Hello,
I'm looking for help regarding the following response to Robert P. Murphy's article in the American Conservative, "Killing the Currency". Your assistance is much appreciated.
I have my own perspective and I have my own thoughts, but I would appreciate a more educated opinion on the subject.
http://www.amconmag.com/blog/killing-the-currency/
Justin
Justin,
Why would there be a run on the dollar when other currencies are increasing money supply too? Owning precious metals and commodities in this environment is prudent in my opinion, but it's because most currencies are being devalued as well. In regards to all that baking reserves increasing. A lot of that is just TARP money. The whole goal of the TARP program and the .25% fed funds rate is so banks weren't sitting on minimum reserve balances and thus will have incentive to loan out money. In this article, inflation is oversimplified to money supply.Price Inflation = (Money Supply) x (Velocity of Money) In recessions and depressions, both the supply of money and the velocity of money drop, resulting in deflation (note: supply of money drops due to fractional reserve banking à banks taking losses). Once the velocity of money picks up, the plan is to decrease money supply by increasing the Fed Funds Rate. Had the Fed increased money supply instead of contracting it during the late 20’s and early 30’s, the Great Depression would have been not nearly as “Great.” Bernanke, a scholar of the Great Depression, would rather see 5 years of a no growth, rather than severe depression into boom.I understand that in Austrian school economics the plan is the let the recession/depression run its course, rewarding the competent with fire sale prices through the mistakes of the incompetent, but eliminating the Fed and/or fractional reserve banking anytime in the near future would be devastating. Calling for the end of the dollar by the end of Obama’s first term, as this article does, is just a little overly dramatic. Don’t you think?Could we see 20% inflation? Yes, once the velocity of money picks up. That’s when Bernanke and co. grab the reigns and increase the Fed Funds and mortgage rates (Paul Volcker did it, Bernanke can too). All those excess reserves on the balance sheets of banks won’t be added to M1 money supply, they’ll be returned to the fed. So yes, high inflation, but no hyperinflation. I certainly don’t agree with all the government’s economic activity in the past year, but this article is so one sided it’s ridiculous. How they try to pin this on Obama is insane. I think his 10 year federal budget is way too high and I don’t care for the $200B “slush fund” of returned TARP money, but that’s something different entirely. One thing I never could understand about the Gold Standard, maybe you could help? Under a Gold Standard, the supply of money (gold) is relatively constant, increasing only 2-5% a year. Now, if technology or demographics increases productivity at a rate greater than 2-5% a year, won’t be in a cycle of deflation, rather than inflation? Inflation provides people incentive to spend or invest. Deflation provides incentive to save. Spending and investment drives economies, saving without investment, does not.
Define: "devistating" when he says, "Ending the fed would be devistating".
Interest rates would normalize to market rates and money would stabilize. Our recession would finally run its coarse and within a year or two we'd be back to economic growth.
Justin Kapacinskas: Hello, I'm looking for help regarding the following response to Robert P. Murphy's article in the American Conservative, "Killing the Currency". Your assistance is much appreciated. I have my own perspective and I have my own thoughts, but I would appreciate a more educated opinion on the subject. http://www.amconmag.com/blog/killing-the-currency/ Justin Justin, Why would there be a run on the dollar There will be a dumping of the dollar as it becomes worthless, like Zimbabwe dollars when other currencies are increasing money supply too? Owning precious metals and commodities in this environment is prudent in my opinion, but it's because most currencies are being devalued as well. Yes that's right. In regards to all that baking reserves increasing. A lot of that is just TARP money. The whole goal of the TARP program The whole goal of the TARP money was to give money to banks that had bankrupted themselves. The govt bought all the loans that the banks knew would never be repaid, and paid top dollar to the banks for them. and the .25% fed funds rate is so banks weren't sitting on minimum reserve balances since when does a bank care if it is sitting on minimum reserve balances? and thus will have incentive to loan out money. Oh. So the chance to turn a profit is not enough incentive all of a sudden. I wonder why that is. Could it be because there is no one out there who can be trusted to actually pay the money back? Yes I think that's it. There is no other reason for a bank not to lend someone money. In this article, inflation is oversimplified to money