Any reason why today's system will fail ?

[theonewhowaskazu]

I really don't know what you're getting at.

I'm trying to find the flaw of today's system, but I have not found one so far. So far I have to say it is working, even this debt ceiling fight could be a drama, everything is in fact under control

Although people are scared by looking at forever rising national debt, but unlike many doomsayers, I'm not just satisfied by fear or wishful thinking without any objective proof or reasoning

Even if you know that today's system unfairly benefit the banker class, you might not be able to do something about it, because of human nature and history

I've already explained the flaw. It doesn't help the under-classes, it hurts them and forces them to work forever without saving any real money. What else do you want me to do.

[Hawker]

...snip...

I've already explained the flaw. It doesn't help the under-classes, it hurts them and forces them to work forever without saving any real money. What else do you want me to do.

johnyj was hoping for some sign the existing system will collapse under the weight of its own inconsistent logic.

It won't - the present system works just fine.  theonewhowaskazu makes a good point but its not the purpose of the system to help the under-classes.  

[johnyj]

I've already explained the flaw. It doesn't help the under-classes, it hurts them and forces them to work forever without saving any real money. What else do you want me to do.

What you explained is not a flaw, it is just unfairness in the current system. But usually there are lots of unfairness in life (like most of the people are not born into a banker's family), and you just can't do anything about it. In current system, they can give you a good work to satisfy your living expense, but at the same time they will accumulate 100x more money in the process without working

Even in a hyperinflation country like Zimbabwe, from time to time they issue new notes to re-denominate the old almost worthless notes (now it is forth edition and 25 zeros have been removed since first edition), that still keep the system running

A flaw however could eventually cause the system to collapse and fail

[Erdogan]

I really don't know what you're getting at.

I'm trying to find the flaw of today's system, but I have not found one so far. So far I have to say it is working, even this debt ceiling fight could be a drama, everything is in fact under control

Although people are scared by looking at forever rising national debt, but unlike many doomsayers, I'm not just satisfied by fear or wishful thinking without any objective proof or reasoning

Even if you know that today's system unfairly benefit the banker class, you might not be able to do something about it, because of human nature and history

Here is one line of thought, not mentioned above.

We have a situation with low but sure price inflation and low interest rate. According to the leaders, this seems to work well. Now all informed people know that, they make sure that they max out their credit and exhanges that for some inflation safe assets.

So when everybody knows this, it is like the unit of account is changed to some formula including time. Envision an accounting system where every post is linked to a date, and there is a formula to convert every number to another price. For instance, 10 dollar at beginning of 2013 is 10 quarks (the epoch in this system), an expense paid mid-year is marked as 5 dollars, but is converted to 4.95 quarks, and an end of year income of 20 dollars is registered as 19.8 quarks. Just like the universal time is displayed as local time on a computer. Now you can compute your profit in quarks (beginning-2013-dollars). Anytime you see an offer for goods or a job reference in dollars, you ask: but what is it in quarks?

So, valued in quarks, the economy clockwork ticks on and on, prices, investments, interest and wages are referenced in quarks. But wait, those have no price inflation. We have to to something, because the economy is in crisis, there is a war, a flood, a storm or some artist sang a sour tone. All this according to Krugmann. So what will be his suggestion to fix the problem?

tl;dr Inflation "works" only as long as some actors are uninformed and thus being screwed.

[johnyj]

tl;dr Inflation "works" only as long as some actors are uninformed and thus being screwed.

The situation today is: Most of the people have been informed that a slight inflation is good for economy and their tolerance level is ok for any inflation below 3%, just like credit card fee  

[Erdogan]

tl;dr Inflation "works" only as long as some actors are uninformed and thus being screwed.

The situation today is: Most of the people have been informed that a slight inflation is good for economy and their tolerance level is ok for any inflation below 3%, just like credit card fee  

Excactly, and the uninformed are uninformed. For instance old people tend to keep large amounts on bank-accounts, and the fatherless minors, where some government type is appointed as advisor, keep their funds in banks and in sovereign bonds. It even includes home sellers, someone might brag about a million dollar profit on a house he sold, that he inherited 50 years ago.

Was it supposed to be a counterargument to my own proposition that the current situation is not good?

[Erdogan]

tl;dr Inflation "works" only as long as some actors are uninformed and thus being screwed.

