Why does anyone pay attention to people that study "economics"?

[twiifm]

And what happens when people have kids and the population grows?

Then the same amount of money will be able to buy more (deflation).

That leads to hoarding

[shawshankinmate37927]

Do I get a weapon? Sorry, that's the fiat talking

For defense...or to impose your will on the unwilling?  

Oh, we're using fiat. Ok, it take control of the resources by force while trying not to kill too many consumers in the process, rape and pillage the resou... sorry, "produce" the resources as fast and hard as I can in case someone tries to take them from me and then demand about half that $210 for the first batch, about half the remaining $105 for the second....

Better take out the anarchists and libertarians first because they will be the ones coming after your head once you start initiating the use of force.

Also, I'm not sure it could really be considered fiat in this scenario.  No one would be forced to use it, those who didn't want to use it would be free to use some other form of money, or not use money at all.  The biggest drawback to fiat money is that normally a select few can create it while others have to work for it.  That ability doesn't exist in this scenario.

[shawshankinmate37927]

NO what happens to the fixed money supply.  Because if its not redistributed then the families that have more kids gets diluted.  This creates disincentive to have kids, and therefore danger of endangerment.  If the money gets redistributed then people have incentive to have more kids to get more money but less per person.

Those that are more prosperous (those producing goods/providing services that are low in supply and high in demand) and can afford them will most likely be the ones having kids.

Having more kids is no justification for stealing from someone else.

Then you have problems of monopoly

How does a fixed money supply result in monopolies?

[twiifm]

NO what happens to the fixed money supply.  Because if its not redistributed then the families that have more kids gets diluted.  This creates disincentive to have kids, and therefore danger of endangerment.  If the money gets redistributed then people have incentive to have more kids to get more money but less per person.

Those that are more prosperous (those producing goods/providing services that are low in supply and high in demand) and can afford them will most likely be the ones having kids.

Having more kids is no justification for stealing from someone else.

Then you have problems of monopoly

How does a fixed money supply result in monopolies?

The prosperous families accumulate more money leaving the rest with less.  Thats every capitalist system.  But its worse when no new money is introduced.  The kids born into the lower class families start from disadvantaged position

[shawshankinmate37927]

And what happens when people have kids and the population grows?

Then the same amount of money will be able to buy more (deflation).

That leads to hoarding

If someone wants to hoard their money, then that should be their prerogative.

Do you really think the hoarder will just let himself starve to death because he doesn't want to give 5 cents to one of the fisherman for a fish?

[dinofelis]

That leads to hoarding

Deflation leads to hoarding just as much as inflation leads to overspending and getting broke.

If you have 2% inflation, you're not going to waste all your earnings to buy up the whole supermarket today, because tomorrow prices will be 0.01% higher, right ?

In the same way, if you have 2% deflation, you're not going to postpone all your consumption and lead a miserable life, simply because if you wait for tomorrow, things will be 0.01% cheaper.

The idea that if people start hoarding, the money velocity goes down, prices go even more down, and that makes more deflation, until almost all money is held, and none is used to consume, which makes prices go to 0, is the perfect dual of the hyperinflationary spiral where people want to spend all their money immediately and don't want to hold it, velocity of money goes up, prices go even more up, which makes even more inflation until no money is held at all which makes prices go to infinity.

The "deflationary spiral" is the deflation equivalent of hyperinflation.  That only happens when the run-away kicks in, at high levels of deflation or inflation.

With sound money, the intrinsic deflation is normally equal to economic growth.  If the economy grows 5%, then the same amount of money can buy 5% more, so prices have to plummet 5%.

Nobody is afraid of a hyperinflation spiral when the inflation is single digit.  Hell, in the 70ies we even had double digit inflation and there was no runaway.  So there won't be any deflationary spiral either with single-digit deflation.

However, the big, big difference between slight inflation and slight deflation is that a HUGE part of the banking sector becomes unnecessary.  Indeed, a large part of the banking sector has as a purpose to redistribute a small part of the seigniorage of the monetary inflation to the people saving (by giving them a ridiculous real interest rate over inflation) and keeping a lot of it for themselves.
People have to flee into a bank savings account to try to get back something of their savings which should in principle (by non-consumption) have to increase on average in value equal to economic growth.

