Ohio miners forced to attend Romney rally without pay...

[Nystul]

The bottom line is that when you and I go to the store, the store is selling today's merchandise which is a percentage higher in price than it was last year. The government says that number is about 3% (the inflation rate) -- but in our experience we find it's more like 10% -- why?

Because we are bad at math? I mean it's not even fair to consider the tech sector where prices flat out do not increase. But at 10% inflation we should be paying $1000 for a week's worth of groceries by now. $10 for a gallon of gas. $1,000,000 for a decent house in the burbs. $30 for a Happy Meal?

Honestly if my cost of living had increased by 10 percent per year since I left home for college, I would be typing this from the homeless shelter. 3% is pretty close to the mark for most things I'd say.

[Hammerskjold]

Ok, say the price stays exactly the same for the almost the same model of Dell WTF9000. If the GFLOPS increased 10% between the models -- the government would call that a price decrease since I'm buying more computing power with the same dollars.

Please stop using 'the government would call that..' line. It's weak applesauce and you know it. Here's reality as I experienced it in all the years I've spent buying\upgrading my working rigs.

The price NEVER stayed the same for 'almost' the same model. In 6 months to a year later, the same model is now sold at a cheaper price. For the same price, you now get higher specs. By any meaningful metric, the price -IS- cheaper.

It's easy to see for yourself and does not require a Warren commission to investigate. If you keep insisting in hauling out bizarre examples that never happened in real life yet. Then don't act surprised when people give you the tinfoil hat stare.

I'm not disputing that. For all practical purpose, it doesn't matter for people if the power increases, as long as the machine is adequate for the task at hand. For your application, it probably matters -- for 90-99% of computer users it does not matter. There is little increased utility in word processing, spreadsheets, and other common applications than from those 10, or even 20 years ago.

I was anticipating this line, and here's my counter, based on my real life experience shopping for my rigs and gear.

When I was shopping for my first serious rig, I have to go to a more specialized store that builds graphics workstations. The average computer store at the time, do not even carry the specialized graphics card I needed. The big box stores? Ahahahaha, no. At best their top grade would be considered barely entry level for my needs.

The graphic card alone cost almost a quarter of the total price of my first rig, and it's not even a top of the line card. Jump to the next revolution, people started to use more easily available, and cheaper gaming cards.

My current rig, does not even use a true 'pro-rated' workstation card. It's using a higher mid-grade gaming card that happens to be compatible with my software. And it will most likely be the last rig I buy from a specialized store. Because nowadays a workstation grade rig can be easily purchased\built at pretty much any big box stores and regular comp parts store.

That line of 'for most users', is bunk to me. I'm glad, and my wallet is glad that I can now easily buy a workstation grade rig at more places than ever. Even if your mythical 'Joe six pack and Sally housecoat' do not use the incredible increase of computing power to type any faster, they are still getting more for their dollar. At a cheaper price to boot.

And -I-, the kind of power user that most salesfolk drools over the minute I walk in while my wallet starts to pucker, also benefit from that.

I do not want to go back to the 'good' old days where I can only get my rigs at specialized stores. I would've thought you of all people with the libertard love of free market and competition and all that jazz, would see this as a great thing. Instead of kvetching on how all you need is 1990's computers and why all this decadence of people gorging themselves on delicious tasting apples.

The inflation calculation people wouldn't care too much about rating the quality of the movie, but perhaps if the data density were higher -- HD versus normal. If a movie is offered on HD DVD for $50, but last year the same movie was sold on non-HD for $25 they would want to factor in the HD-ness as a technological improvement.

But no one is forcing anyone else to buy the HD version. I sometimes go on a bargain hunt for regular DVDs, and I've got basketfuls with the price ranging from 3-5 dollar a disc. Even then, some of my friends look at me like I'm the old granny who buys spoon collections. "Dude, -physical- media?" Then again I used to buy second hand LP records for fun.

In the world of computing for example, there are no ball peens offered for sale, only 10 ton hammers for $1000 in today's dollars. If computers were just like other tools, then I'd be able to buy a new Apple II equivalent for pennies. They are collectible now, so they actually sell on Ebay for $30 - $150 depending on condition.

First of all, there is no 'only 10 ton hammers for 1k'. Seriously, do you live in some sort of technological gulag state? You can go to sprawlmart and look at their netbook line for much less than 1k prices. A netbook is far from a 10 ton hammer in today's computing power, yet there it exists!

