What is special for a currency

[myrkul]

It's a game, not an accurate model.

Of course it's a game, but at a higher abstraction level, everything is a game, the solar system is also a game played under certain physical rules. Can you point out why printing money does not work by some real facts?

First off, the model is flawed. The real economy doesn't work from a top-down, planned method. People are not Sims.

Secondly: https://en.wikipedia.org/wiki/Austrian_economics

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[kjj]

It's a game, not an accurate model.

Of course it's a game, but at a higher abstraction level, everything is a game, the solar system is also a game played under certain physical rules. Can you point out why printing money does not work by some real facts? I think basically the printing of money works, the economy developement after 1971 has proved this, but the big question is why only a selected few can print money, and how we can make sure their printed money are used on something that people really need

The biggest problem is that in a simulation, no real work has to be done.  In simcity, the game can turn an area into an airport or a nuclear plant just by flipping a few bits.  In reality, people have to build those things (and the things they are made from, etc, etc).  You can print money, but you can't print wealth.

If congress had a magic wand that could create wealth, they wouldn't bother printing money.  They don't have that wand, so they print money, which steals a little bit of value from all of the other money, and puts it where they want it to go.

[myrkul]

It's a game, not an accurate model.

Of course it's a game, but at a higher abstraction level, everything is a game, the solar system is also a game played under certain physical rules. Can you point out why printing money does not work by some real facts? I think basically the printing of money works, the economy developement after 1971 has proved this, but the big question is why only a selected few can print money, and how we can make sure their printed money are used on something that people really need

The biggest problem is that in a simulation, no real work has to be done.  In simcity, the game can turn an area into an airport or a nuclear plant just by flipping a few bits.  In reality, people have to build those things (and the things they are made from, etc, etc).  You can print money, but you can't print wealth.

But in Sim City, you can print wealth, because the game treats all Simoleans as being equal, even if you've just waved a magic wand and created them out of thin air.

[johnyj]

The biggest problem is that in a simulation, no real work has to be done.  In simcity, the game can turn an area into an airport or a nuclear plant just by flipping a few bits.  In reality, people have to build those things (and the things they are made from, etc, etc).  You can print money, but you can't print wealth.

If congress had a magic wand that could create wealth, they wouldn't bother printing money.  They don't have that wand, so they print money, which steals a little bit of value from all of the other money, and puts it where they want it to go.

Notice that in a simulation, you have all the technology available, the only thing needed is money and time. I think that's also the reason Germany and Japan were re-constructed very quickly after being heavily destroyed in world war II, since the technology are all kept intact

Although the money do not create an airport, but the money will finance big projects that build the airport, and that project will hire lots of workers and purchase lots of raw materials, which in turn create lots of employment. This is what I try to discuss at the beginning of this thread: Currency will create a chain of economy activities

And all this is based on the fact that people think currency is a store of value and universal equivalent exchange medium, they don't have easy means to access it unless by paying their labour, so when currency arrives, they work

IMO, the talk about inflation does not have a sound theory backing. Inflations are all temporary, since the increase in one product's price will increase the supply and bring down the price of this product later, pure supply and demand. Some one may argue that excessive supply of money will push up the price of everything in the society, but in my simulation, I do not spend those money on daily consumption goods, so it's clear that my spending of newly created money will not cause inflation, but boom

There were very serious inflation incidents in history, but I think in those cases the amount of new money was created by several magnitudes larger speed, so the real economy could not keep up with the dramatically increased purchasing power. Fed has proved that a 4x increase in money supply will not change people's consensus of currency value

[kjj]

No, you are still missing something important.  Printing money does not create purchasing power, it merely redistributes it.

Germany and Japan were rebuilt quickly after the war because the US poured capital into them.  To the locals, it may have looked like someone hacked the game and created a bunch of wealth out of thin air, but that's not what really happened.  The new Europe was built in America, shipped across the ocean, and assembled by people fed by American farms.