The situation today is: Most of the people have been informed that a slight inflation is good for economy and their tolerance level is ok for any inflation below 3%, just like credit card fee  

I would like to add: There are of course winners too. If you are a house-owner with a maxed out credit, you might swallow the inconvenience of higher prices, because your wage increases mostly as much, but most of all because you know that your house increases in value. Many think that, but that means that homes obtain exhange value, in effect becoming money. Since homes are not good money, the situation can not last indefinitely, and they are screwed too when the house market (or whatever is the inflation safe asset of the day) crashes. The winners ultimately are the ones that get the new money first, the government, the banks and the cronies.

[mirelo]

I'm trying to find the flaw of today's system, but I have not found one so far.

I suggest you rather try to find a flaw in your own reasoning, according to which the money supply has nothing to do with inflation. You could begin by trying to find a convincing explanation for inflation that does not involve the money supply.
 
Another suggestion would be trying to come up with an argument capable of convincing the world to keep holding USA dollars and treasuries, but I guess by the time you are done with my first suggestion it will no longer be necessary.

[mekanical]

I'll sum some things up for those that don't like to read long posts:

There are 3 primary classes of "losers": 

1) Taxpayers - ultimately relied upon to generate the tax income to pay down debt.

Not in this case, since the debt can be write off by the central bank

2) Bond Holders - A decrease in dollar value hurts the value of US treasury bonds.

More money not equal to a decrease in dollar value, I have explained in detail in above post

3) Consumers - Inflation is very slow and unsuspecting in nature, bond holders will be panicking long before we see significant inflation.  However the eventual price rising drains wealth indiscriminately from everyone.

Create me one trillion dollar, I can guarantee you the inflation will be in check, because only me is getting those money, I will only spend one million dollar and send rest of them to oversea tax heaven account 

I think you've read one too many Paul Krugman Articles.  Sure monetizing the debt will lighten the US taxpayer burden, but you can't possibly believe that the foreign consequences of this will be a minor road bump.  The value of the dollar may only be preserved in comparison to other nations that are undertaking similar extreme inflationary-targeting measures.  Do you realize how hard it would be too keep bond market yields low if we printed 1 trillion? Printing any of the debt away does more harm than good.  If it were this easy why not just give everyone a million dollars??  If more money does not equal a decrease in dollar value we could use this solution and be much better off right?  Or do you have a magic number in your head, say 3 trillion, at which we will start seeing inflation if we print that much...  Here's a heads up, if its not causing inflation, it is at least preventing prices from moving down as far as they should be. 

More money does equal a decrease in dollar value, only the effect is not immediate.  You are not realizing something here... you probably think that by printing 1 trillion and not circulating it that it will not cause inflation.  However, if you print this 1 trillion and use it to offset some national debt, the money is already in circulation!  It was spent as debt,  and would have been repaid (hopefully), had the 1 trillion not been printed.  However, since it no longer has to be repaid, that amount of 1 trillion will stay in circulation indefinitely, adding 1 trillion to the total currency in circulation. 

[Hawker]

I'm trying to find the flaw of today's system, but I have not found one so far.

I suggest you rather try to find a flaw in your own reasoning, according to which the money supply has nothing to do with inflation. You could begin by trying to find a convincing explanation for inflation that does not involve the money supply.
 
Another suggestion would be trying to come up with an argument capable of convincing the world to keep holding USA dollars and treasuries, but I guess by the time you are done with my first suggestion it will no longer be necessary.

When prices rise due to shortages of materials, labour or capacity, that is a real problem in that governments can't do a damn thing about it.  That can't happen for a long long time.  It may never happen in our lifetimes as there has been a huge expansion of capacity caused by 25% of the global population being added to the manufacturing supply chain.  Right now, governments all over the world are printing money and prices of manufactured goods aren't rising.  If you have cash and want to buy consumer good, there has never been a better time because prices are low and will stay that way.

The world will stop investing in US bonds the day a better investment comes along.  For now, bonds in countries that can print their own currencies are considered the safest investment out there.  There is no sign of anything better out there so that won't change for a long time. 

[johnyj]

I'm trying to find the flaw of today's system, but I have not found one so far.

I suggest you rather try to find a flaw in your own reasoning, according to which the money supply has nothing to do with inflation. You could begin by trying to find a convincing explanation for inflation that does not involve the money supply.
 
Another suggestion would be trying to come up with an argument capable of convincing the world to keep holding USA dollars and treasuries, but I guess by the time you are done with my first suggestion it will no longer be necessary.

