Prateek,
We are seperated by a wide abyss.
So… any predictions on the Subjective relative value of the US Dollar compared to other currencies? I still have not seen the numbers that show the Dollar is any worse then other fiat currencies in terms of debt and spending. Yes we are the largest debtor nation but we are also the largest economy.
On the other hand I am now confused about, nations, debtors, creditors, value, among other things.
Very informative discussions though, I enjoy it thoroughly.
Oracle of MN:
Prateek is clearly clueless. Just the fact that he quotes keynesians as authorities on economics should make you smell a rat.
Liberty Student might also be clueless, though he probably knows better, and is just twisting things on purpose as part of a personal vendetta against me. We go back a ways, and he doesn’t miss a trick. So look for the ideas in his writngs, if any, and ignore the personal attacks and insults.
A nation, in the context of discussing a currency, is the set of all people legally bound to use that currency in their transactions.
if you are confused, do a search for the things I wrote in the forums about these topics. I try to write simply, so that all but the brainwashed will understand. I can’t help them, as you see in this thread.
You will find people here who have picked up slogans from their superficial reading of AE, but not understanding. Thus, someone wrote recently as a rebuttal to me that the phrase “intrinsic value” has no place in AE. He had picked that up as a slogan. He did not understand that my use of intrinsic value in a particular thread, as I defined it explicitly there, has nothing to do with the Austrian battle against intrinsic value.
Also, get to the bottom of an argument. For example, if you hear that the USA has the world’s largest economy, ask yourself, “Do I understand clearly enough to explain to a five year old why that fact is decisive [or even relevant] in a discussion about the possible decline in value of the dollar?” if you answer in the negative, keep reading and thinking.
[Sometimes it helps to think about what would happen if we were talking about an individual. If the richest man in your town [=largest economy] owed people two trillion dollars that he could never pay back, what kind of shape is he in? What will probably happen to him?]
Another example : If you see Prateek saying that Adam Smith has refuted my mercantilist arguments, ask yourself, “What exactly is the refutation?” [As an aside, you can ask yourself why my argument is mercantilist, which it is not].
And so forth.
From the Wisdom of Prateek: “Britain was among the poorest European countries in the 16th century and imported its way to power”
Prateek, are you saying that we too, like the English in the 17th century, are importing our way to power? That all this is going to end with the sun never setting on the American Empire? That our high unemployment and rising inflation and many bank failures [157 this year alone] and the skyrocketing prices of all commodities are signs that we are doing well? That those silly Chinese are killing their future by exporting, when they should be importing?
Please explain to me how one imports ones way to power. How exactly did the British do it? Did they import Spider Man power pills? What is the secret? And how come only you know it, but none of the other nations on Earth were able to copy their example in all these four hundred years? For that matter, why aren’t the British, who knew the secret, importing their way into power right now? How did they ever lose their Empire, the silly geese, when they could have just imported their way to keeping it?
Please enlighten me as well how they paid for all those imports, if they were the poorest country in Europe? Did they get all those imports for free?
Also, it is up to you to explain why you are not commiting the post hoc ergo propter hoc [=showing off my Latin] fallacy. Especially since good oie Wikipedia has a totally different explanation of the rise of the British Empire in the 17th century. Not a word about importing their way to power. Not a word. here is a tiny snippet from there:
During the Age of Discovery in the 15th and 16th centuries, Portugal and Spain pioneered European exploration of the globe, and in the process established large overseas empires. Envious of the great wealth these empires bestowed, England, France and the Netherlands began to establish colonies and trade networks of their own in the Americas and Asia.[3] A series of wars in the 17th and 18th centuries with the Netherlands and France left England (Britain, following the 1707 Act of Union with Scotland) the dominant colonial power in North America and India. The loss of the Thirteen Colonies in North America in 1783 after a war of independence deprived Britain of some of its most populous colonies. British attention soon turned towards Africa, Asia and the Pacific. Following the defeat of Napoleonic France in 1815, Britain enjoyed a century of almost unchallenged dominance, and expanded its imperial holdings across the globe. Increasing degrees of autonomy were granted to its white settler colonies, some of which were reclassified as dominions.
