ACJohn:First, let me say I am a neophyte to this subject so please excuse my ignorance as I work my way through the subject of inflation. Earlier someone mentioned the price decrease in computers, so using that item for my question; if the supply of money is the cause of inflation, and computers have bucked this trend trough productivity, technological advances… Using lets say $1,000 as the starting price and then a few years later the price is now $800 is it safe to assume that the new $800 price was still affected by the inflationary factors of the money supply? In other words without the inflation the computer my have only cost (for agreements sake) $600 now?
First, let me say I am a neophyte to this subject so please excuse my ignorance as I work my way through the subject of inflation. Earlier someone mentioned the price decrease in computers, so using that item for my question; if the supply of money is the cause of inflation, and computers have bucked this trend trough productivity, technological advances… Using lets say $1,000 as the starting price and then a few years later the price is now $800 is it safe to assume that the new $800 price was still affected by the inflationary factors of the money supply? In other words without the inflation the computer my have only cost (for agreements sake) $600 now?
In essence, yes. The money supply should be expanded under the free market impact to increased production of any instance. If the GDP has increased by 2%, what is accomplished by the money supply increasing 8%???
You truly don't know what you are talking about!! Inflation, according to alan greenspan, is confiscation wealth. That's why in 1980 we paid less than 1.00 federal reserve note for a gallon of gas and in 2007 we are soon to be paying 3.50 federal reserve notes per gallon. Fed. notes are not redeemable for ANYTHING. Federal reserve notes are debt instruments, they are evidence of debt nothing else. Paper IS created out of thin air. You need to go to Google videos and do a search on Fiat Empire and get a little education.
Fuel is not too good an example; yes, it may be artificially more expensive due to inflation, but increasing scarcity and any multitude of other factors could be responsible for price rises. I thought gold tends to be the best measure of inflation.
Do you see no difference between a bank and a counterfeiter? A bank puts its name on its dollars, recognizes those dollars as its liability, and stands ready to use its assets to buy back those dollars. No counterfeiter does that. So yes; when a counterfeiter issues more dollars, the value of the dollar drops. When a bank issues a dollar, the dollars are backed by the assets acquired by the bank, the dollars are convertible into those assets, and the value of the dollar is unaffected, as long as assets move in step with liabilities.
Mike Sproul:Do you see no difference between a bank and a counterfeiter? A bank puts its name on its dollars, recognizes those dollars as its liability, and stands ready to use its assets to buy back those dollars. No counterfeiter does that. So yes; when a counterfeiter issues more dollars, the value of the dollar drops. When a bank issues a dollar, the dollars are backed by the assets acquired by the bank, the dollars are convertible into those assets, and the value of the dollar is unaffected, as long as assets move in step with liabilities.
From 2005-2006, the money supply was increased by 7.5%. The GDP increase in that same peroid was only 2.9%...
Are you saying there was a 4.6% counterfeiting scheme in that time period???
Mike, Please stop. There is no difference between the Federal Reserve and a counterfeiter except the Feds have congress as their enforcers. They pass legal tender laws to make people take their worthless paper. Legal tender laws are not needed for real money(silver or gold). Go to Google videos and do a search on Fiat Empire. This will give you a good understanding of what has been going on in this country.
On the real bills view, inflation happens when the amount of money outruns the assets of the bank that issued it. So if the Fed issued 5% more money, while its assets did not change, then the value of the dollar would fall by 5%. Notice that the growth rate of GDP does not enter in to the calculation.
Mike Sproul:Paper money is not created out of thin air. Nobody is stealing anything, and there is no comparison of paper money issue to counterfeiting. Every time any bank (the Fed included) issues a dollar, it gets a dollar's worth of assets in return, and it stands ready to use those assets to buy back the dollars it has issued. As long as the bank's assets rise in step with the money it issues, the value of each dollar is unaffected.
Ask yourself this question. When a bank lends out $1000, where is that $1000 coming from? If the money is coming from someone's checking account, let's call him A , the bank has no right to lend it to B because A still has a claim on it. A believes he can withdraw it at any time, so it's not the bank's to lend. In order to give B the $1000, the bank must create money it doesn't rightfully own.
But let's do a little thought experiment:
Let's say the bank commits this unethical act anyway, and lends B the money. So now B has $1000 in his checking account, and A still has the same $1000 showing in his checking account. Forget about assets for a moment.Now imagine you live in a country where half the country is composed of A's and the other half B's, and one day, without telling all the As, the banks deposit $1000 into all the B's checking accounts. The aggregate balances of the checking accounts of the country as a whole have increased significantly without anyone knowing. The overall assets in the country haven't increased at all. Is there any doubt in your mind that prices wouldn't rise? And who's to blame? And is this fair on all the A's?
