Money appreciation. Winners and losers

[deisik]

A lot of delusion, confusion, and outright ignorance fill up the topics here in respect to money appreciation and its effects on the economy. The ignorant don't even understand their ignorance, persisting in their obstinacy and arrogance. So I decided to make a new topic to send the next generations of these morons right here (you are welcome too)

And here we go

If the currency is appreciating, raw materials actually end up more expensive to you, since your profits are diminished when you sell finished goods for less price (due to currency appreciation)...

this is wrong, because when the currency is appreciating the cost of raw materials is going down.
there arent less profits either.
in absolute numbers the final cost is less but through appreciation your buying power is the same.

First of all, the inevitable outcome of money appreciation is an increase in the buying power, by definition. It means that savers can buy more goods with the same amount of money than before the appreciation started. This is rather straightforward and shouldn't be a matter of dispute. But at whose expense has this consumers paradise been made possible? Who does really pay for it?

These poor beggars are the producers of all those goods, whose profits are being mercilessly socialized through money appreciation. The key to understanding the mechanism of expropriating profits in this way lies in the non-obvious discrepancy between how money appreciation affects prices and profits. At first glance, it may look that profits are affected in absolutely the same way as the prices (as the dude from my quote above innocently assumes). If it were so, we would most certainly have the case where "there arent less profits either". The major problem is it is not. If we had a production cycle of a company equal to one year*, its profit margin at 10% (before money appreciation), and an annual rate of money appreciation at 5%, that would give us a whopping 50% decline in profits, since at the end of the production cycle the company would be able to sell its product only at 95% of its original price with a profit of only 5%. That is two times less, with the rest being eaten and socialized by money appreciation

Thereby, the raw materials that the company bought at the beginning of the production cycle turn out to be more expensive for the company relative to the income it generates from selling its goods. In other words, it should have bought them 5% cheaper to balance out the drop in profits. If the company decides to keep up the profit margin at its original level, it would have to buy less raw materials in the next cycles (which effectively means the same), i.e. reduce production, and with each consecutive production cycle accompanied by money appreciation the profits will be diminishing in absolute terms up to a point where production stops completely and the business winds up...

To sum it up, there is no free lunch, and still more so for the ignorant (no regrets)

*Later update: before engaging in argument make sure that you know what a production cycle of a company (business) really means lest you should make a fool of yourself (as it happened below)

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[johnyj]

Only in academic people's imagination, there is an absolute measure of money's appreciation or depreciation. In the real world, it is always something's value going up while some other thing's value going down, and there is no meaning in regulating the average price trend of those things because for each people their holdings of these things are different, and they have a conflict of interest depends on their holdings (Everyone want his holding become more valuable so that he can exchange more other things, a policy that benefiting one fraction will always hurt the people on the opposite side)

You can have a few land lords holding majority of the assets in a country wish to have their assets appreciation against cash and everything else, while a lot of poor people wish to have their savings in cash appreciation against house so that they can afford to buy a house. You can clearly see who is going to win: These land lords usually hold the highest position in this country.

"By dealing an ultimately crippling blow to the monarchy (which, even after the Restoration, no longer posed a significant challenge to enclosures) the Civil War paved the way for the eventual rise to power in the 18th century of what has been called a "committee of Landlords",[26] a prelude to the UK’s parliamentary system. " -- Enclosure - wikipedia

[bitcoinstudent19212]

These poor beggars are the producers of all those goods, whose profits are being mercilessly socialized through money appreciation. The key to understanding the mechanism of expropriating profits in this way lies in the non-obvious discrepancy between how money appreciation affects prices and profits. At first glance, it may look that profits are affected in absolutely the same way as the prices (as the dude from my quote above innocently assumes). If it were so, we would most certainly have the case where "there arent less profits either". The major problem is it is not. If we had a production cycle of a company equal to one year, its profit margin at 10% (before money appreciation), and an annual rate of money appreciation at 5%, that would give us a whopping 50% decline in profits, since at the end of the production cycle the company would be able to sell its product only at 95% of its original price with a profit of only 5%. That is two times less, with the rest being eaten and socialized by money appreciation

Thereby, the raw materials that the company bought at the beginning of the production cycle turn out to be more expensive for the company relative to the income it generates from selling its goods. In other words, it should have bought them 5% cheaper to balance out the drop in profits. If the company decides to keep up the profit margin at its original level, it would have to buy less raw materials in the next cycles (which effectively means the same), i.e. reduce production, and with each consecutive production cycle accompanied by money appreciation the profits will be diminishing in absolute terms up to a point where production stops completely and the business winds up...