Maybe you should go there and edit that article. Erase that whole page and write instead:
A series of brilliant imports, a trick that other nations are too stupid to understand and copy to this very day, brought the British from amongst the poorest nations in Europe to becoming the largest empire in history and, for over a century, was the foremost global power. By 1922 the British Empire held sway over about 458 million people, one-quarter of the world’s population at the time,[1] and covered more than 13 million square miles (34 million km2), almost a quarter of the Earth’s total land area.[2] As a result, its political, linguistic and cultural legacy is widespread. At the peak of its power, it was often said that “the sun never sets on the British Empire” because its span across the globe ensured that the sun was always shining on at least one of its numerous territories.
All this was the direct result of those clever British importing their way to power. More power to them.
The largest economy because it is based on debt.
Americans are consuming their capital through the biggest government in the history of mankind.
The discussions here run pretty deep. Normally I’d play along and agree with all of the abstractions and deceptions that define our belief systems, but I really didn’t think that would do you a service in the long run.
Please do feel free to dig deeper into Austrian economics. There is a lot of truth to be found in it.
Paranoia and ad hominem. Not an argument to be found.
You’re kidding yourself if you think I have a vendetta. You’re spreading inaccurate statements and like everyone who has been inaccurate, you’re going to get called on it. Either defend your argument, or change your position, but don’t think you can pin your flawed reasoning on being a victim of something.
That’s not fooling anyone, probably not even the new posters.
My suggestion is that you should emotionally detach yourself from your opinions if you’re going to pursue truth.
Mwahaha, got your goat, did I?
Look, I will take a moderate position and merely focus on the arguments espoused. Whether anybody has a superficial reading of AE, I will just say that there are roughly 50 books that one has to read to be considered an intermediate in Austrian economics (which at a glance is very vast), so just about all of us are learners and students here. I see this debate as a chance to learn, and if I learn through an egg on my face now and then, I am glad for the opportunity.
Onto Smiling Dave’s example: If the richest man in town were insolvent, and if everybody else had lent him money, then they will not get their money back. Not only will he end up bankrupt, but so may lots of other people, who will find their assets lower than expected and may not be able to pay back their own loans. Moreover, people in the town may do a bank run to get back a few cents per dollar for all their deposits. This situation would be useful, as the rich man will not get money from anybody else for a long time, and people would only be willing to lend at higher rates to avoid moral hazard and adverse selection problems. The rich man’s assets will be liquidated, and that money will slowly be ploughed back into better and more productive investments. The once rich man himself will have to claw his way out again, work harder, and build up his credit worthiness and make better use of his money. In the end, all capital is allocated better.
I consider mercantilism the idea that consumers in a country should be denied foreign goods in order to build up reserves of foreign currency. Having foreign reserves does not make a country or its people wealthy. To quote page 262 of Adam Smith’s famous book, “The general industry of a country can not exceed what the capital of a society can employ.” and thus it makes not one bit of difference whether you import or export on a net level. It will lead to not fall in capital of United States, but only in how it is used. That’s why American corporations are so highly capitalised, that Apple can earn $200,000 per employee while Goldman Sachs may earn $1,000,000 per employee; they allocate their capital across fewer and fewer industries while importing everything else from abroad.
I am willing to consider, without condescension, Smiling Dave capable of knowing something I don’t and properly dismissing all that I have written. If I learn something, all the better for me, no?
OK, Prateek, I confess that I thought your atitude was similar to others here who shall go nameless. If you are interested in finding out what’s what, I will gladly oblige, and of course will [reluctantly] confess if I am proven mistaken. I have done it publicly on these forums before. One example I remember is my mistake about how the Fed lowers interest rates. OK, on to adress your points.
