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Author Topic: Lending at negative interest rates. (People like bigger numbers.)  (Read 7312 times)
bytemaster
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August 03, 2010, 11:50:23 PM
 #21

The problem with your argument is that you failed to consider "who gets the new money".   Surely when the money supply was "inflated" it did not go to some poor guy.   In most cases money goes to those with the means and connections to take out HUGE loans, the rich. 

Money never does anything PRODUCTIVE.  Lending money does not create "production" any more than "hoarding" it does.   People produce because the value of the thing produce is greater than the sum of the parts.   In fact, lending money "out of nothing" causes *consumption* of goods today by taking value from the money in everyones "savings". 

Take Joe the Plumber who works 40 years and saves 50% of everything he earns.  Thus, if his income was 100BTC and his expenses were 50BTC then he would have 40 years of retirement saved up.  This retirement fund represents forgone consumption.  Namely, he didn't consume resources in the first 40 years so other people could.  But his labor entitled him to not just 40 years of living expenses, but 40 years plus the time value of money.   

Under inflation, wealth is transfered from his hard work to people who borrow money to consume today what they did not save for.  Under federal reserve price fixing in an attempt to only print enough money to keep prices "stable" you steal the time-value of money (all of the increases in production) from the savers and re-allocate that to the borrowers.

So the rich control the banking and government and get the vast majority of newly "loaned" money which they get to spend before prices have a chance to adjust to the new supply.  The poor guy on the street does not see any of that new money until after all prices have risen. 

If the American people ever allow private banks
to control the issue of their money,
first by inflation and then by deflation,
the banks and corporations that will
grow up around them (around the banks),
will deprive the people of their property
until their children will wake up homeless
on the continent their fathers conquered.

The issue is not who gets what as no one is entitled to anything.  The issue is who lies, cheats, and steals to get what they want.  If Joe was smart enough to trade porn to invest in BTC then he deserves any reward for his speculation.   

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August 04, 2010, 05:19:19 AM
 #22

This represents a complete and closed world view that cannot be argued with.

It is unfounded enough to dismiss out of hand.
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August 04, 2010, 06:34:26 AM
 #23

You claim it is an unfounded world view, but it is nothing but Austrian economic theory as supported by mises.org, lewrockwell, ron paul, and many other scholars. 


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August 04, 2010, 01:18:41 PM
 #24

"But in general, deflation steals from the cash poor and gives to the cash rich.
Inflation steals from the cash rich and gives to the cash poor.
That is why deflation causes uprisings but inflation causes malaise."

This is an invalid argument if applied to price inflation/deflation. Those phenomena are caused by supply and demand and have nothing to do with theft or fraud, unless you are implying that it is somehow theft if I buy 1000 shares of Apple and the price goes up as a result.

This of course was a metaphor, but if you are having trouble getting it, how about an example.

It was an invalid metaphor.

Suppose on average it take 100 BTC a year for a person to buy all the necessities of life for a year. Food, rent, minimal stuff.

Now we have two people doing the same job, one rich in cash, say because he happened to discover bitcoin four years before the other guy. The second person just discovered bitcoin today. So they start in the same job at the same wage (100 BTC) with the same needs (100 BTC). However, 4 years ago the rich guy traded a stack of old porn for 1000 BTC and then hoarded them. Say it was worth $5 at the time.

Now say it is a really good year for bitcoin adoption. The "demand" for bitcoins doubles and the prices of necessities falls by half. Now let's say salaries fall to match. Now both guys make 50 BTC and spend 50 BTC. So who cares?

Well the rich guy went from having a 10 year reserve of BTC to having a 20 year reserve of BTC. The other still has no reserve.
The rich guy did no more work than the poor guy. AND!!! This is the important part!!!  His hoard of 1000 BTC added no more value to the overall economy than the poor guys 0 BTC hoard. In productivity value, all hoards are equal.