As for your lament of the Apple II collectible price of 30-150$, I'm guessing that even at collectible price it's still much cheaper compared to their -ORIGINAL- retail price. Unless it has a significant history on it, like it was -the- Apple II that Steve Jobs hand crafted prototype or the one Scotty picked up the mouse and said ,' computerrr....' like it was a microphone in ST4: Voyage home or something.

You still want to kvetch about how you want an Apple II grade for pennies? If you soooo insist on it, how about something like an emulated one? That's pretty much almost, if not practically free. Setting aside the legal aspect of it, by practical standards no one will be pursuing you for having a by now ancient Apple II emulated on your new computer.

Still not what you want? Still going to wail and sob about it's the physicality of it? About how the quality of construction back then was better and how a moon pie used to cost 10 cents? About how the keyboard and the old skool design is what you're really talking about?

Hey, I'm actually somewhat in agreement, -some- things were better constructed back then. Even if not all of them, there's a certain retro charm, I'm personally more fond of the PET computer look but let's look at your options.

There are custom builders who for a price (hey they have to eat too, and not just meager tasting apples to boot) will put a modern computer into the shell of your beloved Apple II. Still not what you want? You want as close to mint original Apple II, you already mentioned e-bay.

Again, what are you really kvetching about, there are so many increasingly affordable and available options out there today when it comes to anything with a chip in it, that if you want to continue this wailing and gnashing about an example that doesn't exist in real life, I don't know what to tell ya.

Maybe an abacus is what you really want?
I used to have one made of marble, brass, and fits into a pocket. It requires no electricity, and it's weather proof.

The bottom line is that when you and I go to the store, the store is selling today's merchandise which is a percentage higher in price than it was last year.

No, the bottom line is not all merchandise is the same. Some stuff is more expensive today than it was in the past. Some are not. There is no one size fits all model, other than maybe that meager looking T-shirt in the men's casual clothing department.

The government says that number is about 3% (the inflation rate) -- but in our experience we find it's more like 10% -- why? Part of the reason is that the government is trying to factor in the improvement of the product in our pricing. Jester thinks that is fine and I don't.

Please take the following in the best light possible, and in the most friendly of manner. Let this kvetching go. On the general subject shipping cost IMO is what drives most prices up or down for most things.

But what I'm really talking about, is you and I live in an incredible time and place in history. The fact that you are alive, are typing this, can afford to argue and debate on the innernets ,with you using a bizarre model, is still a privilege some people will envy greatly. Some would literally give everything they have to be where you and I are.

It's ok to just enjoy the apple, man. <----- (edited afterthought, in b4 'that's what she said')

[kandrathe]

Because we are bad at math? I mean it's not even fair to consider the tech sector where prices flat out do not increase. But at 10% inflation we should be paying $1000 for a week's worth of groceries by now. $10 for a gallon of gas. $1,000,000 for a decent house in the burbs. $30 for a Happy Meal?

I didn't mean to imply it's 10% all the time for everything.

Over the past decade, Health care is up 45% Education is 65% It's eased due to the housing bubble bursting flooding the market with property, but housing is still up 50%. Way back in 2004, gas was pushing up to $1.50 a gallon. By summer 2008, it went up to $4.12. Then, in January it crashed to $1.61, and now it's bumping back up to just under $4 a gallon. Gasoline is more like a 12.5% inflation rate per year. And, purchasing power has dropped 20% over the decade, or 2% per year.

That is why it feels like 10% sometimes. Because, sometimes it is. The things I don't buy often are cheaper, but the things I buy all the time are more expensive.

[shoju]

On the whole "gas Price thing" I'm really curious to see the price this January. I don't subscribe to many conspiracy theories, but I'm seeing a pattern emerge, and I'm curious if it holds true.

[kandrathe]

Please take the following in the best light possible, and in the most friendly of manner. Let this kvetching go. On the general subject shipping cost IMO is what drives most prices up or down for most things.

I think you are talking about prices. I'm not really. I'm talking about how the relative aggregate change in price is measured and communicated.

We got here because we were discussing whether the benefit of productivity was to drive down prices. In many ways it has. And, we've all pointed out the ridiculously low prices of most imported consumer goods, like TV's, Computers, Appliances, and to some extent cars. Things that cannot be imported, or traded like that have experienced above average inflationary growth (education, health care, lawyers, etc).

If we were allowed to manufacture and sell a 1960's technology (mid-sized passenger) vehicle, it would sell new for less than $10,000. We've layered on about $3000 in safety and emission standards, and about $10,000 in quality improvement. Be that as it may, we all enjoy our longer lasting, less polluting, higher quality safer vehicles. Maybe that is worth doubling the price.