To sum it up, there is no free lunch, and still more so for the ignorant (no regrets)

But why are you concerned with lauding the companies that produce? There are countless companies that would produce - these people are not the creators of value in an economy. For every business that shuts down there are 10 more that set up to try and do the same thing. Producers are interchangeable and as such

However, if the producer is the spectacular business that you observe it as being, then they will be the only people able to do what they do? And if they are the only people that know how to do what they are doing, they are, by definition; price setters. If they are price setters then an appreciating currency will see them keep their prices the same, and they would see their profits increase. No one agrees to a trade where you don't become better off as a result of doing it - why would you do it otherwise?

You have also unrealistically assumed that raw materials are not subjected to a increase decrease in price too, how did you arrive there? I quote " it would have to buy less raw materials in the next cycles". This is simply not true. If (as you say) consumers of goods benefit from an appreciation in the currency then so do the consumers of raw materials (producers). Furthermore, as a producer you don't buy all of your goods for your years production in one go, you buy them as you need them - either just in time or just in case. Either way, if you, as a producer cannot negotiate prices downwards when the currency is appreciating then you should be forced out of business as you clearly have no understanding of the market or how to negotiate!

[deisik]

But why are you concerned with lauding the companies that produce? There are countless companies that would produce - these people are not the creators of value in an economy. For every business that shuts down there are 10 more that set up to try and do the same thing. Producers are interchangeable and as such

However, if the producer is the spectacular business that you observe it as being, then they will be the only people able to do what they do? And if they are the only people that know how to do what they are doing, they are, by definition; price setters. If they are price setters then an appreciating currency will see them keep their prices the same, and they would see their profits increase. No one agrees to a trade where you don't become better off as a result of doing it - why would you do it otherwise. You have also unrealistically assumed that raw materials are not subjected to an increase in price too, how did you arrive there? I quote " it would have to buy less raw materials in the next cycles". This is simply not true. If (as you say) consumers of goods benefit from an appreciation in the currency then so do the consumers of raw materials (producers). Furthermore, as a producer you don't buy all of your goods for your years production in one go, you buy them as you need them - either just in time or just in case. Either way, if you, as a producer cannot negotiate prices downwards when the currency is appreciating then you should be forced out of business as you clearly have no understanding of the market or how to negotiate!

I'm not talking about what producers should and what they should not do. I'm talking about the effect of money appreciation on the economy. Whether producers try to negotiate prices down, get thrown out of business by competitors, or just go bust is totally irrelevant to this effect which would be absolutely the same

You have also unrealistically assumed that raw materials are not subjected to an increase in price too

What?! I thought I was meaning appreciation of money

I quote " it would have to buy less raw materials in the next cycles". This is simply not true. If (as you say) consumers of goods benefit from an appreciation in the currency then so do the consumers of raw materials (producers)

They will have to if they want to retain their profit margin, which I specifically pointed out. Prices for raw materials may decline mere 5% (as in my example), but the cuts in profits may be as high as 50%. Or they (producers) may just start suffering losses (due to money appreciation). But losses are losses, by any means, wtf

Furthermore, as a producer you don't buy all of your goods for your years production in one go, you buy them as you need them - either just in time or just in case

Did I forget to stipulate that the production cycle of the company was one year long? Should I advise you to go find a good book on business economics and read it thoroughly, lol?

[bitcoinstudent19212]

In terms of the production cycle I think you have completely missed my point. The production cycle for a producer is naturally something that varies. That being said, there are very few producers who take enough time from the start of production to the end of production that their inputs would be significantly more expensive at the end (relatively) - even if they were, then the beauty of the free market is that they can change their prices in order to price in this situation.

