bloomj31:Also, as I understand it, inflation (rising prices)
I meant to quibble about this earlier in the day. Inflation is not rising prices any more than the flu is a fever. Rising prices are a symptom of inflation, but inflation refers specifically (as an Austrian would use it) an increase in the supply of money and credit, and deflation is not falling prices, but a decrease in the supply of money and credit.
Prices must rise and fall in the market, to label price increases in particular goods inflation, means that ceteris paribus some other price must have fallen to offset the change in demand.
The only way all prices can rise at once (in the aggregate) is if the supply of money and credit is increasing. Only then can prices rise without an offset in lower prices elsewhere.
This is an important point to understand because it is so fundamental to understanding Austrian theory as it pertains to money. If you need me to explain it better, just ask and I will try.
bloomj31: Spideynw: If the only variable that changed was the number of dollars doubled, then eventually, yes all wages and prices would double. That is the only result inflation can really have. If this is true, why haven't we seen aggregate (or whatever word you want to use) prices increase at the same rate that the money supply has? What's not happening here?
Spideynw: If the only variable that changed was the number of dollars doubled, then eventually, yes all wages and prices would double. That is the only result inflation can really have.
If the only variable that changed was the number of dollars doubled, then eventually, yes all wages and prices would double. That is the only result inflation can really have.
If this is true, why haven't we seen aggregate (or whatever word you want to use) prices increase at the same rate that the money supply has? What's not happening here?
Prices will rise when market actors bid them up. Dollars sitting in banks as emergency liquidity won't be used to bid up prices until they are loaned out. A thing called regime uncertainty, even with Fed rates near 0%, is likely causing would be business ideas to sit on shelves waiting for a time when entrepreneurs no longer fear weird and random interventions or market volatility. And, housing prices are probably still too untrustworthy for borrowers to get back into flipping - and many consumers are in pay debt down mode anyways. That's my guess.
bloomj31:Does anyone know exactly what happens if a government declares bankruptcy? I mean do they go to a bankruptcy court and distribute the remaining assets among the different claimants or does the insolvent government just get all their debts annulled?
When a government defaults it doesn't pay back all of its debt in the allotted time. Usually, it'll either outright cancel all of the debt, cancel a portion of the debt and pay the rest of the debt on time, or delay some (or all) debt payments until it can continue them.
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There has not been a significant increase in the supply of currency yet. I conjecture that gold prices are being bid up right now not because of inflation, but because of the fear of inflation. The writing is on the wall. Eventually, people will stop lending to the government. When that happens, you will see massive inflation.
At most, I think only 5% of the adult population would need to stop cooperating to have real change.
Saiphes: Prices will rise when market actors bid them up. Dollars sitting in banks as emergency liquidity won't be used to bid up prices until they are loaned out. A thing called regime uncertainty, even with Fed rates near 0%, is likely causing would be business ideas to sit on shelves waiting for a time when entrepreneurs no longer fear weird and random interventions or market volatility. And, housing prices are probably still too untrustworthy for borrowers to get back into flipping - and many consumers are in pay debt down mode anyways. That's my guess.
What if the "vault money" gets pulled out of the system by the Fed before it can be loaned out again?
I'm not really saying that will happen, but that's Bernanke's supposed "exit strategy" as far as I understand it.
bloomj31: What if the "vault money" gets pulled out of the system by the Fed before it can be loaned out again? I'm not really saying that will happen, but that's Bernanke's supposed "exit strategy" as far as I understand it.
Actually, it sounds to me as if Mr. Bernanke may be planning on keeping a ton of money tied up in those reserves. I heard him talking about how their new ability to pay interest on reserves gave them a powerful tool for controlling the money supply. -- The don't count money banks have as reserves at the Fed in the money supply as it is out of circulation. That does cost them some additional money in interest, but I guess that's no hill to climb for someone who can "print" money at will.
Hard Rain posted a link to a YouTube segment where Bernanke talked about it a little bit.
It seems like it would be an awful lot less painful than the traditional method of selling some of their stock of treasuries on the open market. That always tends to raise interest rates, which would be catastrophic in our current economy. Mortgage companies are already hanging on by their fingernails as are many homeowners and businesses. Commercial real estate is also on very thin ice.
bloomj31:What if the "vault money" gets pulled out of the system by the Fed before it can be loaned out again?
Don't worry, the Fed will happily lend the U.S. government any money it wants. The Feds continued existence is dependent on it.