Inflation

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 Originally Posted By: buster
http://www.voxeu.org/index.php?q=node/3444 Must be a minority view. I thought printing money was inflationary. Inflation causes prices to rise. It's not the CPI.
Exactly, CPI only MEASURES inflation. Oversupply of money, such as printing too much or having unreasonably low interest rates/reserve requirements can lead to inflation. Right now we are toying with stagflation: http://en.wikipedia.org/wiki/Stagflation Looks familiar? Fast forward from 1970 to present day--exactly same thing is happening again. Read Milton Friedman's "Monetary History of the United States". The best discussion of Federal Reserve and its role in the economic disasters.
 
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 Originally Posted By: buster
http://www.voxeu.org/index.php?q=node/3444 Must be a minority view. I thought printing money was inflationary. Inflation causes prices to rise. It's not the CPI.
Printing money causes the money to be worth less. IMO, THAT is the definition of inflation. That article is like a college economics textbook. Great theory, no historical context. We're spending money right now like it grows on trees and our trade and budget deficits are ASTRONOMICAL. We have close to a $60 trillion dollar accrual basis budget deficit. The fed can do whatever it will do; history has shown us that when countries operate like we do, they eventually go down the economic toilet. Hey, if I printed a bunch of Drew99GT dollars in my basement and provided little to no economic value to you, just how much of that printed money would you accept to provide me a good or service? Lots of it, because it would be worth little to nothing. Well, that simple concept is fundamentally how countries work as well, and the numbnutzes in Washington never seem to get that through their thick skulls.
 
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 Quote:
Well, that simple concept is fundamentally how countries work as well, and the numbnutzes in Washington never seem to get that through their thick skulls.
Much easier to enjoy the benefits of the borrowed money and put the responsibility of paying for it on the next schmuck (generation).
 
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 Originally Posted By: Tempest
Much easier to enjoy the benefits of the borrowed money and put the responsibility of paying for it on the next schmuck (generation).
Sure, a tax cut for now and an inflation later, no need to pay it back, right?
 
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 Originally Posted By: oilyriser
Interest on borrowed money is paid by borrowing more money.
And then China decides to call in our debt.....
 
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 Originally Posted By: Ursae_Majoris
 Originally Posted By: oilyriser
Interest on borrowed money is paid by borrowing more money.
And then China decides to call in our debt.....
The minute they do that is the minute they go down with us. They call our debt, interest rates sore, the dollar tanks, and we no longer buy their craap. China is almost as leveraged as we are! We both go down when we go down.
 
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 Originally Posted By: Drew99GT
 Originally Posted By: Ursae_Majoris
 Originally Posted By: oilyriser
Interest on borrowed money is paid by borrowing more money.
And then China decides to call in our debt.....
The minute they do that is the minute they go down with us. They call our debt, interest rates sore, the dollar tanks, and we no longer buy their craap. China is almost as leveraged as we are! We both go down when we go down.
That's the neat trap we set with all this. While our debt based monetary system plays havoc with us pawns, it's a snare for anyone else participating in milking us for our worth. Wall St. and the Fed get the juice on the shakedown ..while we tend to get the rinds and the pulp piling up at the lower rung levels.
 
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What does the USA produce that China needs? oil? nope. steel? nope. intellectual property? maybe that's the key. China needs the US to stick around as a teacher, for now.
 
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There is talk about a different currency for oil valuations. I do not know if takes off, but it could be a start of new de-facto world currency.
 
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Moderate inflation is essential for a fully functioning economy - the conventional target has been 2-3% annually. Above that it can cause major headaches not the least of it being loss of confidence. Similarly dangerous is deflation. When the CPI has negative growth then any items acquired through debt become worth less than the debt on them. So a reasonable reaction is to abandon that property. We can see this happening in some RE markets today. A home buyer will abandon the property if the debt is more than the value of the house.
 
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There are some formulas about measuring the correct amount of new money infusion by the Fed that uses the money velocity to determine what these levels are. In the early 80-s Volker had the guts to actually stand up and stop the inflation part of the stagflation through controlling the monetary policy.
 
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 Originally Posted By: Ursae_Majoris
There is talk about a different currency for oil valuations. I do not know if takes off, but it could be a start of new de-facto world currency.
The Saudis, UAErs, and Kuwaitis wouldn't dare. Their royals would collapse overnight if we switch our support from the monarchs to the democracies. Just look at Iran and Iraq.
 
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 Originally Posted By: PandaBear
 Originally Posted By: Ursae_Majoris
There is talk about a different currency for oil valuations. I do not know if takes off, but it could be a start of new de-facto world currency.
The Saudis, UAErs, and Kuwaitis wouldn't dare. Their royals would collapse overnight if we switch our support from the monarchs to the democracies. Just look at Iran and Iraq.
 
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 Originally Posted By: oilyriser
What does the USA produce that China needs? oil? nope. steel? nope. intellectual property? maybe that's the key. China needs the US to stick around as a teacher, for now.
China can produce widgits in such vast numbers that they can make your head spin. Who is going to buy them? Just what will give them a purpose beyond what they already have and have always had? We've already robbed the rest of the world in the needed capital accumulation to launch China into a seat at the big table commerce-wise. Just who can they squeeze money out of now? Us? We owe them plenty. The Euro's? They held a good percentage of our paper scam too. The Russians ()?? The only way that that paper can be redeemed is through investment HERE ..buying our property ..building factories HERE to produce their goods. This is the trap of "if I owe you $100 ..I need you. If I owe you trillions, you need me to be able to make my payments". Naturally, it reshuffles our social deck a bit in the process.
 
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