[myrkul]

IMO, the talk about inflation does not have a sound theory backing. Inflations are all temporary, since the increase in one product's price will increase the supply and bring down the price of this product later, pure supply and demand. Some one may argue that excessive supply of money will push up the price of everything in the society, but in my simulation, I do not spend those money on daily consumption goods, so it's clear that my spending of newly created money will not cause inflation, but boom

You mean, in Sim City? 

[johnyj]

A little bit off topic now, I will focus on analyzing special characters of currency

As said, currency is very different from real goods/services, because its universal equivalent property, it is widely regarded as wealth, and the most liquid asset. Although all the economy books are denying currency is wealth, but you still can observe the economy effect created by currency

For majority of people, a job with $5000 salary each month is enough to make them happy and work, they don't care if this currency is created out of nothing, that's a simple fact you can observe everywhere

Currently many people complain FED's money printing because they still could not find a job and finance their housing, those printed money just went into banker's pocket. If they all can find a job with a good pay, they seldom question what FED is doing

So, if I start a project with lots of printed money, I could hire many people and pay them salary, the their increased income will bring increased spending in the society, and increased spending won't cause inflation, but only cause increased production from other society member (they want to make more money), resulted a boom

[myrkul]

So, if I start a project with lots of printed money, I could hire many people and pay them salary, the their increased income will bring increased spending in the society, and increased spending won't cause inflation, but only cause increased production from other society member (they want to make more money), resulted a boom

Money is not, itself, wealth. It only represents wealth. If you counterfeited (or arranged to have legally printed) a large sum of money for your startup, without creating a similar amount of real wealth, your new money represents nothing, which is the cause of inflation: The money that represents nothing is mixed in with the money that represents real wealth, like mixing in tungsten to gold, lowering the average real value of each currency unit.

[johnyj]

So, if I start a project with lots of printed money, I could hire many people and pay them salary, the their increased income will bring increased spending in the society, and increased spending won't cause inflation, but only cause increased production from other society member (they want to make more money), resulted a boom

Money is not, itself, wealth. It only represents wealth. If you counterfeited (or arranged to have legally printed) a large sum of money for your startup, without creating a similar amount of real wealth, your new money represents nothing, which is the cause of inflation: The money that represents nothing is mixed in with the money that represents real wealth, like mixing in tungsten to gold, lowering the average real value of each currency unit.

This is only valid in mathematic calculation, the real world does not function this way

Because of limited vision, majority of people seldom question the real source of money. The money did get counterfeited from FED at amazing speed: 400% since 2008, and still 85 billion a month. But due to that people only care about work more and make more money, if there comes new money paying their salary, they will work. After their work, the corresponding wealth will be created, so they are willing to create new wealth to exchange for counterfeited currency, as long as many other people are running low on money too. If everyone is running low on money, the demand for money will be high

This gives central bankers a very good opportunity to counterfeit money when there is a recession. Since the currency never get consumed, people will never question the quality of paper/digital money like inspecting a gold bar

People are ignorant, everyone know that there are 4X more money entering the financial system, but as long as the price of everything do not change, they don't care, they think financial is a complex system and only very rich bankers understand how it works

And more money not necessarily cause higher CPI: Suppose you suddenly get 4x more salary, you will not buy 4x amount of the milk to drink, you will not consume 4x more gas for your car, your money might go to some luxury spending which is not included in the CPI, or you just hoard the rest of excessive money, as long as they are counterfeited by FED, it is legal, accepted by everyone

[johnyj]

Another special character of currency discovered: Those who make the currency do not pay tax

Making everything else as an income should pay tax, but if you are making currency, you do not pay income tax. Since FED is a private organization, they should also run like any other business, pay income tax. The currency worth minus the cost (which is almost 0) is the income that they should pay tax to government, but they never paid  

[myrkul]

So, if I start a project with lots of printed money, I could hire many people and pay them salary, the their increased income will bring increased spending in the society, and increased spending won't cause inflation, but only cause increased production from other society member (they want to make more money), resulted a boom

Money is not, itself, wealth. It only represents wealth. If you counterfeited (or arranged to have legally printed) a large sum of money for your startup, without creating a similar amount of real wealth, your new money represents nothing, which is the cause of inflation: The money that represents nothing is mixed in with the money that represents real wealth, like mixing in tungsten to gold, lowering the average real value of each currency unit.