supply. Price Inflation = (Money Supply) x (Velocity of Money) How do you know the article is wrong about this? Did the Lord God reveal Himself to you and tell you this? Could the author possibly be right? Can you disprove his "oversimplification"? Just so we can be clear that the burden of proof is on you, let's look at a simple example. There is one ipod for sale in a store. It costs $100. President Obama sends everyone a check for a million dollars to stimulate the economy. Like a herd of locusts, everyone goes to buy that one ipod. What will happen to the price of the ipod, do ya think? "It will stay the same, because the velocity of money isn't high enough." Don't make me laugh.In recessions and depressions, both the supply of money and the velocity of money drop, resulting in deflation (note: supply of money drops due to fractional reserve banking à banks taking losses). Once the velocity of money picks up, the plan is to decrease money supply by increasing the Fed Funds Rate. OK. So that's the plan. Had the Fed increased money supply instead of contracting it during the late 20’s and early 30’s, the Great Depression would have been not nearly as “Great.” Nope, this is a big big big mistake. There plenty of books, some of them free here on the site, that go to great lengths to show this is total nonsense. The Great Depression was Great because a huge f-ing Vampire sucked the money of people in many many ways, taking from some to give to others who didn't work for it, starting huge expensive projects nobody wanted [because if they did the private sector would have done it for profit], taking away everyone's gold, and on and on in mindboggling ways unheard of till then. Bernanke, a scholar of the Great Depression, Hahaha. No he's not. Let me explain. Say everything you read was, due to brain damage, spelled backwards. You can reads and read and read but you will never be a scholar because you won't understand a word. So too, Bernanke has brain damage caused by brainwashing, i.e. being taught that Keynes and his successors are true teachers, as opposed to quacks. To use another analogy, it is like saying you are a doctor because you studied for years under a witch doctor. I would rather see 5 years of a no growth, rather than severe depression into boom. You are certainly entitled to your preferences. However, if you think the gov's policies will avert a severe depression, you are sadly in error. The gov' is leading us to Zimbabwe land full speed ahead.I understand that in Austrian school economics the plan is the let the recession/depression run its course, rewarding the competent with fire sale prices through the mistakes of the incompetent, but eliminating the Fed and/or fractional reserve banking anytime in the near future would be devastating. Eliminating the Fed would be devastatingly good, yes. As for fractional reserve banking, I've seen a view that makes sense to me. If people are willing to go to a bank that has fractional reserves, why not? Calling for the end of the dollar by the end of Obama’s first term, as this article does, is just a little overly dramatic. Don’t you think? Nope. Why do you say that? Could we see 20% inflation? Yes, once the velocity of money picks up. Who told you about this velocity of money nonsense? That’s when Bernanke and co. grab the reigns They can't "grab the reigns" [sic]. Why doesn't Zimbabwe "grab the reins?" Once the evil genie is out of the bottle, nothing can be done. And the genie is the sheer amount of money out there, velocity or no velocity. How can it be different? Are you challenging the very laws of supply and demand? If the supply of money goes up, the demand for it [which means in money's case, just as with everything else, the amount of things you can buy with it], goes down. If Apple floods the market with 100 trillion ipods, will the price stay high because there is no velocity of ipods? Same with money. It's that simple. and increase the Fed Funds and mortgage rates (Paul Volcker did it, Bernanke can too). Firstly, Volcker had balls. No one in office now does, or they would ALREADY be doing what has to be done. Isn't 10% unemployment [17% using the stats in vogue during the depression, counting people who are just too broken to keep searching, and counting people who work part time and want to work full time, and counting people who have low paying jobs but have the training and talent for better ones] enough to warrent doing something? Secondly, these guys have no clue. How big a success was cash for clunkers, frinstance? It is a total abysmal failure. There is no increase in car sales or production now it's over. What there is, is people in debt because they bought cars they didn't need, and used car salesmen and carwashers etc etc with no business, cause there aint no used cars to sell and wash etc. Thirdly, who say they want to do anything beneficial to the economy? They want to do something beneficial to themselves and the people who voted them in. Proof: Look what they have done till now. 1. Made the taxpayer buy the loans no one else would touch. I now have to pay money to the big banks to buy the loans they consider worthless. Thank you Mr Bernanke, scholar of the Great Depression. 