Are we experiencing the price benefit of the 18% productivity increase in Real GDP from 2001 to 2011? In that same period, purchasing power declined 20%, and labor force participation declined from 68% to 63%. I'm not seeing prices decline. Why? Well, I'd say Treasury, and Federal Reserve intervention through mechanisms like quantitative easing have ensured that the inflation rate remains positive. In some ways, that is a good thing.

Otherwise, we'd experience price deflation. The nightmare Jester warns about is that our economy is based upon growth. The fear is that as prices fall, profits evaporate and producers would start to go bankrupt. The resulting loss of jobs results in less consumer money to buy things, resulting in less demand for products and further falling prices, and then more layoffs as the entire structure of production of goods and services dismantles itself. Having a large idle population of angry, starving people is a revolutionary powder keg. In recent history it led to WWII, and regionally many other wars.

The cup is not just half full though. The half empty side is that for every action there is an equal and opposite reaction. When the Feds create money out of thin air they devalue all the money everywhere that is based upon it (e.g. the Petrodollar). So, maybe gas isn't really 4$, it's maybe still 2$ in 2004 dollars. Maybe my salary, savings, and pension funds were cut in half due to the rapid decline in the value of a dollar. It's probably not that drastic, but the past 4 years have seen an unprecedented amount of money supply manipulation (and therefore subsequent devaluation). The other negative is that they don't really create dollars out of thin air... Our dollar is a debt obligation. The Fed is a private banking cartel whose ownership is divided up among the world's largest banks. Every dollar they create is a debt that is owed them with interest. In addition to the Fed, the banking system itself can create money out of thin air with fractional reserve banking by using ridiculously low reserve requirements. Combined, our money supply growth is accelerating at an alarming rate.

So, is there a Big Lie™? Sort of... through the ignorance of the people, their inability or unwillingness to understand complicated topics, and the failure of leadership to communicate what is happening. We are mortgaging ourselves and future into feudalism. This should be our main concern right now as a world population, rather than distributive egalitarian idealism or sectarian bull crap. So, yes, I'm enjoying the party while it lasts. I'm afraid though that the bill hasn't come yet... The piper will need to be paid, and I'm not sure we can afford it.

[Kevin]

We got here because we were discussing whether the benefit of productivity was to drive down prices. In many ways it has. And, we've all pointed out the ridiculously low prices of most imported consumer goods, like TV's, Computers, Appliances, and to some extent cars. Things that cannot be imported, or traded like that have experienced above average inflationary growth (education, health care, lawyers, etc).

Again part of the issue with your arguments is that you kept using an example that you presented like it was real life, not just hypothetical that was flat out wrong. I built custom systems for people in the late 90's early 00's and entry level systems were $1000 or so at the time, it was nearly impossible even using the lowest end of parts to build a system that could do what they wanted for less than $600. Now an entry level system that is miles beyond that is about $500 and I could build or purchase a fully functional system for under $300 I simply could not do that in in the late 90s. I'm not doing any adjusting of the dollar, in 1999 dollars you paid about $1000 for a system that would run Win95/98/NT reasonably well. In 2012 you pay $500 for a system that runs Win7 reasonably well. You kept claiming that the replacement cost for a computer that you got in 99 that has worn out/broken/whatever would now be $1500. It didn't make sense because it was completely the opposite experience.

I worked with many people that didn't need a lot of computing power, but the old Commodore 64 that still ran just fine simply didn't have the software they needed it couldn't hook into even a 300 dpi scanner (and really it usually a 1200 dpi scanner which meant even steeper memory requirements) and convert their photos to digital images for their business website. But yes I did help get 286 and 386 systems that were running versions of DOS or Win 3.1 to function to the level needed because that is all they needed, but in many cases even though the parts they might have needed were cheaper than they were when they bought the computer it was still less expensive to migrate them to newer more powerful technology. That 4MB ISA memory expansion card that was $500 when the 386 was released was only $300 now but I needed 2 of them and a $200 video card (that was $800 when the system first came out), that $800 was better spent on a 300 MHz Pentium II system. Since the vast majority of users wanted to do more than a 386 could handle manufacturers weren't making parts that could make a 386 work better, they weren't building 386 systems that only cost $100 because there was no demand for them anymore because they were tools that simply didn't do the job, it was not easy to insert images in word processor documents and it never would be on 386/486 level technology.