The so-called "rich guy" traded in his present consumption for future consumption by saving his bitcoins instead of spending them right away. He made a calculation that future Bitcoin use would be higher. He had to trade something to get those Bitcoins in the first place; this is not "doing nothing"! There is no reason that he remains the "rich guy"; Bitcoins could very well fade away and be replaced by something else, in which case your rich guy winds up flat out broke.

He did in fact add to the economy: By hoarding Bitcoins, he is signalling that he believes Bitcoins to be more valuable in the future. He also takes on very real risk by doing so. If you believe he is wrong, you can short Bitcoins by borrowing them and then return them when their value has dropped.

Without these early adopters, there is no way that Bitcoin could ever get off the ground. I would say that they are performing an extremely valuable service by driving adoption of the currency. They are also taking on significant risk by doing so, as they could easily end up with worthless Bitcoins. Are you saying that people should take on risk without getting anything in return?

Hence the over all transfer of wealth to the rich. You might not consider it "stealing" however certainly both people and their stashes benefited the economy equally, one got disproportunate reward.

This is no more a transfer of wealth than it is a transfer of wealth that a lot of people at Apple are probably very wealthy now due to stock options, the same as people at Google. Demand for their stocks increased, thus rewarding the guys who got in earlier. This is not a transfer of wealth because it is entirely voluntary; it is "risk & reward". People deserve to be compensated for risk, and their compensation is entirely through the voluntary actions of others. There is no coercion here. There was always the risk that Google/Apple would fail and those stock options would be worthless, as with countless other companies whose names you don't even know about because they did fail.

If you think about it, this is how Feudal systems work. However the important commodity is land rather than BTC.

Feudal systems were built upon slavery and the idea that some classes of people were better than others.



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August 04, 2010, 01:22:33 PM
 #25

Printing money "transfers" nothing!

This is an untrue statement. Money spent into existence alters the price structure into something different than what it would be if that money had not been created. The people whom receive the new money first benefit the most, as they can still take advantage of lower prices in the market. By the time the money filters through the economy and raises the general level of prices due to more money chasing the same amount of goods, the non-recipients of this new money are left with less purchasing power than before.

This is always true, unless the following conditions hold:

* Everyone's cash balances and debts are simultaneously and synchronously increased by exactly the same proportion.
* The newly created money is never spent and never entered into circulation.

I noticed you only responded to the first half of my post and completely ignored this, Red.

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August 04, 2010, 01:24:09 PM
 #26

This represents a complete and closed world view that cannot be argued with.

It is unfounded enough to dismiss out of hand.

I could say the same thing about your worldview. Are you unwilling to continue the discussion because you realize you are standing on a house of cards, or is it simply because it is your own mind that is closed and is unwilling to learn, which is why you simply dismiss ideas that you do not understand?

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Red
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August 04, 2010, 05:18:23 PM
 #27

Bitcoiner: I disagree with your viewpoints but they are worth the discussion value.

My previous comment referred to the prior post by another and related video in another thread. I'm done there. Sometimes not trying to convince people of their ignorance is the most valuable choice.


If I failed to respond to particular points it was because I was replying from a cell phone with limited keyboard. I will reply in depth as I get access to more efficient devices.


In the meantime, why is it called austrian economic theory? Last I checked the austrians were part of the EU common currency? No one claims the euro is a fixed currency system do they?

PS: this is a thread about the likelihood of people, banks or groups lending with negative interest. I think I responded very coherently about that. In this thread please feel free to refute my premise that PRICE inflation encourages lending, and PRICE deflation makes lending much riskier for the lender and more expensive for the borrower. Therefore it is highly unlikely that widespread lending at negative rates will evolve.
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August 04, 2010, 05:40:17 PM
 #28

Red, considering you have shown your ignorance of the subject of austrian economics by not even knowing its origin I would recommend that you visit mises.org and read Mises on Money (http://mises.org/money.asp)  where you can gain a full understanding of the theory and thus can discuss more in depth.  These are not half-baked ideas thrown out by random bloggers or "conspiracy theorists".   