2. Destroyed the very basis for doing business in this country. I refer to the debacle of GM. All the people who lent money to GM over the years were told "We are the go'vt. We hereby decree that you are NOT getting your money back. Yes you lent it to GM. Yes, the contracts and papers say you are supposed to be paid back. But you won't be. Why? Cause we say so. Sorry. Instead, we are giving your money to our friends, the unions." 3. Declaring openly and shamelessly that they will increase the budget deficit by a TRILLION dollars a year for ten years at least. Well it won't happen. We will be in Zimabwe land way before that. All those excess reserves on the balance sheets of banks won’t be added to M1 money supply, they’ll be returned to the fed. Uh huh. You actually trust these guys? On the basis of what exactly? What have they done to earn your blind trust? And if you believe them, I have a nice bridge in Brooklyn to sell you. So yes, high inflation, but no hyperinflation. So no, hyperinflation and before 2012. I certainly don’t agree with all the government’s economic activity in the past year, There is hope for you yet, my son. but this article is so one sided it’s ridiculous. That's like saying "I certainly don't think cyanide is a health food, but calling it poison is so one sided it's ridiculous." How they try to pin this on Obama is insane. Who should they pin it on? Alfred E. Neuman? He isn't President. I think his 10 year federal budget is way too high and I don’t care for the $200B “slush fund” of returned TARP money, but that’s something different entirely. No it's not. It is exactly what is bringing us to Zimabwe. One thing I never could understand about the Gold Standard, maybe you could help? Will try. Under a Gold Standard, the supply of money (gold) is relatively constant, increasing only 2-5% a year. Now, if technology or demographics increases productivity at a rate greater than 2-5% a year, won’t be in a cycle of deflation, rather than inflation? Prices will be lower, yes. But it will not have bad consequences. That low prices are bad is a Big Lie generated by the gov't. Inflation provides people incentive to spend Yes. or invest. No. Would you invest your thousand dollars in a bank account or a stock, knowing its purchasing power will shrivel away to zero in a year? Is Zimbabwe choked with invested money? Don't make me laugh. Deflation provides incentive to save. Really? If you woke up and found that your dollar can now buy ten times as much, are you telling me you would not buy more stuff? Perhaps you mean the idiocy that since people think prices will go down, they don't buy in the present, hoarding their money under the mattress in hopes tomorrow and tomorrow and tomorrow things will be cheaper still. In the meantime, they don't eat, they wear rags that need replacing, they walk 20 miles to work and back instead of buying a car. If that nonsense were true, there computer industry would be long dead, since everyone knows that the price of a computer is constantly going down, from day one. Same with cell phones. Same with everything, really. Spending No. There is a book called The Wealth of Nations. I'm sure you have heard of it. The point of the book was to argue that silver and gold are not the wealth of nations. The useful things they have, food, clothing, machines, land, etc. that is the wealth of nations. What makes a nation wealthier, therefor, is whatever results in that nation having more things, i.e. whatever increases production. Now if I take all my money and spend it, how have I increased the wealth of the nation? I haven't. Only if I save some of it, and invest it in a way that increases the productivity of the nation, have I made it wealthier. So that Spending may be harmless, it may be a neccessary evil, it may be what it's all about for me personally, to enjoy the fruits of my labors, but it does not "drive the economy". "Ah, but if no one bought anything," you may argue, "all the businesses would have to close down. So of course spending drives the economy, you silly condescending person." "Do you really think no one will spend? It happens by itself, if the price is right. You know about supply and demand. But to think the more people spend the better off we are, that is madness. What if we all just spent every last penny on a huge drug party that lasted for weeks? Have we driven the economy? We sure have, we have driven it right to total doom." and investment Yes. drives economies, saving without investment, Nowadays the only way to save without investing is to keep the money under the mattress. How many people really do that? Do you know anyone that does? People nowadays save money by putting it in a bank. Which is THE EXACT SAME THING as investing it. Because the bank doesn't put the money under its mattress either. It lends it to businesses. This is, by definition, investment. does not.