Now starting around 2003 or so the base computer had software and hardware that was good enough to handle what most people needed, it could do photo manipulation, handle all the network connectivity technology, etc. Demands for new features have slowed down, so an argument could be made that there would still be demand to just put the efficiency gains into making cheaper and cheaper 2003 level systems. But the reality of that market is that things get cheaper AND more powerful.

You kept trying to use that industry as an example to support your core argument and it was an awful example because you were wrong. Had you just talked about widgets or cars you would not have muddied your point and not elicited some of the confused responses you got.

If we were allowed to manufacture and sell a 1960's technology (mid-sized passenger) vehicle, it would sell new for less than $10,000. We've layered on about $3000 in safety and emission standards, and about $10,000 in quality improvement. Be that as it may, we all enjoy our longer lasting, less polluting, higher quality safer vehicles. Maybe that is worth doubling the price.

Now you get into an example that actually illustrates what you are saying instead of illustrating the opposite of what you are saying. I will point out the Geo Metro. It sold for under $10K in the 89-97, I think there were trim packages on the 97 models that came in over $10K. People didn't really buy them. Yes they sold 700,000 or so in that time frame. Ford sold something like 1.4 million Taurus from 92-95 so twice as many in 1/3 the time. This is a car that got 40-55 MPG cost less than $10K brand new and if you got the 4 door hatch model could comfortably seat a 6'5 person in the back seat (I know from personal experience). My 89 Metro had more rear leg room than 02 Taurus does. My Taurus is about as big as a passenger car can get, I actually considered the Metro mid size.

But even if you get rid of the safety and emission standards and use 1960's tech (and really that was pretty much what a Metro was) you'd make a car most people wouldn't want to buy, so no one makes them. I lament this as well, because I would buy one. But cars need to sell in the millions or have a much higher profit margin (sport cars) to be made. Options like you mention have existed, people just didn't buy them.

Are we experiencing the price benefit of the 18% productivity increase in Real GDP from 2001 to 2011?

And yes I snipped off the rest of your post which actually laid out your argument fairly clearly without using examples that were opposite of the point you were trying to make, etc. I don't have enough knowledge of it all to argue much. I worry about some of the policies, but I also believe that in some cases they have cushioned the blow and that is good.


I'd also invite some deeper discussion from people that know more and understand more than I about this mostly fluff article about Japan's economy the last 22 years. I know they haven't really grown in 22 years and I know many people who have traveled or lived in Japan during that time and it's not a country that has fallen apart like people say will happen to the US and they have made some of the same decisions we are making now.

It's different living in a no growth economy but I believe you don't have to growth beyond what is needed to handle increases in population either, though it may take an attitude shift.

[Jester]

I'd also invite some deeper discussion from people that know more and understand more than I about this mostly fluff article about Japan's economy the last 22 years. I know they haven't really grown in 22 years and I know many people who have traveled or lived in Japan during that time and it's not a country that has fallen apart like people say will happen to the US and they have made some of the same decisions we are making now.

It's different living in a no growth economy but I believe you don't have to growth beyond what is needed to handle increases in population either, though it may take an attitude shift.

Here's my quasi-Marxist conspiracy theory. I think the obsession with short-run growth rates is a capitalist phenomenon - that is to say, we focus on it not because it's super important, but because investors care so much about it.

I think a lot of people in the Econ world forget that GDP is a flow, not a stock, and that GDP growth is a rate of change in that flow. If a country has a very high GDP and a very low GDP growth rate, that still means that every year, they make loads of stuff. Their people live at a high standard, and produce everything necessary to do so. That's Japan right now. It's a nice place to live. They have the best of almost everything, they're well educated, they live long, all is well. For most people, Japan is awesome.

For whom is Japan not awesome? Investors. You get crap returns investing in Japan. Nobody buys Japanese bonds but Japanese people and the paranoid. They're so over-capitalized it's comical - and they have been since the 1980s.

And so, between these two stories, a good life for most people on one hand, and a deeply unsexy place for investors on the other, which narrative dominates the news about Japan? The bad one. Why? Capitalism. Who is economic news written by, and for? Investors.

-Jester

[Jester]

We are mortgaging ourselves and future into feudalism. This should be our main concern right now as a world population, rather than distributive egalitarian idealism or sectarian bull crap. So, yes, I'm enjoying the party while it lasts. I'm afraid though that the bill hasn't come yet... The piper will need to be paid, and I'm not sure we can afford it.

