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What's with the US dollar?!

  • #101
  • Apr 3, 2011 5:33am Apr 3, 2011 5:33am
Quoting LasVahGoose
That's the beauty of a Gold standard, government wouldn't be able to afford wars in the first place. The only way to raise the money would be to tax the heck out of the citizens and take their Gold, that's how revolts start.
Is there an echo in here?

It's very difficult for adults to admit that the hand that appears to be feeding them is also the hand that slips into their pocket, slaps them around, and eventually sticks a knife in their back.
  • #102
  • Apr 3, 2011 5:34am Apr 3, 2011 5:34am
Just found a nice quote.

"When people no longer believe this, when they realize that the government will go on and on [inflating prices] without any intention of stopping, then they begin to understand that prices tomorrow will be higher than they are today. Then they begin buying at any price, causing prices to go up to such heights that the monetary system breaks down."

Inflation can sustain for a very long time, but it just cannot last forever. When the above happens, the end is near. When US debt fears rise, the vicious circle of expected inflation and consumption will accelerate, leading to a self-fulfilling prophecy.

The "buying at any price" refers to consumption goods as well as commodities.
The nail that sticks out gets hammered back in
  • #103
  • Apr 3, 2011 5:35am Apr 3, 2011 5:35am
Quoting Custos
I think you are not quite clear what the gold standard really was. You were not running around with physical gold, but the currency (paper money) was backed by gold to a certain percentage. Remember before the vietnam war, everybody in the US was still on gold standard. And not only the really rich could afford things.
Great point. In the 60's and 70's one person in a household could work a basic blue collar job and support a spouse and put 2 kids through college, own a car and a home. They could afford to go on a family vacation every year. How much would you have to make today to do that today? A lot and you'd have to have better job then working in a factory or construction, etc, etc.

The ugly truth is the 'wealth' generated under fiat currency is fiat itself. Anyways, this is fun academic talk. I enjoy the subject, but regardless of what the monetary system I just want to cruise the world in my mega yacht banging super models.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #104
  • Apr 3, 2011 5:37am Apr 3, 2011 5:37am
Quoting Noloqy
Just found a nice quote.

"When people no longer believe this, when they realize that the government will go on and on [inflating prices] without any intention of stopping, then they begin to understand that prices tomorrow will be higher than they are today. Then they begin buying at any price, causing prices to go up to such heights that the monetary system breaks down."

Inflation can sustain for a very long time, but it just cannot last forever. When the above happens, the end is near. When US debt fears rise, the vicious circle of expected...
yeah, normally (good) inflation is created by increasing demand: prices increase, wages increase,...

this time inflation is created by printing endless sums of money. And after a while that can lead to hyper-inflation like in zimbabwe for example.
  • #105
  • Apr 3, 2011 5:37am Apr 3, 2011 5:37am
Quoting LasVahGoose
Ummm... With a gold standard you don't need a central bank ripping off the people of a country and creating boom and bust cycles. Actually, you don't even have a central bank!
Yes, you don't need a central bank indeed. However, the question is whether boom-bust cycles are created by central banks, or whether they are inherent to the economy. I believe there cycles are inherent to the economy, regardless of the monetary system, but that it may be amplified by central banks.
The nail that sticks out gets hammered back in
  • #106
  • Apr 3, 2011 5:38am Apr 3, 2011 5:38am
Quoting LasVahGoose
I just want to cruise the world in my mega yacht banging super models.
me too!
  • #107
  • Apr 3, 2011 5:41am Apr 3, 2011 5:41am
Quoting Noloqy
Just found a nice quote.

"When people no longer believe this, when they realize that the government will go on and on [inflating prices] without any intention of stopping, then they begin to understand that prices tomorrow will be higher than they are today. Then they begin buying at any price, causing prices to go up to such heights that the monetary system breaks down."