Most people who know austrian economics also fully understand keysian economics (because we are bombarded with it by the government and banker controlled media and education systems).  However, few people who promote keysian economics can even explain what austiran economics is or the foundational principles upon which it is built.  They hear the conclusions and interpret them through Keysian glasses.

Bottom line is that "conventional economic theory" depends upon and enables big government and the inherit violation of individual liberty.  It also failed to predict the current crisis.  It is because of a need to "rationalize" government power and to "fund" endless government deficits and to justify "spending yourself to prosperity" that mainstream economics is so popular with government and their propaganda outlets (universities, media). 


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August 04, 2010, 06:20:20 PM
 #29

I was going to summarize my criticisms of your point of view but wikipedia already did it better.

It is enough to say that I concur.

By the way, just because people put extensive thought into something doesn't imply it is correct. The communists had lots of theories about why that model was better. Empirically, they didn't prove out. Many people saw the consequences of communism as mathematically obvious. That did not make them closed minded.

For the record, I'm a pragmatic libertarian. Believe but do your own math. Math works. Empirically validated functions rule. Philosophy is easy to twist to any whim. That is my philosophy! :-)

-------

Criticism of the Austrian School

Critics have concluded that modern Austrian economics generally lacks scientific rigor,[10][12] which forms the basis of the most prominent criticism of the school. Austrian theories are not formulated in formal mathematical form,[107] but by using mainly verbal logic and what proponents claim are self-evident axioms. Mainstream economists believe that this makes Austrian theories too imprecisely defined to be clearly used to explain or predict real world events. Economist Bryan Caplan noted that, "what prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics."
A related criticism[5][108] is applied to Austrian School leaders; these leaders have advocated a rejection of methods which involve directly using empirical data in the development of (falsifiable) theories; application of empirical data is fundamental to the scientific method.[109] In particular, Austrian School leader, Ludwig von Mises, has been described as the mid-20th century's "archetypal 'unscientific' economist."[110] Mises wrote of his economic methodology that "its statements and propositions are not derived from experience... They are not subject to verification or falsification on the ground of experience and facts."[111] Murray Rothbard was also an adherent of Mises's methodology, and though Rothbard assigned a quasi-empirical description to it, he comments that "it should be obvious that this type of 'empiricism' is so out of step with modern empiricism that I may just as well continue to call it a priori for present purposes".[112] Additionally, the prominent Austrian economist, F. A. Hayek, stated his belief that social science theories can "never be verified or falsified by reference to facts."[113] Such rejections of empirical evidence in economics by Austrian School leaders have led to the school being dismissed within the mainstream.[5]
Another general criticism of the School is that although it claims to highlight shortcomings in traditional methodology, it fails to provide viable alternatives for making positive contributions to economic theory.[114] In his critique of Austrian economics, Caplan stated that Austrian economists have often misunderstood modern economics, causing them to overstate their differences with it. He argued that several of the most important Austrian claims are false or overstated. For example, Austrian economists object to the use of cardinal utility in microeconomic theory; however, microeconomic theorists go to great pains to show that their results hold for all monotonic transformations of utility, and so are true for purely ordinal preferences.[10][23] Caplan has also criticized the school for rejecting on principle the use of mathematics or econometrics.
There are also criticisms of specific Austrian theories. For example, Nobel laureate Milton Friedman, after examining the history of business cycles in the US, concluded that "The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false."[6][103][115] In addition to Milton Friedman's criticism, Nobel laureate and neo-Keynesian economist Paul Krugman argued that Austrian business cycle theory implies that consumption would increase during downturns, and cannot explain the empirical observation that spending in all sectors of the economy fall during a recession.[7]
Economist Jeffrey Sachs has pointed out that when comparing developed free-market economies, those that have high rates of taxation and high social welfare spending perform better on most measures of economic performance compared to countries with low rates of taxation and low social outlays. He asserts that poverty rates are lower, median income is higher, the budget has larger surpluses, and the trade balance is stronger (although unemployment tends to be higher). He concludes that Friedrich Hayek was wrong when he said that high taxation would be a threat to freedom; but rather, a generous social-welfare state leads to fairness, economic equality, international competitiveness, and strong vibrant democracies.[116] In response to Sachs' article, William Easterly states that Hayek, writing in 1944, correctly recognized the dangers of large-scale state economic planning. He also questions the validity of comparing poverty levels in the Nordic countries and the United States, when the former have been moving away from social planning toward a more market-based economy, and the latter has historically taken in impoverished immigrants. Easterly also argues that laissez-faire countries were the leaders of "the ongoing global industrial revolution" which is responsible for abolishing much of the world's poverty.[117]
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August 04, 2010, 10:09:20 PM
 #30

