I’m sold on this whole idea of the fed supply printing money erodes its value and understand the principal + Interest = Boom / Bust cycle.
How do you grow an economy without it ? surely it would have taken us another 100 yrs just to get where we are today.
I understand that the growth we have experienced may be an illusion, as really its debt?
So what does real wealth look like !
Wow. Wealth is subjective. Alot of economists look at a society with a high “output”, one that has a high “productive capacity” as being one that is wealthy. Truth is, a society becomes more wealthy when property rights are protected and the just owners of property are allowed to produce, trade and make there own rules with there property. Thus wealth is not an objective, definable thing. Wealth reflects the subjective evaluations of society, differs from individual to individual.
I think what you are asking is, what does it feel like to be free and unmolested? Wow, sad this question has to come up in this day.
Real wealth would look like increased productivity with increased number of goods and services to the economy while the purchasing power of the money increases (those goods and services are getting cheaper and cheaper). Real wealth is increased.
I lifted the following from Marc Faber’s April 2009 Gloom Doom Boom newsletter (for subscribers). I underlined the relevant statement to your question.
[…]
For sure I shall receive again a plethora of emails why inflation is not
an issue and why under electronic banking and given the size of the bond
market inflation will not be possible. But let me make the following
observations. Under every paper money system in history, money lost
purchasing power over time. “Printing money” is particularly easy in an
electronic banking system. The central bank simply expands its balance
sheet. Rest assured that the Fed’s balance sheet will mushroom in the
future as it will (be forced to) monetize the US government’s bulging
fiscal deficit (see Figure 10). Large fiscal deficits combined with ultra
expansionary monetary policies have always been the ideal mixture for
future high consumer price increases. Lastly, in strong, healthy, and
growing economies, inflation is usually not a problem: saving rates and
capital spending are high and there is an absence of fiscal deficits. Many
investors misunderstand this concept.
However, inflation is always a problem in countries whose economies are
imbalanced and structurally weak (lack of capital spending and savings,
and excessive consumption leading to large trade and current account
deficits) or are already in a recession. When a country is faced with a
recession, every government thinks it is smart to do “something” about it.
The response is usually to cut interest rates and to let fiscal deficits grow.
Initially, this may not fuel inflation. However, the problem occurs when
the economy is recovering and interest rates should be increased by the
central bank in order to avoid excessive credit growth in the system. So,
as was the case in the US after June 2004, interest rates are lifted, but
only very slowly, with Fed fund rates lagging behind both nominal GDP
growth rates and cost of living increases. Given the size of the
government debt in three years’ time and the size of fiscal deficits, which
will not decline below $1 trillion, rest assured that the Fed will - as has
been the case after 2001 until this very date – keep short rates artificially
low. The unintended consequence of this policy was the credit and
housing bubble in the last ten years. The next time around it will likely be
something else that “inflates” since the excessive money creation will
find a way to boost prices somewhere in the system (could be equities,
commodities, precious metals, or foreign currencies whose economies
have slower money printing machines).
[…]
Like the Renaissance, or the High Middle Ages.
Savings. The source of growth (increased production capacity) in an economy is saved capital, which is created every time you save money.
The path to prosperity in your household is thrift and foresight, and its the path to prosperity in your nation, as well.
Wanna bet? I just got done reading this. Check it out!!
Counterfeit did not create growth.
you have it backwards. the boom bust cycle misallocates resources. without it we would be ahead by several decades compared to where we are now.