Why would there be a run on the dollar
There will be a dumping of the dollar as it becomes worthless, like Zimbabwe dollars
when other currencies are increasing money supply too? Owning precious metals and commodities in this environment is prudent in my opinion, but it's because most currencies are being devalued as well.
Yes that's right.
In regards to all that baking reserves increasing. A lot of that is just TARP money. The whole goal of the TARP program
The whole goal of the TARP money was to give money to banks that had bankrupted themselves. The govt bought all the loans that the banks knew would never be repaid, and paid top dollar to the banks for them.
and the .25% fed funds rate is so banks weren't sitting on minimum reserve balances
since when does a bank care if it is sitting on minimum reserve balances?
and thus will have incentive to loan out money.
Oh. So the chance to turn a profit is not enough incentive all of a sudden. I wonder why that is. Could it be because there is no one out there who can be trusted to actually pay the money back? Yes I think that's it. There is no other reason for a bank not to lend someone money.
In this article, inflation is oversimplified to money supply. Price Inflation = (Money Supply) x (Velocity of Money)
How do you know the article is wrong about this? Did the Lord God reveal Himself to you and tell you this? Could the author possibly be right? Can you disprove his "oversimplification"?
Just so we can be clear that the burden of proof is on you, let's look at a simple example. There is one ipod for sale in a store. It costs $100. President Obama sends everyone a check for a million dollars to stimulate the economy. Like a herd of locusts, everyone goes to buy that one ipod. What will happen to the price of the ipod, do ya think? "It will stay the same, because the velocity of money isn't high enough." Don't make me laugh.In recessions and depressions, both the supply of money and the velocity of money drop, resulting in deflation (note: supply of money drops due to fractional reserve banking à banks taking losses). Once the velocity of money picks up, the plan is to decrease money supply by increasing the Fed Funds Rate.
OK. So that's the plan.
Had the Fed increased money supply instead of contracting it during the late 20’s and early 30’s, the Great Depression would have been not nearly as “Great.”
Nope, this is a big big big mistake. There plenty of books, some of them free here on the site, that go to great lengths to show this is total nonsense. The Great Depression was Great because a huge f-ing Vampire sucked the money of people in many many ways, taking from some to give to others who didn't work for it, starting huge expensive projects nobody wanted [because if they did the private sector would have done it for profit], taking away everyone's gold, and on and on in mindboggling ways unheard of till then.
Bernanke, a scholar of the Great Depression,
Hahaha. No he's not. Let me explain. Say everything you read was, due to brain damage, spelled backwards. You can reads and read and read but you will never be a scholar because you won't understand a word. So too, Bernanke has brain damage caused by brainwashing, i.e. being taught that Keynes and his successors are true teachers, as opposed to quacks.
To use another analogy, it is like saying you are a doctor because you studied for years under a witch doctor.
I would rather see 5 years of a no growth, rather than severe depression into boom.
You are certainly entitled to your preferences. However, if you think the gov's policies will avert a severe depression, you are sadly in error. The gov' is leading us to Zimbabwe land full speed ahead.I understand that in Austrian school economics the plan is the let the recession/depression run its course, rewarding the competent with fire sale prices through the mistakes of the incompetent, but eliminating the Fed and/or fractional reserve banking anytime in the near future would be devastating.
Eliminating the Fed would be devastatingly good, yes. As for fractional reserve banking, I've seen a view that makes sense to me. If people are willing to go to a bank that has fractional reserves, why not?
Calling for the end of the dollar by the end of Obama’s first term, as this article does, is just a little overly dramatic. Don’t you think?
Nope. Why do you say that?
Could we see 20% inflation? Yes, once the velocity of money picks up.
Who told you about this velocity of money nonsense?
