stupid money ?

Discussion in 'Economy' started by sam111, Feb 9, 2012.

  1. sam111
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    sam111 Member

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    I am curious when the government can print more money or another words in what conditions are the government/treasury allowed to make more money.

    I know as the population increases they must somehow have to increase the amount of money that exists in the US...etc
    Or if the population was greater then the amount of money many people would just starve to death... or all the rich people would have to live normal ...etc

    Curious how this all works.

    In theory the government can print as much money as it wanted. But in practice if they didn't do this correctly they would have chaos on their hands.

    So do they just print enough money to keep us about 2% inflation or something.
    That cann't be quite true either since we have had depressions and recessions ,...etc
    Their must be strict laws/conditions that allow printing and not printing money even if it happened to kill a few people in starvation in the process.
    Even so , don't get it.

    I get if their is a fix amount of money then economists could analysis the flow of how the money is moving.
    But if it was not fix and could be increased by some means then wouldn't everybody be asking to increase it for their own benefit when the time came for a particular person. And this would inevitable a biased system.
    And thus the barter system would be the only true fair non-biased system.
     
    Last edited: Feb 9, 2012
  2. expat_panama
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    expat_panama Silver Member

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    Thanks for the questions, so much more refreshing than having to hear constantly from the 'I've-got-all-the-answers' crowd.

    You're right about this money creation thing being important because screw-ups make innocent people suffer and die --but hey, we're learning. Like, people don't suffer and die like they did say 50 or a hundred years ago. What's needed for starters is knowing what's going on. Money is not made by government printing. OK, maybe a little is, but most is make by folks like you and me making loans. We loan a hundred bucks and we know we've got a $100 note we can fall back on, but now the borrower also has $100 to spend. We just 'printed' $100.

    The only question is do we get the $100 back without leaning too hard. Fact is that we usually do because we're smart and life is good.
     
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  3. DSGE
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    DSGE VIP Member

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    The mandate the Federal Reserve has in the Federal Reserve Act is "stable prices and maximum employment". They have complete control over one particular kind of money, called High Powered money (notes and coins in circulation plus bank reserves), to achieve this goal. The Fed very recently - around January 25th this year - announced an explicit target. They feel that the best way to achieve their dual mandate is to target 2% inflation over the medium term.

    "But if it was not fix and could be increased by some means then wouldn't everybody be asking to increase it for their own benefit when the time came for a particular person"

    No. Not if there are rules for how monetary policy has to behave. Most countries have an explicit inflation target somewhere around 2-3%. Normally that target is put in the act establishing the central bank. So a Reserve Bank act will say for example, "the Reserve Bank has to keep CPI inflation between 2-3% on average over this time period". So there is a law controlling how much money is allowed to be printed. You must print money such that inflation is on target.

    For the Fed, the law in the act is "stable prices and maximum employment". Of course, that doesn't necessarily mean it's going to be followed. You need accountability, in case they deviate from their target. Other central banks have that to a degree, in New Zealand they can fire the governor, but the Fed doesn't have a lot of accountability. So you can still get recessions and such if the Fed doesn't do their job (such as this one).

    Even then, there's no reason to believe that with an inflation target, or a fixed money supply, there would be no recessions. The best way to avoid demand-side recessions is with an NGDP target. Currently no central bank uses that. And you can also still have recessions from real factors. For example, if the relative price of oil increases dramatically, like the oil shocks of the 70s, you can still get real recessions.

    "And thus the barter system would be the only true fair non-biased system"

    Not true. Firstly, we need money. Say a baker makes bread and a cobbler repairs shoes. In a barter economy, two match ups have to happen for exchange to take place: the baker has to find a cobbler who wants bread, and the cobbler has to find a baker who wants shoes repaired. Both of those have to happen at the same time for trade to happen.

    Now in a monetary economy, only one match up has to happen. The baker needs to find somebody who wants bread. That person pays for bread with money. The cobbler just needs to find somebody who wants shoes repaired, and will get paid in money. If the cobbler wants some bread, they just go to the baker and pay money. In a barter economy, the cobbler would have to not only find a baker, but find a baker who wants to trade bread for getting some shoes repaired.