This must be wrong. Debt and credit are linked by accounting identities. It is *impossible* for the "world population" to be in debt. Globally, capital flows balance out, precisely, by definition. Every debtor has a creditor, and every creditor, a debtor. To whom would we owe this global debt, the Ferengi?

If you're going to tell me that the problem is that the US and Europe are in debt, well, isn't that just more "distributive egalitarian idealism," just from a more self-interested perspective?

-Jester

[Archon_Wing]

To whom would we owe this global debt, the Ferengi?

Damn those sexist capitalist buffoons! Rawr down with capitalism-- they obviously all eat insects and hoard precious metals.

Alright, I just wanted to note the Trek reference. Back to lurking.

[Hammerskjold]

I think you are talking about prices. I'm not really.

Frankly the minute you hauled out your bizarre and fundamentally wrong tech example, I don't know what you are talking about. Maybe your example is from a fictional setting from your unwritten novel 'Kandrathia', where 64 kb of memory is the highest level produced, ever.

Where compu-teknologie increases in power along with size and cost, until only kings, conglomerate kingdoms, lofty ivory tower monasteries, and deep secret military bunkers can afford it. Maybe in that divergent fictional setting, what you spieled out is true.

In -this- world where you and I are currently residing, it's not.

I'm talking about how the relative aggregate change in price is measured and communicated.

Then do so. Just do yourself a huge favour and instead of clamping on to an idea first, then trying to make reality fit, or inventing a bizarre hypothetical version of reality.

Look at the real life data first.

Otherwise, we'd experience price deflation. The nightmare Jester warns about is that our economy is based upon growth. The fear is that as prices fall, profits evaporate and producers would start to go bankrupt. The resulting loss of jobs results in less consumer money to buy things, resulting in less demand for products and further falling prices, and then more layoffs as the entire structure of production of goods and services dismantles itself.

I can follow the beginning of your sentence. Around halfway, I'm less convinced, simply because things are not that simplistic and market reality is much more in flux compared to the past. Things like disruptive technology can play a bigger and more frequent part, the upheaval seems to be largely from previous kings of the hill, who will fight tooth and nail against an improvement if it means a threat to their kingdom.

As for what can cause massive unrest, there's many ways to light a powder keg. Slow or fast, any of them can and will work once a critical tipping point has been reached.

I'm not going to debate the WW2 causes, though I will throw in that a little thing called WW1 had a bit to do with it as well IIRC. I think it was a shooting of someone during a Franz Ferdinand concert at Duke university or something.

So, is there a Big Lie™? Sort of... through the ignorance of the people, their inability or unwillingness to understand complicated topics, and the failure of leadership to communicate what is happening.

Big Lie? Sort of? Is that anything like the one where someone is trying to convince me that a 2012 entry level computer would cost more compared to a 1990's era machine?

We are mortgaging ourselves and future into feudalism.

Whenever I go to home despot\lowes, I spend a fair amount of time in their hand tools department. And I think to myself, which stuff would help me in the event of a zombie apocalypse.

That 80$, titanium alloy and vibration dampened composite handle hammer, would make an awesome melee weapon vs zombies. It's light, balanced well, packs a wallop, but pricy. But when the zombie wave hits, I'd rather have that over a sack of dollars.

I also think whether aluminum is better than mild steel for my scale armor leather jacket\tunic. The aluminum is not soda can thin, but fairly thick gauge. It would seem zombie bite resistant enough, and light. Mild steel is cheaper, but it's much heavier and corrodes easily without some anti rust treatment. Kevlar\Aramid would probably be best if cost is not an issue, but it is. I'm working with a realistic budget here, and I don't know how to work with Kevlar fibers.

So with that in mind, please at least consider, what I'm saying.

Get. Real.

It's good to have some skeptical thinking. It's good to prepare for the worst while hoping for the best. It's good to develop an awareness for lies, damned lies, and statistics that anyone including the oh so hated big gubment tries to give you.

But don't let it consume you. Getting obsessed over it will be at best, chicken little shit. At worst, you'll start sounding like a Unabomber manifesto.

[kandrathe]

Frankly the minute you hauled out your bizarre and fundamentally wrong tech example, I don't know what you are talking about.

I pulled numbers out of the air, because they didn't need to be accurate for my example. Some may have missed what I was trying to explain. It was unclear, so let's move on.

Look at the real life data first.

I lived through it, you did, and so did most everyone on the Lounge. My bad assumption was that I could I could generalize and give *rough* examples. I didn't feel the examples needed to be accurate to illustrate the point I was attempting to make.