Inflation can sustain for a very long time, but it just cannot last forever. When the above happens, the end is near. When US debt fears rise, the vicious circle of expected...
You are joking of course. Inflation doesn't rise because prices are rising, prices are rising because of Inflation.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #108
  • Apr 3, 2011 5:44am Apr 3, 2011 5:44am
Quoting Noloqy
Yes, you don't need a central bank indeed. However, the question is whether boom-bust cycles are created by central banks, or whether they are inherent to the economy. I believe there cycles are inherent to the economy, regardless of the monetary system, but that it may be amplified by central banks.
I can agree with most of that.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #109
  • Apr 3, 2011 5:45am Apr 3, 2011 5:45am
Quoting LasVahGoose
You are joking of course. Inflation doesn't rise because prices are rising, prices are rising because of Inflation.
not necessarily. You might wanna look into demand-pull and cost-push inflation.
  • #110
  • Apr 3, 2011 5:46am Apr 3, 2011 5:46am
Quoting Custos
yeah, normally (good) inflation is created by producing more and more. Demand increases, prices increase, wages increase,...

this time inflation is created by printing endless sums of money. And after a while that can lead to hyper-inflation like in zimbabwe for example.
Printing endless sums of money doesn't necessarily cause inflation in the short and medium run. Consider the case of Japan, which has held interest rats near zero for over a decade, and also engaged in QE. Inflation is not only determined by the supply side of the economy, but also the demand side.

The problem with QE is that when the demand rapidly turns around, the central banks may be too late to lower limit supply. Indeed, when this happens inflation rates may exceed 20%. Therefore, Japan was much more conservative with their QE policies, and decided to break the policies down prematurely.
I'm sure that when this excessive inflation happens though, the bureau of statistics manages to hide the true inflation with their adjustment policies.
The nail that sticks out gets hammered back in
  • #111
  • Apr 3, 2011 5:49am Apr 3, 2011 5:49am
Quoting Custos
not necessarily. You might wanna look into demand-pull and cost-push inflation.
I'd have to look those terms up to fully understand them. A very quick look at wiki to get definition and I'd say this:

Prices rising because supply and demand have changed isn't inflation. Inflation is the increase in the money supply. Looks like push pull inflation concepts are Keynesian bullshit.

Okay, i'm tired. Goodnight all. To be continued.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #112
  • Edited 6:14am Apr 3, 2011 5:52am | Edited 6:14am
Quoting Noloqy
Just found a nice quote.

"When people no longer believe this, when they realize that the government will go on and on [inflating prices] without any intention of stopping, then they begin to understand that prices tomorrow will be higher than they are today. Then they begin buying at any price, causing prices to go up to such heights that the monetary system breaks down."

Inflation can sustain for a very long time, but it just cannot last forever. When the above happens, the end is near. When US debt fears rise, the vicious circle of...
There is a historical flipside to this buy at any price behaviour. The production side. As prices keep rising and producers are able to purchase less and less with the rewards of their production... they eventually reach a breaking point at which they will NOT PRODUCE AT ANY PRICE. I don't fear rising prices nearly as much as I fear empty supermarket shelves. That's when the last fibers of the thread that holds society together snap.

A farmer plants his crop, as his crop is growing, prices are rising, he reaps what he's sown and even sold at a higher price, by the time he himself goes shopping for what he needs prices of everything rise out of his range. Next year he plants a garden for himself and his family and trades forex
  • #113
  • Apr 3, 2011 5:53am Apr 3, 2011 5:53am
Quoting LasVahGoose
You are joking of course. Inflation doesn't rise because prices are rising, prices are rising because of Inflation.
Prices rise for two reasons. Supply/Demand and Devaluation

Supply/Demand - the price rises because something appreciates.

Inflation happens because money is worth less.
  • #114
  • Apr 3, 2011 6:01am Apr 3, 2011 6:01am
Quoting Noloqy
Printing endless sums of money doesn't necessarily cause inflation in the short and medium run. Consider the case of Japan, which has held interest rats near zero for over a decade, and also engaged in QE. Inflation is not only determined by the supply side of the economy, but also the demand side.

The problem with QE is that when the demand rapidly turns around, the central banks may be too late to lower limit supply. Indeed, when this happens inflation rates may exceed 20%. Therefore, Japan was much more conservative with their QE policies,...
There is a book called "Monetary Regimes and Inflation". It is essentially a study of all hyper inflations that were ever recorded.
Basically it comes to the conclusion that hyperinflation occurs when the government’s deficit exceeds 40% of its expenditures, which is right now happening in the USA.
Just quoting a study, I personally will be waiting what really happens, but apparently, all hyperinflation scenarios had this in common.
  • #115
  • Apr 3, 2011 6:13am Apr 3, 2011 6:13am
Quoting six gun
Prices rise for two reasons. Supply/Demand and Devaluation

Supply/Demand - the price rises because something appreciates.