With sound money, that happens automatically, by just keeping the money.  The non-consumption by keeping the money automatically liberates resources for capital investment.

So what banks do partially in an inflating environment, happens normally and automatically in a deflating environment.  THAT is the reason why the financial sector gets bleak when they see the monster of deflation coming their way: their lucrative seigniorage machine is then broke and they are not necessary anymore.

[dinofelis]

The prosperous families accumulate more money leaving the rest with less.  Thats every capitalist system.  But its worse when no new money is introduced.  The kids born into the lower class families start from disadvantaged position

If lower class families wouldn't make kids, then the next generation would all be made of rich kids !
Social darwinism revisited.

If those poor people absolutely want to reproduce their Malthusian poverty, then it is on their consience that the poverty of their kids will fall.

[dinofelis]

use human skulls as currency

That's simply brilliant 

Sound money !

[shawshankinmate37927]

NO what happens to the fixed money supply.  Because if its not redistributed then the families that have more kids gets diluted.  This creates disincentive to have kids, and therefore danger of endangerment.  If the money gets redistributed then people have incentive to have more kids to get more money but less per person.

Those that are more prosperous (those producing goods/providing services that are low in supply and high in demand) and can afford them will most likely be the ones having kids.

Having more kids is no justification for stealing from someone else.

Then you have problems of monopoly

How does a fixed money supply result in monopolies?

The prosperous families accumulate more money leaving the rest with less.  Thats every capitalist system.  But its worse when no new money is introduced.  The kids born into the lower class families start from disadvantaged position

Those who supply more demands should have more money.  Those with less money have to figure out what products and services those with more money want and then produce or provide them.

[twiifm]

NO what happens to the fixed money supply.  Because if its not redistributed then the families that have more kids gets diluted.  This creates disincentive to have kids, and therefore danger of endangerment.  If the money gets redistributed then people have incentive to have more kids to get more money but less per person.

Those that are more prosperous (those producing goods/providing services that are low in supply and high in demand) and can afford them will most likely be the ones having kids.

Having more kids is no justification for stealing from someone else.

Then you have problems of monopoly

How does a fixed money supply result in monopolies?

The prosperous families accumulate more money leaving the rest with less.  Thats every capitalist system.  But its worse when no new money is introduced.  The kids born into the lower class families start from disadvantaged position

Those who supply more demands should have more money.  Those with less money have to figure out what products and services those with more money want and then produce or provide them.

No shit, but that's not what I'm pointing out.  In a closed system all exchanges are zero sum.  So over time there will be only one winner.  Its like the game Monopoly. 

[Razick]

That's implying that technology won't improve. You are ignoring renewable energy such as sun, wind, geothermal, etc. and nuclear energy (and nuclear fusion).

According to everything I've read all the renewable energy sources we have combined cannot solve the problem to supply the amount of energy needed, nuclear fission very unpopular (so not likely to get greatly expanded) and nuclear fusion has yet to produce more energy than has been spent on trying to achieve it (perhaps if we get *lucky* that might change).

We've been talking about this problem for years though. Technology allows production to increase and usage to drop as products become more efficient. Additionally, population growth is finally slowing down.

If a real energy shortage occurs, people will just have to get over their objections to nuclear fission. And we're currently burning off natural gas instead of using it for electricity. We aren't anywhere close to using the earth's entire energy capacity.

[GreekBitcoin]

A 2002 International Monetary Fund study looked at "consensus forecasts" (the forecasts of large groups of economists) that were made in advance of 60 different national recessions in the 1990s: in 97% of the cases the economists did not predict the contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated their severity.[167]

Why should they pay attention to them? There are mostly manipulators.

[johnyj]

A 2002 International Monetary Fund study looked at "consensus forecasts" (the forecasts of large groups of economists) that were made in advance of 60 different national recessions in the 1990s: in 97% of the cases the economists did not predict the contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated their severity.[167]

Why should they pay attention to them? There are mostly manipulators.

