total economic collapse.

Whatcha think about Zimbabwe's healthy inflation situation??


--------------------
Ludwig von Mises Institute,Campaign for Liberty.,The Oath Keeper's

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Re: Dow in free fall [Re: zouden]
    #9298779 -

"Inflation is always and everywhere a monetary phenomenon."  -Milton Friedman

Quote:
My understanding is that deflation is self-propelling while inflation is not.


Both are created by an imbalance in the money supply relative to goods and services. The level of inflation and deflation is determined by the money supply with one additional factor that Mr. Friedman did not take into account: the velocity of money (he didn't account for it since he assumed it was a constant and it actually was during his day). The velocity of money is simply the speed at which money changes hands.

For example, right now with all of the money being created to tackle the economic crisis one would expect inflation. But all that money doesn't cause inflation if it's sitting on the sidelines padding bank's balance sheets! Only when it gets into the real economy does it become inflation.

That's the whole point of this exercise- the Fed wants to re-inflate the economy.

You are correct in noting that deflation can become "self-propelling"  but you fail to recognize it can work both ways! Inflation can also be self-propelling when people realize their money is losing value they want to spend it right away before it loses any more value. This increases the velocity of money and can mutate into hyperinflation. But this does not happen without an initial increase in the money supply.

Hyperinflation is much worse than deflation. It destroys savings and the middle class (without which democracy is not possible) ending in the death of the currency.

In the 1930s England had deflation and Germany had inflation.

England worked its way out of it.

Germany got Hitler.


--------------------
“The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”  -- Rudiger Dornbusch

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Re: Dow in free fall [Re: zorbman]
    #9299019 -

Wow!!

That makes perfect sense!  The dramatic increase in the speed of money changing hands equals hyperinflation!



It's like the above with the money oh fuck!


--------------------
Ludwig von Mises Institute,Campaign for Liberty.,The Oath Keeper's

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Re: Dow in free fall [Re: zorbman]
    #9301523 -

Quote:
You are correct in noting that deflation can become "self-propelling"  but you fail to recognize it can work both ways! Inflation can also be self-propelling when people realize their money is losing value they want to spend it right away before it loses any more value. This increases the velocity of money and can mutate into hyperinflation. But this does not happen without an initial increase in the money supply.


Indeed, and this is why variable interest rates are important. If money has too much velocity, you increase the interest rate, which encourages people to a) save money, as they collect the interest, and b) not borrow money, as they have to pay the interest.

Velocity is a cause of inflation, and it can be fought with interest rates. When that system works, it works very well.

>So to answer my previous query, you have no single instance of this rare terrifying deflation monster destroying an economy???

I only need one example.


--------------------
I know... that just the smallest
                                                part of the world belongs to me
You know... I'm not a blind man
                                                    but truth is the hardest thing to see

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Re: Dow in free fall [Re: zouden]
    #9302534 -

There was a curious series of events which led to the Great Depression.  There was an artificial stock market bubble (caused by investors "buying on the margin") which burst when certain individuals called in ALL the margins at once.  The investors were ridiculously overextended and they could not pay back their debt in the requisite 24 hour period.  The market meltdown precipitated a run on the banks...

The individual who called in the margins on the stocks they sold ended up buying banks and businesses at pennies on the dollar.  IT WAS THE GREATEST ROBBERY IN AMERICAN HISTORY! The federal reserve began printing American money in 1913...

Zouden, upon looking at the details of the Great Depression I can only conclude that it was engineered by design by a small group of wealthy individuals who wanted to rob an entire country.

It is very interesting to note that the federal reserve likes to use the Great Depression as a means to legitimize their utilization of inflationary policy.  The federal reserve is an unconstitutional entity.  The evils of central banking structures are what drove people over here to create the United States.  America was growing faster than any other nation on the planet prior to central banks taking over.  There is not enough dollars in circulation to pay America's national debt.  Most politicians won't even attempt to discuss as to what to do with it.  The U.S. government would have not had the means to place such an onerous burden on this great country had we DEMANDED that our elected representatives (who take an oath to preserve and protect the constitution) keep our constitutional monetary policy whole!

The federal reserve are economic terrorists who are the causation of our economic woes.  At the very least every one of those clowns should be declared "persona non grata" and shipped out of this country on a raft.  However, a case could certainly be made for treason!

Z - did you know that there are laws in place that prevent the federal reserve from being audited??  I wonder what they're hiding, huh?


--------------------
Ludwig von Mises Institute,Campaign for Liberty.,The Oath Keeper's

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Re: Dow in free fall [Re: zouden]
    #9303592 -

Quote:
Indeed, and this is why variable interest rates are important. If money has too much velocity, you increase the interest rate..


Ah, if only it were that easy. Unfortunately the Federal Reserve has proven itself incapable of fine tuning the economy. They leave interest rates too low for too long and we have a bubble. They over correct like a drunk driver swerving wildly from ditch to ditch as there is a lag time between policy changes and their effects.

That is one reason we need to go to commodity-based money over debt-based money. The Fed has claimed it cannot know when a bubble is being created. Having a commodity standard using a publicly traded commodity such as gold would mean price signals would alert it to the formation of bubbles. It would then be obvious to even casual observers of the markets that a bubble is forming. If the Fed ignored the warning then outflows of commodity reserves would force their hand to take measures against the bubble before it reached dangerous proportions.

The idea is not to deflate bubbles but to avoid them in the first place. Imposing a commodity standard upon the Fed would impose discipline and greater responsiveness. We need to return to sound money or we will be forced to do by circumstances.


--------------------
“The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”  -- Rudiger Dornbusch

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Re: Dow in free fall [Re: zorbman]
    #9304328 -

zorbman said:
Quote:
Indeed, and this is why variable interest rates are important. If money has too much velocity, you increase the interest rate..


Ah, if only it were that easy. Unfortunately the Federal Reserve has proven itself incapable of fine tuning the economy. They leave interest rates too low for too long and we have a bubble. They over correct like a drunk driver swerving wildly from ditch to ditch as there is a lag time between policy changes and their effects.


Exactly. That's why I said it works well when it works. It seems the Australian Reserve Bank has been doing a much better job than its US counterpart. We had 2 rate rises last year and a big rate cut this year, and no one is saying that rates are too low, but I've heard plenty of people say that about the US rates.


--------------------
I know... that just the smallest
                                                part of the world belongs to me
You know... I'm not a blind man
                                                    but truth is the hardest thing to see

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Re: Dow in free fall [Re: zouden]
    #9307151 -

Quote:
It works well when it works.


Have you ever considered a career as a politician? :grin:


--------------------
“The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”  -- Rudiger Dornbusch

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Re: Dow in free fall [Re: zorbman]
    #9308362 -

Yeah, but I'm having way too much fun being a scientist :wink:


--------------------
I know... that just the smallest
                                                part of the world belongs to me
You know... I'm not a blind man
                                                    but truth is the hardest thing to see

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Re: Dow in free fall [Re: zouden]
    #9308495 -

Ok, Mr.Scientist. :grin:

In two years hence will the US economy be experiencing deflation or inflation?

Careful now, my friend from Down Under. These things have a way of boomeranging on ya. :tongue:


--------------------
“The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”  -- Rudiger Dornbusch

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