- Prateek, I am not being a mercantilist. On the contrary I am for 100% free trade. More, I totally agree with the idea that a country is better off letting other countries import as much as they want, even if the other countries do not allow anything whatsoever into their country. This idea is defended on this site.
I agree in principle that the point of exporting is to import, and that imports are not a bad thing in and of themselves, quite the contrary. We would not be importing them in the first place if we didn’t think they were good stuff. Importing only becomes bad when you import what you cannot afford to pay for.
What I am saying is that if you import something, you have to pay for it, right? China is not giving away their stuff for free. Nobody is. Now there are two ways to pay. Either you pay right away, by giving the Chinese some good in return for their Television sets, or you pay later. You can pay later in two ways. One way is to give the Chinese dollar bills, which sooner or later, if they have any brains, they will spend here, buying up everything they can get their hands on, like our stocks and our real estate. They have 6 trillion dollars to play with. There is also another way to pay later. You don’t give the Chinese anything now, except written promises to pay when the time comes, if they are foolish enough to settle for that [as they are, so far]. Every month we decide to pay later, to the tune of 50 billion dollars a month.
And like I said, we are not using all those imports to increase our productive capacity. We are consuming them. Consume, as in destroy, eat up.
So when the time comes to pay those debts, how will we pay them? We can’t give them our products, because we are not making enough products. If we were, we would not have to import 50 billion dollars worth of Chinese stuff every month. The only way to pay those debts is by printing money. Look at Greece. Look at Ireland. Look at all those Euro countries that legally cannot print money, and have to pay their debts. They simply cannot pay their debts. That is why they are in such trouble.
We owe much much more than those countries do. And the time will come, when we too will have to pay back. How will we do it? By printing money. There is no other way. Which will destroy our currency etc, as I explained in my earlier post.
Peter Schiff didnt say hyperinflation will happen tomorrow, although we do have high inflation right now. He is saying that sooner or later, within a few years, it’s gonna happen, if the govt continues doing what it is doing. You wrote that hyperinflation only happens if money printing is continuous. What if it is not continuous, but the govt takes a week off every six months. Will that do it still? I think we agree that yes. It is not the non stop continuity that counts. All you need is a large enough amount in a given time span. And we may very well have to print huge amoiunts, as we already have, to pay our debts.
- Of course it is people and households and businesses that produce and consume. But we can look at all the people and households and businesses that are in the USA, and see what is going on with the sum total of their activities. A shorthand phrase for “the sum total of all the people and houses and businesses in the USA” is the word “nation”. The Austrian emphasis that nations “don’t exist”, that certain people are parroting here without understanding, is not relevant. Those Austrians are talking about the use of the word nation in a different context. And the nation is borrowing 50 billion dollars a month that will have to be repaid somehow.
Those interesting statistics about Apple and so forth are all very nice, but the question arises, “Then why do we need to borrow 50 billion dollars a month, and have to pay interest? Why not just give them Ipods?” Obviously, despite the encouraging statistics you quoted, it’s still not enough. We are still 50 billion dollars a month short.
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Your statement that the trade deficit has no meaning is a mere assertion. You have not explained why you think so. But I have explained at great length why it is very important. I wrote a rebuttal to the British example, hopefully it will get approved. I apologize for the biting tone it has.
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At this stage I will quote you, and my reply will be in bold type.
Of course United States government will get loans.
How can you be so sure? Why are we any different from Greece?
Have treasury bond interest rates risen?
Actually they have. And they will one day, when we least expect it, rise steeply, just like what happened to Greece.
Printing lots and lots of money may or may not produce hyperinflation, and may just result in people saving money and businesses holding back reserves out of uncertainty, leading to no rise in price level. Japan kept multiplying its monetary base, even as Japanese people kept saving more and did not spend more.
Disagreeing with that statement of yours, about the relationship between printing tons of money and hyperinflation, and about Japan, is not up to me. You don’t have to be me, or Peter Schiff, to disagree. It is a basic tenet of AE. Do some searching on this site [=googling site:mises.org inflation, and then the same for Japan]. Even LS will back me up here, impartial seeker of truth that he is.