Market - not central bank - interest rates will always be positive to reflect risk and the time preference.  Unless the loan is such that it would significantly affect total productivity in the economy surrounding the given currency - very unlikely - then negative interest rates make no sense.

Am I missing something?
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August 04, 2010, 10:16:53 PM
 #31

For the record, I'm a pragmatic libertarian. Believe but do your own math. Math works. Empirically validated functions rule. Philosophy is easy to twist to any whim. That is my philosophy! :-)

Just be careful of bad math that cause you to believe in something that isn't true. Your map does not correspond to the territory and all.

You don't want to be like Paul Samuelson with his economic textbook touting the idea that the Soviet economy will surpass the USA's economy. He didn't understand how they work at all.

The Austrian schools merely derive their economic from deductive logics. So there is a way to disprove them. Just explain their logical mistakes.

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August 04, 2010, 11:20:14 PM
 #32

Am I missing something?
I don't think so. I think you understand this correctly.

However, let me give it to you as a deductive reasoning chain:

1. You loan 500 BTC to Fred for manufacturing improvements.
2. Manufacturing improvements increase productivity.
3. Increased productivity creates more commodities to trade.
4. More commodities trading compete for a fixed number of bitcoins to trade with.
5. Competition for bitcoins increases their value.
6. Increased value of the repaid coins means commodity value break even is less than the principle of the loan.

Seems perfectly logical via deductive reasoning. You can always finish the chain by saying it is up to the lender how much less he is willing to take.

The problem with all this deductive reasoning is that it is completely pointless. No where did I give you any math that attempted to show how much deflation the given investment would/could cause.

====

Thought about more mathematically, a loan with negative interest is equivalent to two separate transactions.
1. The amount of the loan that requires repayment (at zero percent interest).
2. A gift for the rest of the amount.

Deductive logic would say, there might exist cases where I might donate money with the hope of increasing deflation. And if I would give money away for that, then there is no loss in loaning money for that.
Therefore, the proposition is again reasonable.

====

Inductive reasoning however says.
1. Take the loan.
2. Repay the loan.
3. Keep the difference.

That makes a lousy business model for a bank.
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August 04, 2010, 11:32:48 PM
 #33

Well, your theory that your loan could "increase deflation enough" to make negative interest rates work is clearly unfounded unless your loan represents a majority of the money supply.

You lend 100BTC and cause 10,000BTC worth of goods to enter the economy because your loan was going to cause deflation you "gave" -2% interest and thus lost 2BTC.     The entire BTC economy was worth 23,000,000 BTC before your loan and thus adding 10,000 BTC would cause .0004% price deflation to distribute 23,010,000 worth of goods over 23,000,000 units of exchange.   Clearly there is no way any individual could stimulate enough economic production to generate a profit from the resultant price deflation.  Even if said person had an investment that returned 100x startup costs.

Economics is not about math, it is about HUMAN ACTION.   There is no math that can explain human action because there are too many variables and people do not think like computers.

Besides, if austrian economics was so bad then why have they been predicating this crash while the "scientific economics" were promoting theories that depended upon exponential growth functions to stay solvent.   It is trivial to prove their equations false. 

It is like school kids manipulating algebraic equations to calculate area or volume without knowing what the numbers actually mean.

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August 05, 2010, 12:22:17 AM
 #34

I was going to summarize my criticisms of your point of view but wikipedia already did it better.

It is enough to say that I concur.