If I buy raw materials for $5 and want to sell the finished product for $10 at the end of the production process I am not forced to stick to this price - I can raise it in order to account for the fact that my raw materials are more expensive. So with a 5% appreciation (as you suggest), I would either raise my price to $10.50 or choose not to. If I raise the price then consumers are no worse off and I am no better of. The same people who would have bought my product to start off with - would still buy it today. I would question where you have seen an economy which fits your ideology (in the developed world) where competitive businesses cannot choose the prices they sell at.

Perhaps you should take a look at any economics textbook and a look at the real world around you?

[deisik]

In terms of the production cycle I think you have completely missed my point. The production cycle for a producer is naturally something that varies. That being said, there are very few producers who take enough time from the start of production to the end of production that their inputs would be significantly more expensive at the end (relatively) - even if they were, then the beauty of the free market is that they can change their prices in order to price in this situation.

If I buy raw materials for $5 and want to sell the finished product for $10 at the end of the production process I am not forced to stick to this price - I can raise it in order to account for the fact that my raw materials are more expensive

Raw materials become more expensive relative to a producer's cash flow (revenue), which I also emphasized in my opening post. And you can't raise prices. This is a given, since under money appreciation prices decline, by definition. If you could (i.e. producers as a whole), there would be no appreciation of money in the first place...

You have to accept it, and as well learn what production cycle actually means (your ignorance shows through), lol

[bitcoinstudent19212]

In terms of the production cycle I think you have completely missed my point. The production cycle for a producer is naturally something that varies. That being said, there are very few producers who take enough time from the start of production to the end of production that their inputs would be significantly more expensive at the end (relatively) - even if they were, then the beauty of the free market is that they can change their prices in order to price in this situation.

If I buy raw materials for $5 and want to sell the finished product for $10 at the end of the production process I am not forced to stick to this price - I can raise it in order to account for the fact that my raw materials are more expensive

Raw materials become more expensive relative to a producer's cash flow (revenue), which I also emphasized. And you can't raise prices. This is a given, since under money appreciation prices decline, by definition. If you could, there would not be appreciation of money in the first place...

You have to accept it (and as well learn what production cycle actually means)

Just out of interest, who is stopping the individual company from keeping their prices at the same level?? Price levels are calculated on the basis of food/oil/tobacco and a whole bundle of goods. When consumers see these falling prices and their spending power increased they are only going to consume more! So even if the profit margins fall (disputable as I have already proven) the rules of supply and demand will dictate that the producers sell more!!

[deisik]

In terms of the production cycle I think you have completely missed my point. The production cycle for a producer is naturally something that varies. That being said, there are very few producers who take enough time from the start of production to the end of production that their inputs would be significantly more expensive at the end (relatively) - even if they were, then the beauty of the free market is that they can change their prices in order to price in this situation.

If I buy raw materials for $5 and want to sell the finished product for $10 at the end of the production process I am not forced to stick to this price - I can raise it in order to account for the fact that my raw materials are more expensive

Raw materials become more expensive relative to a producer's cash flow (revenue), which I also emphasized. And you can't raise prices. This is a given, since under money appreciation prices decline, by definition. If you could, there would not be appreciation of money in the first place...

You have to accept it (and as well learn what production cycle actually means)

Just out of interest, who is stopping the individual company from keeping their prices at the same level?? Price levels are calculated on the basis of food/oil/tobacco and a whole bundle of goods. When consumers see these falling prices and their spending power increased they are only going to consume more! So even if the profit margins fall (disputable as I have already proven) the rules of supply and demand will dictate that the producers sell more!!

I'm not talking about individual companies, since money appreciation affects the whole economy at large (read the majority of producers having to lower prices). And selling more in these conditions is highly unlikely because the primary driving force behind money appreciation in real economy nowadays is a collapse in aggregate demand (read the majority of consumers saving instead of spending), lol. Prices fall because people start to consume less, and you are ignorantly confusing cause and effect...

Are you RealBitcoin in disguise?

[bitcoinstudent19212]

Well I think your argument is false then. The economy is made up of individual companies, acting through individual rationals to better themselves. For as long as everyone acts in their own interest, transacting and exchanging in order to increase their own wealth then there are no winners or losers. Wealth is not created or lost through inflation or deflation. Only the people who don't deserve to do be wealthy in the first place would lose out!