So now let's say that instead of getting the money from the A's checking accounts, the bank says to each A "We'd like to borrow your money to lend to B, with interest of course, but you won't have use of your money until B pays it back. And in order to do this we will offer you these Certificates of Deposit". Is this different from the first scenario? Aside from the fact that the banks are now being honest with the A's money, it has a very different effect on the economy. Because even though all the B's get their $1000, all the A's know they have a $1000 less to spend right now (at least until all the B's pay them back), and so they adjust their spending patterns accordingly. Are prices in the country as a whole going to rise? Does this penalize anyone? I think the answers are obvious.
Mike Sproul:On the real bills view, inflation happens when the amount of money outruns the assets of the bank that issued it. So if the Fed issued 5% more money, while its assets did not change, then the value of the dollar would fall by 5%. Notice that the growth rate of GDP does not enter in to the calculation.
Why would it issue 5% more money??? There are only two acceptable answers.
1.) They loaned out 5% more money to make a purchase of SOMETHING who's utility has deemed it worthy of that 5%. They usually charge interest, and no true inflation has been created. Instead, wealth has been created.
2.) They loaned out 5% more money to a large member bank to cover the losses of some nature. The fed constanly does this because our fiat dollar is backed by the US. Meaning, if our economy is doing bad, (loss of confidence) the value of the dollar is hurt. Therefore, it is of the interest of congress and the federal reserve to float the economy in an attempt to grind out the dips of a correction.
The 2.9% measures the amount of goods, services idea's etc that have been created and purchased in that year relative to the year past. In a perfect free market economy, the money created would be very close to 2.9% of the current amount in circulation.
ggkrol:You truly don't know what you are talking about!! Inflation, according to alan greenspan, is confiscation wealth. That's why in 1980 we paid less than 1.00 federal reserve note for a gallon of gas and in 2007 we are soon to be paying 3.50 federal reserve notes per gallon. Fed. notes are not redeemable for ANYTHING. Federal reserve notes are debt instruments, they are evidence of debt nothing else. Paper IS created out of thin air. You need to go to Google videos and do a search on Fiat Empire and get a little education.
What is gold redeemable in? Or silver? How about Federal Reserve Notes? All those things are redeemable by voluntary transactions. The problem with fiat money is not that it isn't "backed" by anything, but that it is forced on people by governments. By controlling the money supply, government is no more able to set the correct price to borrow money than they could set the correct price for a pair of socks.
Forgetting the assets is the source of your error. No bank would lend $1000 to anyone without getting collateral worth $1000 in return. If someone wants to redeem $1000 at the bank, the bank can always sell the assets it received for the loan. As long ascustomers agree to fractional reserves in advance, there is no fraud--and no inflation.
Grant: ggkrol:You truly don't know what you are talking about!! Inflation, according to alan greenspan, is confiscation wealth. That's why in 1980 we paid less than 1.00 federal reserve note for a gallon of gas and in 2007 we are soon to be paying 3.50 federal reserve notes per gallon. Fed. notes are not redeemable for ANYTHING. Federal reserve notes are debt instruments, they are evidence of debt nothing else. Paper IS created out of thin air. You need to go to Google videos and do a search on Fiat Empire and get a little education. What is gold redeemable in? Or silver? How about Federal Reserve Notes? All those things are redeemable by voluntary transactions. The problem with fiat money is not that it isn't "backed" by anything, but that it is forced on people by governments. By controlling the money supply, government is no more able to set the correct price to borrow money than they could set the correct price for a pair of socks.
ggkrol:By the way you don't redeem gold, silver or federal reserve notes in a sales transaction you make an offer to "tender".
I can't eat it, or make it into anything useful. Its a malleable, yellow metal. Maybe if my significant enjoyed shiny objects, it would have more use to me. But as it is, I've got to trade it for something useful for it to have any value to me at all, just like Fed notes. You are of courses correct that gold and silver have been very popular as currencies throughout the ages, but we live in a different age now. Its an age of massive, global communications, and I don't think its unlikely that if the market was allowed to select a currency, it would be pure gold or silver. I don't want a gold "standard" (which the government would certainly betray as soon as it was politically possible) forced on me any more than a fiat standard.