Exactly.

Economy is irrelevant if money supply can be manipulated. Money drives economy, not the other way around. Because people have an illusion that money's value is constant, it is this illusion give banks power to direct the economy as they wish

Imagine such a scenario: As soon as every merchant heard that FED is going to increase the money supply by 4 fold, they raise the price of everything by 4 times, then QE will not give economy any help at all, or even worse, destroy the USD

The fact that this scenario did not happen is just because people's illusion that fiat money have a constant value, nothing else

For normal commodity, more supply means lower value. But more money will not affect each dollar's value, since this can be observed by  each individual (especially poor people)

It is interesting to read the "Real bills doctrine" first invented by John Law, it indicated that the money's value is coming from trust, has nothing to do with supply and demand, you can supply as much money as you want if that trust is intact, and then more money means more wealth

[Flashman]

Seemed germane to discussion...

http://asia.nikkei.com/Politics-Economy/Economy/Expected-ECB-move-could-create-asset-bubble-UBS-chairman-says

[dinofelis]

No shit, but that's not what I'm pointing out.  In a closed system all exchanges are zero sum.  So over time there will be only one winner.  Its like the game Monopoly.  

These are two misconceptions.

The first misconception is that an exchange (of anything else but a monetary item) is a zero-sum game.  It isn't.

If I have two apples, and you have two eggs, then my satisfaction is lower with my two apples, and your satisfaction is lower with your two eggs, than if we exchange an apple for an egg.  If we do that, we are motivated to do so because we have a higher degree of satisfaction after the exchange than before.  So *value* (= the amount of satisfaction, or the decrease in amount of frustration) for each of us increased when we traded.

Do not confuse "price" with "value".  Price is the exchange rate.  Value is satisfaction.  Price is the equilibrium where the amount of satisfaction increase for both partners is, in their eyes, equal, in the exchange.

We both had an increase in value, just by exchanging an apple for an egg.  We did this, exactly because of that reason.  So just this exchange already created value.

The second misconception is of course that there is production.  If there is production, there is of course value creation (unless the production is inefficient and generates losses: the stuff you make generates less satisfaction than the stuff you used to make it).  If production is exchanged for other production (the basic capitalistic tenet) there is evidently value increase.

The only place where exchange is a zero-sum game is in the exchange of speculative assets, because these items only carry the speculative value of a price, and have no intrinsic capacity to satisfy needs (have no value of usage or consumption).

[dinofelis]

A 2002 International Monetary Fund study looked at "consensus forecasts" (the forecasts of large groups of economists) that were made in advance of 60 different national recessions in the 1990s: in 97% of the cases the economists did not predict the contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated their severity.[167]

Why should they pay attention to them? There are mostly manipulators.

Exactly.

Economy is irrelevant if money supply can be manipulated. Money drives economy, not the other way around. Because people have an illusion that money's value is constant, it is this illusion give banks power to direct the economy as they wish

Imagine such a scenario: As soon as every merchant heard that FED is going to increase the money supply by 4 fold, they raise the price of everything by 4 times, then QE will not give economy any help at all, or even worse, destroy the USD

The fact that this scenario did not happen is just because people's illusion that fiat money have a constant value, nothing else

The thing is that that illusion only lasts for a relatively small time lapse.  In the mean time, those profiting from the freshly printed money can reap in a lot of seigniorage, because they have more money and the prices didn't increase yet.  While those at the end of the line will suffer and pay all that seigniorage when prices inevitably will start to rise, because of offer and demand.

If a car costs $ 30 000.- and people now have so much cash that they can afford to buy so many cars that the salesman cannot even provide them as the production doesn't follow, he'll finish by rising the prices (and so will the competition).  So nobody is stronger than the market, and in the longer run, printing money will increase prices.  Unavoidably.  Unless that money flees into specific assets where a bubble is blown (that's in fact nothing else but inflation, but concentrated on a few assets instead of on the whole of economy).

For normal commodity, more supply means lower value. But more money will not affect each dollar's value, since this can be observed by  each individual (especially poor people)

For a while.  In the end, it also follows offer and demand.