    So how do we decide how much money to print so that it's fair? Well, we make it so that expectations line up with what actually happens. We should give the central bank an explicit target, that everybody knows, and punish them if they deviate from it.
     
    Last edited: Feb 9, 2012
  4. zzzz
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    zzzz Just a regular American

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    I wonder why the strict constitutionalists are not for the abolition of the Federal Reserve. After all the constitution gives Congress the right and responsibility. I guess Congress back in 1913 decided they did not need that responsibility.
     
  5. DSGE
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    DSGE VIP Member

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    They retain that. They delegated that power to the Fed. At any point at all Congress may amend/repeal the Federal Reserve Act.
     
  6. expat_panama
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    expat_panama Silver Member

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    Exactly. Power can be delegated. Responsibility cannot be delegated. Officials lie when they try to blame screw-ups on their workers, like when Clinton blamed Reno for Waco or Obama blamed Fast&Furious on Holder.
     
  7. sam111
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    sam111 Member

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    DSGE
    I agree with you on most of what you are saying

    Barter system takes 2 aspects and a money system you only need one (find somebody that is willing to pay)

    But The problem with the money system is also that who determines what something is worth... to one person it could be worth $5 to another $500.

    The point being in a barter system the worker would have alittle bit more of a say in how much the value of his work is to a particular customer.

    The problem their in lies in a money system their is no correct way to price the value of something all the time. And that is it's down fall because everybody seeks to get the most money for their service/product (that is just natural) but this inevitable makes it unfair to the buyer (somebody with more wealth has a better opportunity even if he possess less skills/knowledge )
    ( I guess their is a biased in both systems and a problem in both systems)

    I think people should be allowed to do what they want.
    If they don't want to work then they should be given enough money to live (shelter/food basic stuff)
    For the people that want to work the rich people should be either the hardest working, or the smartest/strongest.

    If we had this in my eyes we would truely be a great society. Since we would have cured human hungry , gave everybody shelter, and gave the hardworker/most knowledgeable people alot of money for their efforts which is fair.
    ( the thing is doing the math out this is possible provided some people weren't so damn greedy and where more responsible about having kids (we got better about an equal balance of death/birth rates so we don't over populate) )

    As for the government doesn't make money.
    Then let me ask as are population grows and we have the same amount of money in the world.... how the hell will it be enough for everybody to live on.
    For example say the amount of money value right now is equivalent to every person in the US can have $100 (split evenly).
    Then what will happen when the population keeps growing doing simple basic math if the population keeps growing that $100 for each person would slowly decrease to $1 , $.05 ,...etc (being split evenly over the US people.... even if it was uneven you would still have tons more people poor or starving)
    It will approach zero really fast (of course never truely reaching zero)...

    See what I am getting at.
    Weather the goverment or banks print or make money somebody has to do it to keep up with the population ... Correct?
    If we had only a fix amount of money this would never work forever with out increasing money/value or dropping price of items/services.
    Plus the fact new resources are found so new money should grow with the resources/work/technology ,...etc

    Maybe somebody watches these statistics and is responsible for it... duno.... but the government did give use a stimulus check a year or so ago....where did they get that money.... either they are get to much taxes from us to have left over money ... or their make more money :)


    Question 2)
    If that is true who is this party that is incharge of keeping up with the population.
    I would believe it is indirectly the government or a branch their in.
    At least indirectly by laws they would beable to control it.

    Question 3)
    Plus if the money was fix then why does are debt ceiling keep increasing (doesn't seem like their is a max upper bound on how much it could go until we completely lose all are money )
    Basically what is a good approx. to the amount of money the US has. and others like China, japan , Europe countries ,...etc
    If we are in debt then somebody out their is doing better then us (somebody not in debt ) who are those countries.
    And looking at it that way wouldn't these countries have potential to become more powerful then the US.
    If we are basing money on power then we would be weak in theory. ( how can we be in debt and still one of the richest countries don't get it)
    Also how much debt can we obtain before other countries or people start valuing us as untrustworthy / not reliable
     
    Last edited: Feb 9, 2012
  8. DSGE
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    DSGE VIP Member

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    Exactly the same as in a barter system. The difference being instead of money acting as the unit of account, you use labour. "I'm willing to work 8 hours a day for three months to have this diamond", "I'm only willing to work 3 weeks for it".