This is only valid in mathematic calculation, the real world does not function this way

History would disagree:
http://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic



And Germany is not alone:
http://www.businessinsider.com/10-hyperinflation-stories-of-the-20th-century-2011-3?op=1

[johnyj]

History would disagree:
http://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic

And Germany is not alone:
http://www.businessinsider.com/10-hyperinflation-stories-of-the-20th-century-2011-3?op=1

Notice the magnitude difference, not 4x like FED is doing now, it was 100 times to 1 million times more money printed in one or two years. And combined together with large government spending in millitary at war time, people didn't have enough time to produce so much goods to chase those money

It is the same in simcity, modify the money to be infinite does not make it possible to purchase the technology that has not been invented, most of the money are just sitting in the mayor's account doing nothing until later some more expensive technology appeared

Let's say that due to people's ignorance, if you counterfeiting money less than 2x per year, the price will be stable and there will not be significant inflation, but that won't change the fact that FED is conterfeiting money and people are accepting counterfeited money happily

Due to the special character of currency, the supply and demand curve for currency is very different than any other goods/services

[myrkul]

Due to the special character of currency, the supply and demand curve for currency is very different than any other goods/services

The USD is supported by GOD:
Guns, Oil, and Drugs.

The US military (Guns) blows the shit out of any country that looks to be shifting away from the dollar for sale of Oil, and it's the currency of choice for black markets (Drugs) the world around. That creates, and maintains, an additional demand for the Dollar that keeps it's price from reflecting the supply.

[kjj]

Due to the special character of currency, the supply and demand curve for currency is very different than any other goods/services

The USD is supported by GOD:
Guns, Oil, and Drugs.

The US military (Guns) blows the shit out of any country that looks to be shifting away from the dollar for sale of Oil, and it's the currency of choice for black markets (Drugs) the world around. That creates, and maintains, an additional demand for the Dollar that keeps it's price from reflecting the supply.

Sorry, but this is bullshit.  The dollar has value because people want to hold it.  The existence of FOREX nullifies transactional demand as a source of value.  Despite the many problems with the dollar and the US economy, all of the others seem to be worse.

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Notice the magnitude difference, not 4x like FED is doing now, it was 100 times to 1 million times more money printed in one or two years. And combined together with large government spending in millitary at war time, people didn't have enough time to produce so much goods to chase those money

Due to the special character of currency, the supply and demand curve for currency is very different than any other goods/services

How do you think Germany got started down that road?  You think they all got together one day and said, "Fuck it, let's print a quadrillion marks"?  Or do you think maybe the started smaller but it grew out of control?

Money is subject to market forces, just like everything else.  We tend to think of things as having a price in terms of money because it is convenient to have a universal unit of accounting, but the reverse is also true, money has a price in things.  If there are too many things, no one will want to part with much money to get them.  If there is too much money, no one will want to part with many things to get some.

This connects with what I said to myrkul above.  Comparing one currency to another shows the market forces directly and plainly.

[myrkul]

Due to the special character of currency, the supply and demand curve for currency is very different than any other goods/services

The USD is supported by GOD:
Guns, Oil, and Drugs.

The US military (Guns) blows the shit out of any country that looks to be shifting away from the dollar for sale of Oil, and it's the currency of choice for black markets (Drugs) the world around. That creates, and maintains, an additional demand for the Dollar that keeps it's price from reflecting the supply.

Sorry, but this is bullshit.  The dollar has value because people want to hold it.  The existence of FOREX nullifies transactional demand as a source of value.  Despite the many problems with the dollar and the US economy, all of the others seem to be worse.

If you want oil, you have to have Dollars first. If you have Euros, you have to buy Dollars with your Euros in order to buy oil.

You can't buy oil on FOREX.

[kjj]

Due to the special character of currency, the supply and demand curve for currency is very different than any other goods/services

The USD is supported by GOD:
Guns, Oil, and Drugs.