[twiifm]

No shit, but that's not what I'm pointing out.  In a closed system all exchanges are zero sum.  So over time there will be only one winner.  Its like the game Monopoly.  

These are two misconceptions.

The first misconception is that an exchange (of anything else but a monetary item) is a zero-sum game.  It isn't.

If I have two apples, and you have two eggs, then my satisfaction is lower with my two apples, and your satisfaction is lower with your two eggs, than if we exchange an apple for an egg.  If we do that, we are motivated to do so because we have a higher degree of satisfaction after the exchange than before.  So *value* (= the amount of satisfaction, or the decrease in amount of frustration) for each of us increased when we traded.

Do not confuse "price" with "value".  Price is the exchange rate.  Value is satisfaction.  Price is the equilibrium where the amount of satisfaction increase for both partners is, in their eyes, equal, in the exchange.

We both had an increase in value, just by exchanging an apple for an egg.  We did this, exactly because of that reason.  So just this exchange already created value.

The second misconception is of course that there is production.  If there is production, there is of course value creation (unless the production is inefficient and generates losses: the stuff you make generates less satisfaction than the stuff you used to make it).  If production is exchanged for other production (the basic capitalistic tenet) there is evidently value increase.

The only place where exchange is a zero-sum game is in the exchange of speculative assets, because these items only carry the speculative value of a price, and have no intrinsic capacity to satisfy needs (have no value of usage or consumption).

Umm that's besides the point

Scroll and read what he wrote, then my response.  In the case the money doesn't get redistributed with new members entering the population.  E.g. If the fisherman made more money than everyone else, and then his kids created a fishing empire.  After many generations, they will monopolize the wealth of the island.  (If wealth is measured in money) If the island is a closed ecosystem and no trade comes from the outside eventually you will have class division and ruling clans. Aka monopoly

The exchange rate would be the relation between total amount of goods and services (GDP) divided by money supply.  You are correct that the inhabitants should see deflating prices over time.  But that is not good.  In fact it's terrible for the kids born into poor families as their wages will reflect deflationary prices and eventually you'd have extreme class stratification. 

It's zero sum if the point is to make money in a fixed money supply system. 

[johnyj]

Economy is irrelevant if money supply can be manipulated. Money drives economy, not the other way around. Because people have an illusion that money's value is constant, it is this illusion give banks power to direct the economy as they wish

Imagine such a scenario: As soon as every merchant heard that FED is going to increase the money supply by 4 fold, they raise the price of everything by 4 times, then QE will not give economy any help at all, or even worse, destroy the USD

The fact that this scenario did not happen is just because people's illusion that fiat money have a constant value, nothing else

The thing is that that illusion only lasts for a relatively small time lapse.  In the mean time, those profiting from the freshly printed money can reap in a lot of seigniorage, because they have more money and the prices didn't increase yet.  While those at the end of the line will suffer and pay all that seigniorage when prices inevitably will start to rise, because of offer and demand.

If a car costs $ 30 000.- and people now have so much cash that they can afford to buy so many cars that the salesman cannot even provide them as the production doesn't follow, he'll finish by rising the prices (and so will the competition).  So nobody is stronger than the market, and in the longer run, printing money will increase prices.  Unavoidably.  Unless that money flees into specific assets where a bubble is blown (that's in fact nothing else but inflation, but concentrated on a few assets instead of on the whole of economy).

The fresh printed money are all backed by assets, they have valuables backing them, and the banks get those money will use them carefully to not trigger inflation, they inject them into something that is not in CPI

If you already have a house and a nice car, and suddenly your salary doubled, would you buy another car just for fun? Same, you won't eat double amount of food because your income doubled, many demand have little elasticity, once it is filled, the extra demand is very weak

[dinofelis]

The fresh printed money are all backed by assets, they have valuables backing them, and the banks get those money will use them carefully to not trigger inflation, they inject them into something that is not in CPI

Not directly.  What it does, is to inflate the price of the assets that are bought.  The assets bought by the FED or the ECB or another central bank against freshly printed money is nothing else but an extra demand for these assets which is not compensated by a lesser demand for other assets, as it is bought with money that didn't exist before, and hence is not re-allocated to something else.
Normally, a new demand for asset A implies a lesser demand for asset B, so that the overall price level can stay more or less constant if the offer is constant.  If new money can create a demand for asset A without lowering the already existing demand for asset B with existing money, then the price of asset A will rise.