That’s when Bernanke and co. grab the reigns
They can't "grab the reigns" [sic]. Why doesn't Zimbabwe "grab the reins?" Once the evil genie is out of the bottle, nothing can be done. And the genie is the sheer amount of money out there, velocity or no velocity. How can it be different? Are you challenging the very laws of supply and demand? If the supply of money goes up, the demand for it [which means in money's case, just as with everything else, the amount of things you can buy with it], goes down. If Apple floods the market with 100 trillion ipods, will the price stay high because there is no velocity of ipods? Same with money. It's that simple.
and increase the Fed Funds and mortgage rates (Paul Volcker did it, Bernanke can too).
Firstly, Volcker had balls. No one in office now does, or they would ALREADY be doing what has to be done. Isn't 10% unemployment [17% using the stats in vogue during the depression, counting people who are just too broken to keep searching, and counting people who work part time and want to work full time, and counting people who have low paying jobs but have the training and talent for better ones] enough to warrent doing something?
Secondly, these guys have no clue. How big a success was cash for clunkers, frinstance? It is a total abysmal failure. There is no increase in car sales or production now it's over. What there is, is people in debt because they bought cars they didn't need, and used car salesmen and carwashers etc etc with no business, cause there aint no used cars to sell and wash etc.
Thirdly, who say they want to do anything beneficial to the economy? They want to do something beneficial to themselves and the people who voted them in. Proof: Look what they have done till now. 1. Made the taxpayer buy the loans no one else would touch. I now have to pay money to the big banks to buy the loans they consider worthless. Thank you Mr Bernanke, scholar of the Great Depression. 2. Destroyed the very basis for doing business in this country. I refer to the debacle of GM. All the people who lent money to GM over the years were told "We are the go'vt. We hereby decree that you are NOT getting your money back. Yes you lent it to GM. Yes, the contracts and papers say you are supposed to be paid back. But you won't be. Why? Cause we say so. Sorry. Instead, we are giving your money to our friends, the unions." 3. Declaring openly and shamelessly that they will increase the budget deficit by a TRILLION dollars a year for ten years at least. Well it won't happen. We will be in Zimabwe land way before that.
All those excess reserves on the balance sheets of banks won’t be added to M1 money supply, they’ll be returned to the fed.
Uh huh. You actually trust these guys? On the basis of what exactly? What have they done to earn your blind trust? And if you believe them, I have a nice bridge in Brooklyn to sell you.
So yes, high inflation, but no hyperinflation.
So no, hyperinflation and before 2012.
I certainly don’t agree with all the government’s economic activity in the past year,
There is hope for you yet, my son.
but this article is so one sided it’s ridiculous.
That's like saying "I certainly don't think cyanide is a health food, but calling it poison is so one sided it's ridiculous."
How they try to pin this on Obama is insane.
Who should they pin it on? Alfred E. Neuman? He isn't President.
I think his 10 year federal budget is way too high and I don’t care for the $200B “slush fund” of returned TARP money, but that’s something different entirely.
No it's not. It is exactly what is bringing us to Zimabwe.
One thing I never could understand about the Gold Standard, maybe you could help?
Will try.
Under a Gold Standard, the supply of money (gold) is relatively constant, increasing only 2-5% a year. Now, if technology or demographics increases productivity at a rate greater than 2-5% a year, won’t be in a cycle of deflation, rather than inflation?
Prices will be lower, yes. But it will not have bad consequences. That low prices are bad is a Big Lie generated by the gov't.
Inflation provides people incentive to spend
Yes.
or invest.
No. Would you invest your thousand dollars in a bank account or a stock, knowing its purchasing power will shrivel away to zero in a year? Is Zimbabwe choked with invested money? Don't make me laugh.
Deflation provides incentive to save.
Really? If you woke up and found that your dollar can now buy ten times as much, are you telling me you would not buy more stuff? Perhaps you mean the idiocy that since people think prices will go down, they don't buy in the present, hoarding their money under the mattress in hopes tomorrow and tomorrow and tomorrow things will be cheaper still. In the meantime, they don't eat, they wear rags that need replacing, they walk 20 miles to work and back instead of buying a car. If that nonsense were true, there computer industry would be long dead, since everyone knows that the price of a computer is constantly going down, from day one. Same with cell phones. Same with everything, really.