[deisik]

Well I think your argument is false then. The economy is made up of individual companies, acting through individual rationals to better themselves. For as long as everyone acts in their own interest, transacting and exchanging in order to increase their own wealth then there are no winners or losers. Wealth is not created or lost through inflation or deflation. Only the people who don't deserve to do be wealthy in the first place would lose out!

You may think as you please, this still doesn't change a thing (read nobody cares)

[deisik]

Only in academic people's imagination, there is an absolute measure of money's appreciation or depreciation. In the real world, it is always something's value going up while some other thing's value going down, and there is no meaning in regulating the average price trend of those things because for each people their holdings of these things are different, and they have a conflict of interest depends on their holdings (Everyone want his holding become more valuable so that he can exchange more other things, a policy that benefiting one fraction will always hurt the people on the opposite side)

What you say boils down to saying that there is no such thing as money appreciation or depreciation altogether at the level of the whole economy. If so, does it mean that if we print zillions of money, the ensuing all-encompassing hyperinflation of prices is just a figment of "academic people's imagination"?

Did I get your point right?

[johnyj]

Only in academic people's imagination, there is an absolute measure of money's appreciation or depreciation. In the real world, it is always something's value going up while some other thing's value going down, and there is no meaning in regulating the average price trend of those things because for each people their holdings of these things are different, and they have a conflict of interest depends on their holdings (Everyone want his holding become more valuable so that he can exchange more other things, a policy that benefiting one fraction will always hurt the people on the opposite side)

What you say boils down to saying that there is no such thing as money appreciation or depreciation altogether at the level of the whole economy. If so, does it mean that if we print zillions of money, the ensuing all-encompassing hyperinflation of prices is just a figment of "academic people's imagination"?

Did I get your point right?

Ok, if you want to print 100 times more money, then price will rise as you anticipated, but if you print a couple of percent or even 500% more money, the money supply and inflation have no direct relationship. Or to say, the margin of error is so large that it is usually 1 magnitude of variance, quite useless in reasoning anything

And notice that all the official indicator of inflation do not include capital goods, like house and stocks. So even house and stocks' price rose by 10 times, there would still be a deflation in daily consumption goods (oil for example) and banks need to keep printing money to drive up the inflation.

In fact they just take the chance to buy more capital goods. Most of the printed money nowadays are used to gamble on various capital goods, do not enter the traditional economy at all, even if they enter in the form of investment, the result is overproduction and the drop in consumption price, e.g. deflation by academic definition

[deisik]

Only in academic people's imagination, there is an absolute measure of money's appreciation or depreciation. In the real world, it is always something's value going up while some other thing's value going down, and there is no meaning in regulating the average price trend of those things because for each people their holdings of these things are different, and they have a conflict of interest depends on their holdings (Everyone want his holding become more valuable so that he can exchange more other things, a policy that benefiting one fraction will always hurt the people on the opposite side)

What you say boils down to saying that there is no such thing as money appreciation or depreciation altogether at the level of the whole economy. If so, does it mean that if we print zillions of money, the ensuing all-encompassing hyperinflation of prices is just a figment of "academic people's imagination"?

Did I get your point right?

Ok, if you want to print 100 times more money, then price will rise as you anticipated, but if you print a couple of percent or even 500% more money, the money supply and inflation have no direct relationship. Or to say, the margin of error is so large that it is usually 1 magnitude of variance, quite useless in reasoning anything

It is made possible since in today's fiat world the transfer mechanism (from the printing press to cash on hands) has many links built in. Money can be created (and destroyed) endogenously (e.g. through credit), and thereby the money created by the central bank (i.e. base money) is only a small fraction of what goes as money in the modern economy...

But this is not what this topic is about

[deisik]

If what you say were true, i.e. there is no net effect in the form of money appreciation (depreciation), or that it is entirely irrelevant, then the economy as a whole wouldn't be affected by, say, a Central Bank monetary policy. I mean that changing the CB interest rates would not have an overall impact on the economy. The facts, though, don't confirm this assumption. Quite the contrary, the smallest changes in the price of money (since that's what these interest rates are all about) may have dramatic (or even devastating) effects not just domestically but globally (as is the case with the Fed's funds rate)...

So your point seems to be highly vulnerable and hard to support