The US military (Guns) blows the shit out of any country that looks to be shifting away from the dollar for sale of Oil, and it's the currency of choice for black markets (Drugs) the world around. That creates, and maintains, an additional demand for the Dollar that keeps it's price from reflecting the supply.

Sorry, but this is bullshit.  The dollar has value because people want to hold it.  The existence of FOREX nullifies transactional demand as a source of value.  Despite the many problems with the dollar and the US economy, all of the others seem to be worse.

If you want oil, you have to have Dollars first. If you have Euros, you have to buy Dollars with your Euros in order to buy oil.

You can't buy oil on FOREX.

If you want oil, you can use whatever currency you have to buy dollars on FOREX, use them to buy oil a millisecond later, and the seller can then dump them for whatever currency they want (again on FOREX) a millisecond later.

Perhaps some tiny sliver of value comes from those two milliseconds where people are holding them against their will, but the bulk of the value of any currency comes from people wanting to hold it.  No force in the universe, not guns, not oil, not drugs, can compel people to hold a currency they don't want to hold.

[myrkul]

If you want oil, you can use whatever currency you have to buy dollars on FOREX, use them to buy oil a millisecond later, and the seller can then dump them for whatever currency they want (again on FOREX) a millisecond later.

Maybe you missed it before.
You can't buy oil on FOREX.
And since the Dollar is the only currency you can use to buy oil, and every country needs oil, every country needs Dollars.

https://en.wikipedia.org/wiki/Petrodollar_warfare

[kjj]

If you want oil, you can use whatever currency you have to buy dollars on FOREX, use them to buy oil a millisecond later, and the seller can then dump them for whatever currency they want (again on FOREX) a millisecond later.

Maybe you missed it before.
You can't buy oil on FOREX.
And since the Dollar is the only currency you can use to buy oil, and every country needs oil, every country needs Dollars.

https://en.wikipedia.org/wiki/Petrodollar_warfare

No, I didn't miss it.  I just don't see the point.  I'm well aware of what you can and can't trade through FOREX.  You can't buy food on FOREX either.  So what?

Just because this crank theory is popular enough to have a wikipedia page, doesn't make it true.

Here is the flow:

1a.  Hans has Euros and wants oil.
1b.  Ivan has oil and wants Rubles.
1c.  Nameless other people (aka, "the market") hold Dollars, Euros, Rubles, etc and are willing to trade.
2.  Hans sells Euros (on FOREX) to the market, gets Dollars.
3.  Hans buys oil (not on FOREX), from Ivan, using Dollars.
4.  Ivan sells Dollars (on FOREX) to the market, gets Rubles.
5.  Everyone is happy.

Net demand for Euros:  down
Net demand for Rubles: up
Net demand for Dollars: no change

The petrodollar theory pretends that step 4 never happens.  To take it seriously, you have to imagine that oil producers are using dollars as garden mulch because they aren't aware that there is a global market that will instantly and for very low cost exchange them for whatever currency they actually want to be holding.

[myrkul]

To take it seriously, you have to imagine that oil producers are using dollars as garden mulch because they aren't aware that there is a global market that will instantly and for very low cost exchange them for whatever currency they actually want to be holding.

Yup, they sell those Dollars right back to the countries that just bought oil from them, and then use those currencies to buy imports, or use the Dollars directly to buy imports from the US... which of course benefits the US as well.

[johnyj]

Due to the special character of currency, the supply and demand curve for currency is very different than any other goods/services

The USD is supported by GOD:
Guns, Oil, and Drugs.

The US military (Guns) blows the shit out of any country that looks to be shifting away from the dollar for sale of Oil, and it's the currency of choice for black markets (Drugs) the world around. That creates, and maintains, an additional demand for the Dollar that keeps it's price from reflecting the supply.

If you include the international trade, it becomes more complex. USD has strong demand at many places in the world, due to US's role of de facto world police, that also make it inflation immune. But for now don't push the topic into too complex context, anyway most of the other countries do not benefit from such a position