So with that in mind, please at least consider, what I'm saying. Get. Real.

Yah, zombie apocalypse. That's what I'm talking about.

Here is what credit ratings agency Egan-Jones said on Sept 15th, “[T]he FED’s QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the US economy and, by extension, credit quality. Issuing additional currency and depressing interest rates via the purchasing of MBS does little to raise the real GDP of the US, but does reduce the value of the dollar (because of the increase in money supply), and in turn increase the cost of commodities (see the recent rise in the prices of energy, gold, and other commodities). The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers thereby reducing consumer purchasing power. Hence, in our opinion QE3 will be detrimental to credit quality for the US….”

When I say "Selling us out for feudalism" -- I mean that what the Fed is doing will rapidly depreciate the value of anything owned, to prop up all those who are horribly in debt in hopes of keeping them from crashing. It is horribly regressive.

And I'm not really thinking medieval feudalism with nobility and vassals -- but rather just a system of land lords, service, rent, and forfeiture. It's a move that further pushes wealth for the slim (1%) further up, and the rest of us further down...

To whom would we owe this global debt?

I think you know this. In the US, the government sells off T-bills, and they are held by whomever buys them -- mostly investors, and banking interests around the globe. Who will pay off the investors in these notes?

[ErickTheRed]

This has been an interesting discussion to follow, but I'm still not sure I understand your main point which is why the Fed in particular is the problem.

The current problems that the middle class has isn't really about consumer goods - well, except when people buy too much stuff that they don't need and rack up credit card debt. The problem is that housing, education, and health care have all increased way faster than inflation and incomes over the past decades. This has happened for a variety of reasons that don't really have to do with the Fed money policy.

The post you linked to is giving reasons is giving QE as a reason for a credit downgrade, but I'd say the real reasons behind our credit downgrades are increasing deficits and the lack of a political will to do anything about it. I believe the number one concern of the Fed is to keep currency stable, preventing either deflation or too much inflation. Within that constraint it acts to stimulate the economy. It's my impression that the recent actions are consistent with that.

What do you think the Fed should be doing instead, and what do you think the consequences would be?

[Jester]

To whom would we owe this global debt?

I think you know this. In the US, the government sells off T-bills, and they are held by whomever buys them -- mostly investors, and banking interests around the globe. Who will pay off the investors in these notes?

I'm not sure you got the meaning of what I was saying there.

The world is not in debt. That's impossible. The US government issues T-bills, making them a debtor. Someone buys those T-bills, making them a creditor. The net is zero - credits match debits. Since there are no T-bills going off-planet, the world population is not in debt. Some are creditors, some are debtors, and if we wiped out all debt, we would not collectively be one iota richer. It would merely redistribute wealth. (In this case from Saudis, Chinese, and American pension funds, to the US taxpayer.) This is not a problem of epic proportions, except for some hyper-indebted countries in Africa.

In answer to the question "who will pay off the investors in [T-bills]," the answer is: the United States Treasury. Says so right in the name. They pay off billions upon billions of them each and every year, and haven't missed a single payment since the days of Alexander Hamiltion. Most credible debtor in the world, with the possible exception of Switzerland.

Was that supposed to be an important question?

-Jester

[Taem]

Is it within a countries right to print money without any tangible value behind it if that money is parf of the world economy? For example, the US dollar used to based off the Gold Standard, then the Oil Standard - limiting funds to a real world, tangible goods. Now it's based off of notes if I'm not mistaken, which is essentially interest off the American dollar. But I'm loosing focus; I constantly read about countries needing to deflate their market, so they print several million/billion (or in Japans case, trillions) of dollars and inject the cash into the systems banks. Where does this money come from? How is it worth anything when countries can print as much as they want and it's value isn't based on anything tangible? The more I've been thinking about it and the light internet research I've done lead me to believe there is more printed money in this world than there is hard economic goods or labor/interest.

[Jester]

Is it within a countries right to print money without any tangible value behind it if that money is parf of the world economy? For example, the US dollar used to based off the Gold Standard, then the Oil Standard - limiting funds to a real world, tangible goods. Now it's based off of notes if I'm not mistaken, which is essentially interest off the American dollar. But I'm loosing focus; I constantly read about countries needing to deflate their market, so they print several million/billion (or in Japans case, trillions) of dollars and inject the cash into the systems banks. Where does this money come from? How is it worth anything when countries can print as much as they want and it's value isn't based on anything tangible? The more I've been thinking about it and the light internet research I've done lead me to believe there is more printed money in this world than there is hard economic goods or labor/interest.