Spending
No. There is a book called The Wealth of Nations. I'm sure you have heard of it. The point of the book was to argue that silver and gold are not the wealth of nations. The useful things they have, food, clothing, machines, land, etc. that is the wealth of nations. What makes a nation wealthier, therefor, is whatever results in that nation having more things, i.e. whatever increases production. Now if I take all my money and spend it, how have I increased the wealth of the nation? I haven't. Only if I save some of it, and invest it in a way that increases the productivity of the nation, have I made it wealthier. So that Spending may be harmless, it may be a neccessary evil, it may be what it's all about for me personally, to enjoy the fruits of my labors, but it does not "drive the economy".
"Ah, but if no one bought anything," you may argue, "all the businesses would have to close down. So of course spending drives the economy, you silly condescending person."
"Do you really think no one will spend? It happens by itself, if the price is right. You know about supply and demand. But to think the more people spend the better off we are, that is madness. What if we all just spent every last penny on a huge drug party that lasted for weeks? Have we driven the economy? We sure have, we have driven it right to total doom."
and investment
drives economies, saving without investment,
Nowadays the only way to save without investing is to keep the money under the mattress. How many people really do that? Do you know anyone that does? People nowadays save money by putting it in a bank. Which is THE EXACT SAME THING as investing it. Because the bank doesn't put the money under its mattress either. It lends it to businesses. This is, by definition, investment.
does not.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
"One thing I never could understand about the Gold Standard, maybe you could help? Under a Gold Standard, the supply of money (gold) is relatively constant, increasing only 2-5% a year. Now, if technology or demographics increases productivity at a rate greater than 2-5% a year, won’t be in a cycle of deflation,...." a cycle of money deflation or price deflation???
huh?
would there even be a cycle?? a population cycle? a productivity cycle at 2-5% ( i assume you mean goldmoney increases and not gold total) money supply increase (are you assuming 100% reserves???)
and havent certain products decreased in already decreased in prices over the years with money/credit inflation?? thats what i have read at mises sites anyway.
i dont understand (or really believe) the velocity stuff?
is that simply the speed at which money or a money claim goes form merchant to merchant?? like a debit card making several transactions in a day rather than a dollar bills changing hands over several days?
"Because the bank doesn't put the money under its mattress either. It lends it to businesses. This is, by definition, investment."
does anything different happen when: if i gave some cash to scottrade to invest and if a go to a bank and they loan my deposit and instantly give me money-like credit to spend just like the money they loaned from my deposit?
does that actually happen?
Justin - Whoever provided this response to you is simply wrong. This is the classic Keynesian / Austrian debate, to which there is no resolution (to the debate, that is. I contend the Austrian position correct). I disagree with the entire response, but I will address the following specifically:
Justin Kapacinskas:I understand that in Austrian school economics the plan is the let the recession/depression run its course, rewarding the competent with fire sale prices through the mistakes of the incompetent, but eliminating the Fed and/or fractional reserve banking anytime in the near future would be devastating.
That is an oversimplification. Recessions are caused by the actions of the central bank during the boom; the central bank prints money which causes malinvestment during the boom. Eliminate the Fed, and the cause of the boom / bust cycle will be eliminated. This is not a radical recommendation. It is a fundamentally sound response to the disaster the central bank has created.
Justin Kapacinskas:One thing I never could understand about the Gold Standard, maybe you could help? Under a Gold Standard, the supply of money (gold) is relatively constant, increasing only 2-5% a year. Now, if technology or demographics increases productivity at a rate greater than 2-5% a year, won’t be in a cycle of deflation, rather than inflation? Inflation provides people incentive to spend or invest. Deflation provides incentive to save. Spending and investment drives economies, saving without investment, does not.
This is not correct. Please go to the Mises home page and search Literature, type deflation, inflation, gold, malinvestement, etc. There is a wealth of information on Mises. You can download books for free.
Under a gold system, the money supply would be very constant. The primary benefit is that it cannot be increased at the whim of the central bank. It will not increase at up to 5% per year, maybe 2% per year at most. When fiat credit contracts (like we are experiencing now), that is when the devastating deflation is felt (even then, it still represents a readjustment of the economy and price levels back to what the market would dictate they should be).