By the way, just because people put extensive thought into something doesn't imply it is correct. The communists had lots of theories about why that model was better. Empirically, they didn't prove out. Many people saw the consequences of communism as mathematically obvious. That did not make them closed minded.

Communism in theory uses fatally flawed concepts. If ever we are to have communism on this world it will be in the form of vast material wealth that will leave nobody wanting for basic goods. Scarcity (and therefore economics) will always exist up until the point we can create new universes, or something like that. Maybe it will exist even then.
Communism in practice... 'nuff said. In my personal experience, the people I've encountered who support those ideals tend to argue with emotion, dismiss ideas out of hand, and blindly assert facts without backing them up. No wonder the methodology tended to be so violent. Communism is the perverted offspring of folk economics, a dead philosopher's ideals, and the power of the state.

For the record, I'm a pragmatic libertarian. Believe but do your own math. Math works. Empirically validated functions rule. Philosophy is easy to twist to any whim. That is my philosophy! :-)

Economics != Philosophy. Austrian economics does not say what ought to be, but it does tell you what happens. Are you a libertarian who's unfamiliar with the Austrian school or were you just joking around? Whether you agree or disagree, I recommend you at least do the research. Go over to the Mises forums, ask your questions there, and then feel free to disagree with the people who respond to you. At least have an open mind about it. Once you read more, you'll also find that there is actually plenty of empirical support for it, as well.

-------

Criticism of the Austrian School

...

A copy/paste of something refuting something you admittedly are very unfamiliar with does not a valid criticism make Wink

The criticisms there aren't very strong and misunderstand much of the Austrian School's points, like the whole "unscientific" thing. People who claim that don't really understand what it's about, and "a priori" are used in mathematics and geometry as well.


For the record, I agree with that one criticism that states that Austrians overplay their differences. There is nothing strange or unusual about the Austrian school of economics once you learn what it's all about, except perhaps the name.

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August 05, 2010, 01:37:20 AM
 #35

Are you a libertarian who's unfamiliar with the Austrian school or were you just joking around?

I met my first Libertarian roughly 35 years ago. But I've been hearing people advocate for going back the the gold standard for longer than that. I agree with the pragmatic nature of Libertarianism that says less government is better. However, often find distasteful many people who call themselves Libertarian but use it as an excuse to argue that police and drug laws are bad. Ones I actually know personally, do this because they use drugs irresponsibly and exhibit anti-social behavior which antagonizes the police. I prefer not to be lumped in with them, even though I have some of them as friends.

While I'm well aware of complaints about inflation and FRN, I had not heard it called Austrian economics. I disagree with the proponents of going back to the gold standard. I also find idiotic those who claim going off the gold standard was some sort of secret conspiracy. (I'm not claiming you are one of these Bitcoiner. I'm not so sure about Bytemaster though.) There were issues with gold backed money. It was publicly discussed, passed by congress and in all the papers. It was no secret. Lots of people didn't like it and many of them were rich. Poor people by definition had nothing to lose in the switch. So unless it was a conspiracy of the poor to steal value from the rich by causing inflation, it doesn't seem plausible.

It is like calling Obama-care a secret conspiracy. I disagree strongly with that, but it certainly wasn't a secret conspiracy. Yes it benefits some and disadvantages others. Yes, it institutionalizes the concept that there is a service you are entitled to but not responsible for paying for. But it wasn't a secret, and it wasn't a conspiracy of the insurance agencies, hospitals or medical professionals.

A copy/paste of something refuting something you admittedly are very unfamiliar with does not a valid criticism make Wink

I pasted the quote because it was exactly what I was going to write about bytemaster's arguments on this site. Mainly this part:

"generally lacks scientific rigor,... theories are not formulated in formal mathematical form, but by using mainly verbal logic and what [he] claims are self-evident axioms."

also

His explanations are "contradicted by the evidence." At least by my experiences.

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August 05, 2010, 01:55:31 AM
 #36

Besides, if austrian economics was so bad then why have they been predicating this crash while the "scientific economics" were promoting theories that depended upon exponential growth functions to stay solvent.   It is trivial to prove their equations false. 