Careful. There is no amount of money that "represents" a certain value of goods or labour. Only a ratio between the two. It is impossible to have the "right" amount of money in circulation. There is no "right" amount - but every time you change it, it redistributes wealth.

Money is both a stock (the monetary base) and a velocity, The net monetary flow, which is what affects prices, is based on multiplying the one by the other.

The economic expression of this is MV = PY. That is to say, (Money stock)*(Velocity of money) = (Price level)*(Output). Now, most economists believe that long-run output is determined entirely on the supply side, that is, fixed by other factors like technology and capital accumulation. You can't make more stuff by printing more money. And, as we can see from the equation, this makes sense - if Output is held constant, the ONLY variable that can be affected by an increase in money stock or velocity is prices. If you printed money, the only thing that changes is distribution - you're giving that money to someone, and taking it from everyone else in proportion to their monetary wealth.

Where economists disagree is about the short run. Keynesians, both new and old, will tell you that the economy is only ever approximately at the supply-side limit of output, the most we can make with what we have. Usually, there is at least some spare capacity. Machines can be run longer, workers worked harder, more marginal workers employed, and so on. There is some short-term flex there, even if the long run is fixed, meaning that increasing either monetary stock or velocity can "heat up" the economy.

More importantly, if the monetary stock or velocity were ever to fall dramatically, if prices remained "sticky," we could see an actual loss in output. Factories would idle, and so would workers. In this situation, since prices don't change very fast, output itself can be increased by printing money. Price stickiness is controversial, but the basic explanation is that workers are *very* resistant to downward changes in wages, and therefore, it's more acceptable to fire people (or not hire them) than reduce wages, and that keeps other prices up.

The new Kenyesians will tell you that this is exactly where we are today. Ben Bernanke agrees, which is why interest rates at the Fed are practically zero - they're "printing money" as fast as they can without doing it literally. (They "print money" by increasing the volume of credit, not by making sheets and sheets of cash. But the effect is about the same.) The other interesting thing is, if you increase output rather than prices, it doesn't actually tax existing wealth holders. Their command over goods only decreases if prices increase, so as long as there is a demand-driven recession, "printing money" is not inflationary. That changes if and when the economy gets back up to full output, or when factories rust and worker skills deteriorate to the point where "full output" drops.

I believe the velocity of money dropped way, way down post-2008. Why? Deleveraging. While velocity is basically impossible to measure directly, it stands to reason that money sitting in peoples' mattresses, or in a savings account, or locked into long-term, safe T-bills, is not circulating as fast as short-term notes or credits during a boom. That drop in velocity has almost completely offset the increase in money stock, leading to very little price increase (we see shockingly low inflation) and a substantial output drop (the recession). That's why Bernanke is trying unconventional methods to get more money out into the economy.

He should just helicopter drop. Print some notes, and give them to people in briefcases. I suggest poor and middle-income people. The rich have gotten enough.

/endwalloftext

-Jester

[kandrathe]

I'm not sure you got the meaning of what I was saying there.

Ok, let me be more clear.

The wealthy are the creditors (the ones buying the t-bills), and the poor/middle class (with the government borrowing on their behalf) are the debtors. When it comes to paying it back, it has always, and will always be on the backs of the 99% and not the 1%.

No, the world is not in debt according to your zero sum definitions. 99% of the world is in debt to the 1% who will be our land lords.

[Jester]

The wealthy are the creditors (the ones buying the t-bills), and the poor/middle class (with the government borrowing on their behalf) are the debtors. When it comes to paying it back, it has always, and will always be on the backs of the 99% and not the 1%.

Isn't this the precise opposite of what you've argued in the past, that it's the 1% who pay a vastly outsized portion of taxes?

Regardless, yes, I think the poor benefit from inflation and the rich suffer. Hence, why I'm happy to have those debts slowly liquidated by inflation, rather than amplified by deflation.

T-bills are super popular with pension funds and retirement savings. Lots of middle class people have some interest in them. Also with investment banks, hedge funds, and the government of China.

No, the world is not in debt according to your zero sum definitions.

Got any other definitions? I didn't invent accounting.

99% of the world is in debt to the 1% who will be our land lords.

Horsefeathers. Here are the numbers. The Chinese are incredible savers, and therefore enormous creditors. There are 1.2 billion Chinese, almost 20% of world population. Or are we so US-centric that we're just not counting them? (Also, holy crap, Norway.)