- The dollar will only be worth what value people will attach to it. It will not happen that the dollar will become worthless by itself and then people will ditch it; it’s people who decide that in the first place.
Where did I say or imply differently?
As long as legal tenders are there, people will prefer to use the dollar.
How do you know this? I certainly, when the dollar hits Zimbabwe levels, will prefer some other means of trade than useless dollars.
Yes, an inflationary expansion will have effects on its usage, but once that round of expansion is over, its effects are over. It takes another inflationary expansion to cause those effects to continue. Weimar hyperinflation was from a permanently running printing press, while America’s central bank inflates in rounds and rounds.
I addressed this earlier.
I will ignore the rest of your post, as it was addressed to LS, not me.
I actually thought you were a pretty good poster in the last year, until you went sideways over Peter Schiff in the thread I made. You don’t get my goat, because you, as an individual, don’t hold any significance for me. But your serious downturn in post quality lately has given me opportunities to step up to teachable moments, and for that, I am appreciative.
That’s like saying, “what bad could result from elevated asset prices brought about by inflation?” We have to distinguish between two types of deflation: (a) one brought about by general productivity gains, and (b) one brought about by an inadequate supply of money, i.e, monetary disequilibrium (which can exist even in a free market).
Well, nothing is uncaused, but the supply of money can drop without government intervention. The government does not control the supply of money.
The great depression. During periods of intense inflation people rush to spend their cash. In other words, the expectation of severe future inflation leads to a “flight” away from the monetary unit towards other assets. This is self-reinforcing and eventually yields a hyperinflation. Similarly, when individuals expect future deflation, they will hold off on purchases until prices fall to, what they consider to be, “a low enough level.” This is also self-reinforcing, and is the inevitable result of human rationality.
Again, you’re conflating two different types of deflation, and, for whatever reason, you assume a condition of complete price flexibility. The problem is that prices, including wages, don’t automatically adjust.
Keep reading.
The biggest problem here is going to be keeping track of who said what. Since there is already normal font and bold font all over the place, I am going to write my comments on Esuric’s post in this bold italicized font. Without further ado:
Swiss franc
Norweigan kroner
Brittish pound
Swedish kroner
I think all those are far less bad then the US Dollar for various reasons. Debt vs GDP alone doesn’t really say anything in this case but they are all below 50% except Norway which probably has something to do with how much of the oil money is put in trusts to be removed from the economy.
I think something can be said for aggregated number so GDP is not entierly useless … but it only works under “normal” conditions in an unregulated market. When you start messing with it much of the GDP output will just be waste and it doesn’t become all that usefull. It doesn’t really give any information about the health of a market as such but can be used in relative comparisons of countries that are similar. In this case I think it is pretty much completley useless though since government benefit programs and political motivations to increase spending are much more importaint factors.
I read an article a while ago calculating the actual US national debt to 202 trillion dollars. There are loads of future decided expenses that aren’t being accounted for. I think this problem is even worse in Greece though unlike what the article saus .. cause there pensions plans are ludicrus.
This what you shold be looking at if you want to evaluate a currency long term. Future spending and income of government and how good they are at fiscal policy. For instance in Sweden we have this nifty thing with expense limits that are decided upon 3 years in advance. Meaning that most of the time government expenses is limited by a decition made before the last election. Look for such and other insitituional barriers to spending that keep the debt devolpment stable and so forth…
But of course none of this really works and all fiat currency depreciate rapidly so you can just use whatever fiat currency is convinent and keep as little of it on hand as possible. If want to preserve the value of your assets keep it in precious metals, land or real estate (as long as you don’t buy in the middle of an abovious bubble it is pretty stable in value). Or you can invest it, most companies don’t keep more currency then they have to either.