"Inflation provides people incentive to spend or invest". This is not correct. Inflation of the money supply causes people to invest in the wrong areas, distorting the structure of production. Search Mises literature, "malinvestment".
"Deflation provides incentive to save". This confuses the deflation of a credit bubble (created by the central bank) with the beneficial increase in the purchasing power of the monetary unit over time due to increased productivity under a gold system. This would not have any detrimental effects. Please do not fall into the trap of believing that a steady increase in the money is needed to accommodate economic growth. This fallacy was destroyed decades ago by the Austrian school.
"Spending drives the economy, saving without investment does not". This is incorrect. Spending does not drive the economy. It is capital investment, by entrepreneurs, into the areas of the economy that need it, as determined by free market prices, i.e., profit opportunities. "Profit" is the price signal that drives capital investment where the free market is dictating it is needed. THAT is what drives the economy. It was interference with this price signal by the central bank printing money that caused malinvestment. During the boom, scarce capital was squandered into areas the entrepreneurs believed were "correct" (i.e., housing) due to the distorted profit signal due to lowered interest rates. If savers are indeed now putting their money under a mattress, you should ask "why" this is happening. The answer will lead you back to the cause of the economic mess; the central bank, the resulting malinvestment, etc. It is NOT "hoarding" that causes the recession.
Meltdown by Thomas Woods should provide some of the answers to your questions.
"The market is a process." - Ludwig von Mises, as related by Israel Kirzner. "Capital formation is a beautiful thing" - Chloe732.
This should help. It explains Austrian thought and the structure of production. If you can understand the structure of production as explained in this article, it should help you see through the fallacies in your post.
http://mises.org/daily/3917
Justin Kapacinskas: Justin, Why would there be a run on the dollar when other currencies are increasing money supply too? Owning precious metals and commodities in this environment is prudent in my opinion, but it's because most currencies are being devalued as well.
Why would there be a run on the dollar when other currencies are increasing money supply too? Owning precious metals and commodities in this environment is prudent in my opinion, but it's because most currencies are being devalued as well.
A run on the dollar doesn't necessarily mean a flee to foreign currencies. It means a flee to commodities, stocks, hardware, and any other goods that are gaining in value relative to the dollar. In the final and most extreme stage of hyper-inflation, people will flee to anything of value
Justin Kapacinskas:In this article, inflation is oversimplified to money supply.
No it's not! Murphy is always careful to explain why we haven't seen price inflation yet.
Justin Kapacinskas:Price Inflation = (Money Supply) x (Velocity of Money)
Most Austrians find the equation of exchange useless and at best misguided. Austrians emphasize that the purchasing power of the money depends on two factors: The money supply and demand to hold that money. Velocity is an ill-defined term that completely misrepresents the relations between the money supply and its demand. If I recall, Hazlitt brilliantly showed that velocity, as defined by mainstream economists, can actually increase, but prices can still fall.
Justin Kapacinskas:Had the Fed increased money supply instead of contracting it during the late 20’s and early 30’s, the Great Depression would have been not nearly as “Great.” Bernanke, a scholar of the Great Depression, would rather see 5 years of a no growth, rather than severe depression into boom.
Tell him about the depression of 1921 which Robert Murphy himself wrote about in the latest issue of "The Freemen". Look it up. The contraction of the money supply was even greater then, but the market recovered within 2 years since the market was left to mostly recover on its own.
Justin Kapacinskas:Could we see 20% inflation? Yes, once the velocity of money picks up. That’s when Bernanke and co. grab the reigns and increase the Fed Funds and mortgage rates (Paul Volcker did it, Bernanke can too). All those excess reserves on the balance sheets of banks won’t be added to M1 money supply, they’ll be returned to the fed. So yes, high inflation, but no hyperinflation.
The Keynesian myth of the gas pedal and brake analogy for the economy. It's nonsense and it basically says that interest rate is a tool for government manipulation as oppose to a market signal like any other price. this is economic central planning. Ask him if he believes in such planning.
Wow! This final paragraph is an excellent summary of all the fallacies that are going on in his head.