Credits equal debits, and just because you happen to live in a very rich country that's very far in debt, doesn't mean that's what the whole world is like.

-Jester

[kandrathe]

What do you think the Fed should be doing instead, and what do you think the consequences would be?

1) I think they should keep the value of assets stable and inject liquidity if needed (and take it away as is feasible) only to avoid a market stall (money supply dries up). 2) they should probably raise interest rates to a nominal (1/2% at least) -- it should never be at zero(for long anyway) 3) they should stop pretending that their silver bullets can solve this, since our issue is that we need a political change (in Congress).

In the US, the problem with our economy is that we've gone from hyper-activity to lethargic due to bad policy and a lack of certain oversight (regulations) over Credit Default Swaps. In the face of the recession, the Democrats crammed through a bunch of social change rather than enact the kinds of legislation that would inspire a recovery. They passed a slew of new regulations, none of which alter the unregulated nature of Credit Default Swaps. The Republicans have no good plans, and so their only approach is to obstruct the Democrats. We need Congress to change the status quo such that investors, and consumers have confidence that their spending is safe. I think there was also an error in assumption that "War(s)" are good or neutral to the economy. In this case, Iraq, Afghanistan, and the plethora of brush fires over the past decade have diverted useful productivity into destruction with little reward (some amount of stability and peace -- at a high cost). I think Vietnam and Korea were small enough that they barely impacted the economy. WWII was 100% mobilization -- our issues with WWII came after the war when we demobilized (however, we had a whole world to rebuild). Maybe this time we can find a way to keep everyone busy without a need for destroying the world.

As it is, consumers, and business aren't certain that their spending will be worthwhile, compared to paying down debts (hunkering down through the recession). It is the lack of confidence and retrenchment mentality that leads to more lay offs, and a spiral of bankruptcies and unemployment. The deficit is a problem because we've spent heedlessly in good times and bad, to the point where now our debt maintenance seriously impacts a larger and larger portion of revenue collected. The poverty rate, foreclosure rate, and unemployment rate are all heading in the wrong direction. The Fed cannot save us. Only "We" as expressed in our political leadership can lift us out of this "depression" or "really bad recession" depending on who you speak with.

The current problems that the middle class has isn't really about consumer goods - well, except when people buy too much stuff that they don't need and rack up credit card debt.

You don't have an issue with imported goods, because they've leveraged a global economy where wages, and protections(labor, economy, etc.) are less. For example, I've often found PC printers are so ridiculously cheap that the replacement ink cartridges exceed the cost of the original product. Or, the cost to replace the fuse on my 18 year old microwave was more than a new microwave.

When we buy things that cannot be imported (like College), we are paying for all the things we enjoy here (fair labor, ecology) and all the taxes, state, local, and federal to pay for all the things that we do at the those levels. Granted, there is much inefficiency in most education operations (waste, redundancy, etc.), but it doesn't account for the 6-10% increases in costs (per year). Automation in making goods can increase productivity (manifold), whereas that expression in education would be 1 teacher for every 100 or 1000 students. You cannot cram the quality of a 30 minute doctor visit into 5 minutes, or 1 minute.

Part of why we are in this boat now, is that finally, the world has become whole again. After WWII, the US enjoyed 20-30 years of dominating the rubble that remained in Europe and Japan. In the 70's-80's, that started turning around where we had to actually compete. In the past 60 years we've become comfortable with paying for safety, fair labor, and ecology (and the rest of the world couldn't afford our goods). Coupled with the advent of Peak Oil -- unlimited growth requires unlimited cheap cheap energy -- something we are struggling to maintain (with oil its a losing battle).

One group (the one I'm in) believes safety, fair labor, and ecology are worth it, but we need to get the rest of the 3rd world up to speed. Another group wants to dismantle safety, fair labor, and ecology requirements in the 1st world in order to compete with the new 3rd world industrial economies (India, China, Africa, South America)-- which to me seems likes a huge step backwards for civilization.

[Jester]

I'm hearing a lot of "the government did it wrong" and "restoring confidence is job one," but not a lot of specifics about how to accomplish that.

I put my cards on the table - helicopter drop. Super-aggressive redistributive monetary policy. Print money and mail it out. Reinflate demand via consumers directly rather than trying to fiddle with asset purchases.

What's your plan? And the plan, please, no skipping right to the objectives. Anyone can tell you that we want more confidence, that we want the right policy not the wrong policy, etc... But the devil is in the details, and these problems are devilish enough that the whole developed world seems to be unable to solve them.

-Jester