If the currency collapse completley the economic chaos will ruin most companies. But then there will be nothing to buy anyhow so maybe there is no point in protection all of your assets from such a disaster…
There is a split within the Austrian school when it comes to monetary theory. You have the Rothbardians on one hand, and monetary equilibrium theorists on the other. The latter consists of many well-known economists such as Knut Wicksell (father of Austrian monetary and business cycle theory), early Mises, Hayek, Selgin, White, Yeager, etc.
In a nut shell, money is both an economic good and a class in itself. There is a demand for money as money (to facilitate transactions, or, during times of crises, it is demanded for security), and when the demand for money exceeds the supply of money you get monetary and inter-temporal disequilibrium. Individuals and firms begin to increase sales and limit purchases in order to satiate their demand for money (restore cash balances), and the money rate of interest (which is partially determined by monetary factors) rises above the natural rate (which is independent of all monetary factors). This becomes problematic when prices are rigid, i.e., when they don’t instantaneously adjust. Output prices will fall faster than input prices (including labor), squeezing profit margins, yielding involuntary unempoyment, and reducing general economic activity (the structure of production does not expand at a fast enough rate in order to restore profit margins).
There’s so much literature on this topic that I don’t feel the need to elaborate any further. I’ll let you do the work and educate yourself. But again, I’m not arguing that the Rothbardian position is incorrect, though I do hold this position. I just find it shocking that you’re entirely unaware the arguments put forth by the Monetary Equilibrium theorists, which is a major sect of Austrian economics in general.
You must first prove that fractional reserve banking is the result of government interventionism. In other words, you have to show that every single individual would prefer to pay storage fees rather than earning interest on their savings, and having it available on demand. You’re also going to have to explain why fractional reserve banking naturally emerged though free-market activity and persisted during periods of relative economic and banking deregulation (18th and 19th century Scotland, for example). 100% RR’s only existed, as far as I know, in the Middle East because of arbitrary religious decrees (usury was banned).
Next, to answer your question, the supply of money can fall on its own, and in fact will fall, when velocity falls (when the money multiplication process slows down due to an elevated demand for money).
A Monetary History of the United States. Princeton, Princeton University Press, 1963,Ch.7.
I’m sorry, I don’t understand your point here, especially when you say “prices be damned.” Individuals, all other things equal, are price sensitive. We both agree that individuals tend to dump the monetary unit when they expect inflation, i.e., a general depreciation in the objective exchange value of money. But why wouldn’t they hold onto their money when they expect a general appreciation in the objective exchange value of money (all other things equal)? Why are they rational when it comes to inflation, but irrational when it comes to deflation?
Again, you’re not holding the ceteris paribus condition here. The computer and tech industry is extremely dynamic; newer and more efficient products are continuously introduced in an extremely competitive environment. Individuals continuously buy newer and different products (there is still a portion of that market which holds off until prices fall on what will eventually become out-dated technology). Firms are forced to innovate (new methods of production and technology–productivity gains) in this industry in order to remain profitable, because innovation becomes dispersed, and what was once “new” becomes old and out-dated.
But again, the key here is that the products are not homogenous; they’re continuously changing and improving. You’re comparing apples with oranges.
This is the standard example monetary equilibrium theorists give when they attempt to elucidate the differences between deflation caused by productivity gains (tech industry) and deflation caused by monetary disequilibrium (great depression).
You don’t know what I’ve read. Your arguments simplify extremely complicated phenomena, blatantly ignore relevant variables and counter-arguments put forth by entire sects of Austrian economics, and show a fundamental misunderstanding of not just AE, but basic economic doctrines in general. I tend to ignore know-nothing combative individuals like yourself, but you’re becoming increasingly annoying.
Ty for that last paragraph, which gives insight into your personality. I refuted another of your posts in the defending Peter Schiff thread.
Uh huh. Are we done here?
You admitted Mises and Rothbard think I am right and you are wrong. That’s enough for me.
Dear Prateek, the post about the British Empire is written in a tone I wish I could change. But it’s too old to be able to edit, apparently.