Inflation happens because money is worth less.
Yes and money is only worth less relative to prices... Meaning for example what could be bought yesterday for $1 today costs $1.05 = Inflation measured by consumer price index... As we know

Long story short inflation is purely a consequence of demand... When people have more monies to spend there will be a greater demand for goods and services this in turn drives up prices as firms realize they can get more money for their products which in turn means that employees demand higher incomes to cope with the rising day to day expenses of living which in turn means they have more monies to spend and the cycle continues.. If this cycle isn't stopped you will end up with hyperinflation...

Inflation is completely demand driven In my understanding.

Adding supply to the economy the first result is a decrease in interest rates which leads to greater demand for money (domestically) which leads to greater demand for goods (increased spending).. So I guess you could look at it this way as well...
Time hides Nothing
  • #116
  • Apr 3, 2011 6:17am Apr 3, 2011 6:17am
Quoting nanningbob
If you look at history, comparing debt to GNP ratio, we have been in worse shape in the past. So we can over come the current fiscal crisis with out experiencing collapse, pain yes, but not collapse.
The only time the US has been in a worse situation was at the end of WW2. Then, being one of the few industrial countries unharmed by the war, and with all currencies backed by gold, "overcoming" was easy.

Now the situation is the opposite. The US trade deficit is surging and the dollar is weakening, oil and commodity prices are rising, and the government deficit is growing to unmanageable proportions. How do you overcome that?

Quote
But if we do not get control of our spending habits, yes the worst case scenario can and will happen, it just doesnt have to happen now or the near future.

Somebody said that "If we're growing, we're always going to be out of our comfort zone." In the US (and the UK too, for that matter) reverse logic seems to have been in use for quite some time - because we're comfortable, we must be growing.

Menial but wealth creating jobs have been outsourced to emerging markets, while we think we are growing rich by speculating on asset bubbles created by the fiat money regime.

Waking up from this dream will inevitably be painful.
  • #117
  • Apr 3, 2011 6:20am Apr 3, 2011 6:20am
Quoting CindyXXXX
Inflation is completely demand driven In my understanding.
So when the FED prints loads of money - supplying the economy with lots of money, this cannot create inflation? Think of it as a commodity. If suddenly we find a huge gold mine and increase the supply of gold. Then gold will inflate / devalue, cause of the increased supply.

Inflation can be created by both demand & supply.
  • #118
  • Apr 3, 2011 6:21am Apr 3, 2011 6:21am
Quoting CindyXXXX
Inflation is completely demand driven In my understanding.
Attached Image
  • #119
  • Apr 3, 2011 6:23am Apr 3, 2011 6:23am
Nice discussion here. Boom and bust cycles are part of history, gold standard or not, they have always existed. To go to a gold standard never will stop those because they happened when the gold standard was used. It is an argument used by gold standard people that simply is not true. We have had recessions and periods of inflation during the 1800s and they existed in history before the USA did. So that is not a very good argument.

The US dropped the gold standard for the simple basic reason that there was not enough gold to back the currency. Nations were taking our dollars in open trade and then asking for payment in gold. We were going to lose all our gold if we didnt drop the gold standard. It is not prudent to use gold or silver to back any currency because there simply is not enough to go around. Again search your history books, gold and silver standard always led to hoarding of the gold and silver and the very few (rich and powerful) had it. The ordinary person did not and ended up in servitude, peasantry, military, or slavery. That is always the ultimate end of the gold standard. I also want to point out that the great depression happened during the gold and silver standard period and the vast majority of the USA and the world ended in poverty. It took huge deficit spending (WW2 and post war rebuilding) to get us out. Without deficit spending, all the gold and silver was hoarded by the very few, we would still be suffering the consequences. My argument against the deficit spenders is they don't pay back the loans by raising taxes during good times and pulling the money back out of circulation. So a future calamity of some kind is assured.
  • #120
  • Apr 3, 2011 6:23am Apr 3, 2011 6:23am
Don't give me that confused face and a lame picture man

Quoting Custos
So when the FED prints loads of money - supplying the economy with lots of money, this cannot create inflation? Think of it as a commodity. If suddenly we find a huge gold mine and increase the supply of gold. Then gold will inflate / devalue, cause of the increased supply.

Inflation can be created by both demand & supply.

Of course printing money will lead to inflation for the supply side of the equation I wrote above but the fact is INFLATION is a MEASURE of how much price's have risen

Inflation isn't the cause of rising prices... So although a side effect of supply is inflation its not the supply that's the cause its the demand the supply MAY create...

So I agree in a way, I guess I'm just getting technical... the reason I posted was cause of the person above who said that Prices rise because of inflation - I don't believe this to be correct
Time hides Nothing
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