Hell, I predicted the crash.

I also listened to mortgage brokers on the phone in California. Realtors and other locals who made huge sums of money before the crash explaining why it could never happen.

"They are not making any more real estate! It is always going to go up in value! Look at the history, it's been up every year since world war 2!"

But the problems weren't caused by monetary inflation. The problems were caused by bad banking. And they weren't caused by creating money. They were caused by taking money from people's retirement accounts and "investing it" in California, Florida, Nevada, and Arizona pooled mortgage funds.

It was simple supply and demand. Investors wanted to buy pooled mortgage funds because they were safe and profitable. (Initially they were.) However, the initial well vetted mortgages got pooled first and sold to the smart guys who invented the concept.

Because of demand to buy these funds, mortgage brokers lowered all the vetting rules, so they could quickly close new mortgages to sell into the pools. A mortgage broker could loan mortgage money in the afternoon, and sell the mortgage into a pool before close of business. The buyers didn't do any checking so who cares if the brokers did any?

They loaned 9X people's annual salary with no money down. Then sold the mortgages as low risk investments. That is where the criminal fraud was. The big fund managers were irresponsible for not checking up on their suppliers. It was "bad banking" pure and simple. No money need be printed to create the inflation. It could have easily happened with a gold backed currency.
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August 05, 2010, 02:55:10 AM
 #37

How can the total debt of society be greater than the total savings?

Joe deposits $100 bank can lend $90 of it
Bob borrows $90 from the bank and spends it at Jill's store.
Jill deposits $90 bank can lend $81 of it
James borrows $81
..

Eventually you end up with accounts that amount to $100 + 90 + 81 + ... = $1000 from Joes $100 deposit.  At any given point in time there is more money chasing goods than actually exists.   If all depositors attempted to claim the money that is in their checking account (payable on demand) the system crashes.  

When you go to the bank and take out a mortgage the bank does not have enough money from depositors to fund your loan.  When you sign your "loan document" you create an interest bearing asset which they put on their books.  That interest bearing asset serves as the "reserve" used to back the creation of the notes they lend to you.   In effect, the new money is backed only by your promise to pay.  If you do not pay the bank eats the loss as they have a non performing asset on their books.   Thus there is no limit to mortgage money that can be lent, particularly when banks can borrow short term from the Fed in unlimited amounts and then lend long-term (another fraud).

Anyway, the housing bubble was only possible because of more money made available by cheap loans chasing the housing market.  The same thing is going on in education.

Few people actually have "money" in their retirement account.  Instead they hold assets (stocks, bonds, etc) that have a current market value.  This is not money, it is potential money.  If everyone tried to sell their asset and get the money then the demand for money would grow dramatically yet the supply of money would be fixed (for the day everyone tried to sell) and thus the price of assets falls.  So there is a clear difference between "notional value" of a retirement account and actual money.  

The proof that money was created to fund the housing bubble is when you consider that the real price index should include the price of housing as well as the price of stocks and anything else that can be purchased for money.  If something does fall in proportion to the price increases in other areas you have a net "price gain" and thus monetary inflation.  Thus the housing bubble on the scale observed could only happen with monetary inflation.






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August 05, 2010, 03:01:31 AM
 #38

I just answered this here.

http://bitcointalk.org/index.php?topic=376.msg7621#msg7621


But as for the housing crisis, I didn't mention fractional reserve banking at all. I gave an coherent explanation of how it happened that didn't involve the fed printing money or even the banks making recursive loans.

You ignored that and replied, "it was fractional reserve banking", because you don't like fractional reserve banking. If you want to dispute me. At least show how what I said was not possible or even not probable.

By the way, the last paragraph is gibberish. Or is it just me?
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August 05, 2010, 03:40:45 AM
 #39

Red, we could debate as I love to debate... but I am going to have to "let it rest" and get back to developing my bitcoin apps.   At least we can agree that bitcoin is a good thing even if we disagree about some economic theory.