I did have some idea crossed my mind just now: Inflation is caused by lack of desire to work. If people don't want to work, just want to spend, then price will rise due to less and less goods/services available. Same, deflation is caused by lack of motivation to spend, if people are tired of consumption, they will consume less and less, and the price will fall due to more and more goods/services available.

And those psychological sentiment changes depends on people's outlook of the future

Anyway, I think looking from the money supply angle is useless, there are so many human factors and variables in the process, any kind of theory is just some kind of best effort guess. I'm glad that I found some article about price stickiness and money illusion, maybe I can get some inspiration there...

[Erdogan]

It is complicated, but the way to reason about these things is to decompose the different forces and analyze each one. Here are some components:

Printing Federal Reserve Notes and dispersing them applies an upward force on prices, with some time lag.

Expanding credit and distributing the credit to individuals, businesses and the government is also price driving. The credit is really created out of nothing, you see the result as the Fed having a positive balance, meaning somebody owes the Fed money. It is multiplied in the fractional reserve banking system. The difference between base money and credit is that the credit can disappear as a result of reduced confidence both in the future value of the monetary unit and the debtors' ability to pay back.

If the credit volume is reduced, this is the same as the broad money supply is reduced, and there is a downward pressure of prices.

Technological advances can increase productivity and pressure prices down.
Increased investments increases productivity and can lower prices.

Reduction of production compared to what otherwise could be possible, due to people leaving the workforce, drives the prices up.

The value of the dollar is inverse to other prices over the whole world, not only in USA. It is possible that prices will rise higher or lower in the USA than other places, thus the value of the dollar will seem different within USA and outside.

Then there is the speculators who try to predict future prices. If they are wrong, prices could at least for a while go in the opposite direction of what they otherwise would do. Speculation is rampant in oil, metals, corn.

The statistics used is also debatable. It is not really possible to measure consumer prices in an index, because all individuals are different and the products available constantly changes. The joblessness indicators is not absolute, you can not know how many people would be working if the market were free and if everybody had to cover their own expenses. The GDP is suspect, because a large part of it is possibly cost only, rather than valueable goods and services produced. The savings rate is suspect, because people use houses as money these days. And the velocity of money parameter is absurd, a general flexible constant, invented only to make the other numbers sum up.

Still there is no doubt that expansion of the money supply is price driving.

tl; dr Sorry about the ranting.

[johnyj]

Many variables without any constant fixed relationship, it all becomes best effort guess and betting

There is one reason that is possible to cause the system collapse: When majority of people finally understand the scam nature of the current system, they might abandon fiat money all at once, and that started from many government officials and employees. But currently one out of one million people really understand how it works, just toss FRB, loan and IOU to them and most of them will get lost quickly

[johnyj]

Printing Federal Reserve Notes and dispersing them applies an upward force on prices, with some time lag.

If the credit volume is reduced, this is the same as the broad money supply is reduced, and there is a downward pressure of prices.

Technological advances can increase productivity and pressure prices down.
Increased investments increases productivity and can lower prices.

Reduction of production compared to what otherwise could be possible, due to people leaving the workforce, drives the prices up.

These reasoning comes from an assumption that there is only one type of currency in circulation

If we use a system that have several different currency, added supply in one currency/credit will just devalue its exchange rate against other currencies, it will not affect the price of products expressed by other currencies

On the other hand, increase/decrease of production will lower/raise the price of those products expressed by any currency

So if there are several competing currency in circulation, the value of inflated one will drop quickly against other currency and goods at the same time

[Erdogan]

Printing Federal Reserve Notes and dispersing them applies an upward force on prices, with some time lag.

If the credit volume is reduced, this is the same as the broad money supply is reduced, and there is a downward pressure of prices.

Technological advances can increase productivity and pressure prices down.
Increased investments increases productivity and can lower prices.

Reduction of production compared to what otherwise could be possible, due to people leaving the workforce, drives the prices up.

These reasoning comes from an assumption that there is only one type of currency in circulation

If we use a system that have several different currency, added supply in one currency/credit will just devalue its exchange rate against other currencies, it will not affect the price of products expressed by other currencies

On the other hand, increase/decrease of production will lower/raise the price of those products expressed by any currency

So if there are several competing currency in circulation, the value of inflated one will drop quickly against other currency and goods at the same time

Agree.

[polarhei]

the big player makes too much debts, while other competitions, at most 300,000 M USD debt may be made. the big player makes roughly 1,000 times higher than others with little gold with.