In other words, a central bank buying up assets increases artificially the price of the assets it buys, and is in fact distributing seigniorage to those that were holding already those assets.  If a central bank buys up securities, then the price of those securities is inflated.  If a central bank buys up mortgages, then the price of those mortgages increases.  If a central bank would buy up land (John Law's initial proposal), then the price of land would inflate, and would render rich people who own land (and render poor people who need to buy or use land).  If a central bank would buy up a certain stock, then the price of that stock would be inflated, and owners of that stock would get the seigniorage.  

It takes a while before the people that got the seigniorage start spending it, this is why the modern FED techniques have the inflation effect of their printing policies only work out much later.  In the mean time, those obtaining the seigniorage are well-served and get rich on the back of those not holding the bought-up assets.

In fact, as most securities bought up by the FED are held by banks, it are the banks who profit most from the seigniorage and the inflation of the bought-up securities.  In as much as it are state bonds, the state can debase those bonds by just issuing more of them, and it is the state, and those on who the state will spend those revenues, who will get the seigniorage.  However, these are probably faster in spending their seigniorage into the market, and inflation will follow faster.  The more the FED buys up long-term assets, the later in time they place the corresponding inflation.  As I said, mostly banks profit from that.  Which is not a surprise given that the FED is a bank cartel :-)

So you are right that the FED has learned to inflate stuff that doesn't show directly in the CPI, and the CPI is manipulated in such a way to hide the FED's inflation.

When the FED was just buying state bonds, which was then copiously distributed by the state in public infrastructure, well fare and other stuff, gave rise to almost immediate consumption and hence CPI inflation. 
When the FED started buying other securities, it was rendering banks and investors/speculators rich and was blowing bubbles, but the inflation of the CPI seemed under control.

If you already have a house and a nice car, and suddenly your salary doubled, would you buy another car just for fun? Same, you won't eat double amount of food because your income doubled, many demand have little elasticity, once it is filled, the extra demand is very weak

So if you already have a nice car and your salary is doubled, you don't spend it, you don't do anything with it.  People don't like their salary doubled when they have already a house and a nice car, right.

[dinofelis]

Umm that's besides the point
Scroll and read what he wrote, then my response.  In the case the money doesn't get redistributed with new members entering the population.  E.g. If the fisherman made more money than everyone else, and then his kids created a fishing empire.  After many generations, they will monopolize the wealth of the island. 

How can that happen ?  How could fishermen get rich on the back of poor people ?   How could others not decide to get into the lucrative business of fishing ?  That can only if there is an enforcement of a privilege to give the fishing industry to just a few.

In principle, everybody can start fishing.  If it is such a lucrative business that it makes people rich, then it will attract more fishermen, until fishing becomes an activity with a small margin.  First because there will be less fish to fish if everybody starts fishing, and second because the supply of fish will be more than the demand (you can eat 3 fish a day, but not 30 fish a day).

Only if a monopoly to fishing, or quota, or whatever, are granted, the fishing empire remains a closed business.

This has nothing to do with money.

If the fisherman family will hold all of the money, then they can only sell their fish for that money amongst themselves.  The others not having access to that money can then not buy any fish either.  They may then use other means of intermediate exchange amongst themselves, such as shells.  The fishermen sitting on their stash of money which can only buy fish, will then be nothing with their money.  If they want to obtain something else from the others (like coconuts) they better pay them, in their money in as much as others are interested in buying fish from them (the only thing they can obtain with that kind of money) or the fishermen will have to obtain shells, in which they are poor.

You have a mercantilistic idea that holding a stash of monetary asset means being rich.  It doesn't.  It does only in as much as that monetary asset can buy a lot of value.  In your example, the monetary asset will only be able to buy fish.  It will be worth whatever fish is worth.