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August 05, 2010, 06:43:55 AM
 #40

I'll answer this, but I think your next post was much more interesting. I'll draw from that here as well.

Printing money "transfers" nothing!

This is an untrue statement. Money spent into existence alters the price structure into something different than what it would be if that money had not been created. The people whom receive the new money first benefit the most, as they can still take advantage of lower prices in the market. By the time the money filters through the economy and raises the general level of prices due to more money chasing the same amount of goods, the non-recipients of this new money are left with less purchasing power than before.

This is always true, unless the following conditions hold:

* Everyone's cash balances and debts are simultaneously and synchronously increased by exactly the same proportion.
* The newly created money is never spent and never entered into circulation.

I noticed you only responded to the first half of my post and completely ignored this, Red.

This is the second time I've seen the line "The people whom receive the new money first benefit the most". I don't know if it was you or bytemaster that said it previously.

Who are these people? I've really never heard of the people who receive the money first.

The BEP makes the money and delivers it to the federal reserve. The federal reserve doesn't "spend it" in the any consumer like sense of those words. They simply keep big piles of it for banks to borrow. Those banks borrow it with interest. Granted, now the interest is very low. It's almost like borrowing it without interest, but it still has to be accounted for and repaid according to the loan terms.

So those would be "the people" who get the money first. But the banks don't take the money unless they can lend it out at a profit. Otherwise, the additional money would just be a liability. Yes, they get a lower interest rate, but interest rates always consider cost & risk. The large banks are *supposed* to be low risk. And the fed is *supposed* to monitor them to make sure they are. Lending only to a few low risk customers keeps costs down for the fed. Banks compete for borrowers but lend to riskier clients than the fed. That comes with additional costs and a higher rate.

I'm still not seeing "the evil people" who get an advantage. Unless you consider all banks that deal with the fed as those people. I'm also not seeing how anyone can take advantage of lower prices in the marked. Perhaps I'm dense.

---

"Money spent into existence alters the price structure into something different than what it would be if that money had not been created."

I agree with that statement. After the money has been loaned and it is actually spent, thus entering circulation, then prices are different then if that money was hoarded out of circulation.

"By the time the money filters through the economy and raises the general level of prices due to more money chasing the same amount of goods, the non-recipients of this new money are left with less purchasing power than before."

We are not far apart on this point.

However, if the Fed does its job perfectly (according to its mandate) then the new money entering circulation, keeps the PRICES from deflating and they remain perfectly stable. If there were not ALREADY an increasing amount of goods trading, there would be no need for the fed to encourage more currency to circulate.

So with a perfect fed, existing dollar holders have exactly the same purchasing power as they had before the new money. But you are correct, they would have less purchasing power than they would have had if prices had been allowed to deflate.

And for complete clarity, in my view that is a good thing.

Money, when used in country, should not a commodity to be invested in. Specifically, you should NOT gain value by holding money in your piggybank or your mattress. That doesn't do anyone any good. You shouldn't necessarily lose value either.

I know you disagree, you consider it a benefit of delayed gratification. I read the other post.

But hoarding money OUTSIDE of circulation is fundamentally different than investing money in an interest bearing account. Saving's accounts pays interest because the money is not hoarded. Instead it circulates to people who use to create more commodity or service value. This additional created value IS "the time value" of money. It's the alternative to hoarding that is worth MORE than hoarding.

When money doesn't circulate, it is worth zero to the economy. I've heard the argument that "it's an investment in the economy" but that can't be correct.

If you and I each have $100 dollars and we both put them in our piggybanks we have both helped the economy none at all. Sure we are not competing for goods, so others might buy more with their money than if we competed with them. But "the economy" does not increase in commodity value. And if instead of putting my $100 in my piggybank I decided to burn the bills, I would still have exactly the same effect on the economy as you. Zero. There is no effect until the money starts to circulate again.

If we reward people for having no effect on the economy. Things will go badly. Hoarding money over time has no positive effect on commodity production, so it should not be rewarded by value creation.
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