    Value is determined by the preferences of people. All money does is give us a common unit to label things with. Not all labour is the same. 8 hours of work as a surgeon is much more valuable to people than 8 hours of work digging holes. But all money is the same. The dollar I have and the dollar you have buy the same amount of stuff.

    Absolutely not. You can't tell other people how much they should value something. I can't dig up some dirt in my backyard and insist that you give me your car for it. Value is determined by the consumer. That doesn't change when money is introduced.

    In a monetary or a barter economy things will be priced accurately all the time. The only difference between the two is that in the barter economy you have to think about all the relative prices. If I'm trying to sell bread, how do I price it? I have to price it in terms of meat, if I'm to trade with a butcher; in terms of corn, in case I want to trade with a farmer; medical advice, to trade with a doctor; etc. With money we all agree to use the one unit of account.

    Not sure what you're getting at there. Suppliers want to get a high price and buyers want to get a low price. A supplier can't just charge whatever they like for two reasons: 1) the exchange is voluntary. You'll only buy the thing if the value you get from it is worth the price. If the price is too high, you won't buy it. That'll force them to lower the price. 2) Competition from other suppliers! They all want to sell their goods, so they constantly undercut each other and try to improve their product so that you'll buy it. That drives prices down and quality up.


    Me too. Within limits, obviously. Don't murder me please.

    Whoa whoa! Who's gonna be making the food and shelter? Working sucks. Why would people be working - ie, making food and shelter - if they can not work and still get stuff? Either you're gonna force people to work, which contradicts "people should be allowed to do what they want", or you've got a magic society where everybody works not for their own benefit, but just to please their fellow man, which is clearly just a pipe dream. There's no getting around reality.


    Unless you get given money by your rich parents, the only way to get rich (without resorting to criminal activity or lobbying the government for special rights) is to do something that other people want. It's not like you invent the computer and money just starts appearing in your bank account. To get rich you have to produce things people value, a lot. I'm reminded of this famous quote from the Wealth of Nations:

    "...and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

    Ahhh, careful. Two things are being conflated here. You're thinking of wealth. "Money" is the medium of exchange and unit of account. So "money" is used to make trading easier. Instead of those two match ups we discussed before, we only have to find one; and it's the unit that we denominate value in. So instead of going to the store and trading a loaf of bread for some surgery (how would a surgeon buy bread in a barter economy?), a surgeon performs surgery on people who want it and gets paid in dollars; goes to the store to buy some bread and pays for it in dollars. And money also gives us a number. The bread costs "$2".

    Wealth is the real stuff. The things we make, the services we perform. You can't print wealth. It has to be made by people creating things that other people value and trading. That stuff grows automatically with population growth and technological progress.

    So what happens if the government keeps the money supply constant? As there's more stuff being made, but the same amount of "medium of exchange" floating around, prices will fall. That's it. Prices will fall so that the same amount of "money" can be used to facilitate trade. If we print too much money, it doesn't create more wealth. It just raises prices.

    That being cleared up should help answer questions 2 and 3.
     
    Last edited: Feb 9, 2012
  9. sam111
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    sam111 Member

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    Yes , but to the normal person if he sees a drastic change in price like $100 for each person go down to $.05 for each person. This will make him change his behavior.

    I agree with you again about most of the things you are saying.

    Money is just really a label for how much wealth somebody possess. And I do see it freeing up the chaos of trying to have to determine what is of more value or what should be equal....
    even though in some case money fails at that. (but the point is it works relatively efficient to keep the chaos of buyer/seller in agreement. )

    Also don't forget at some level somebody has to set the price of an item and in that case that is just getting back to the barter system.
    But it still is a great way of abstracting things in a clever way so the majority of the people buyer/sellers don't worry to much about the details of what a particular things value should be.

    In theory their is no real true fair way to put a price on a value and have it agree with what everybody thinks is correct number at all times for it.
    And this is the essential problem of why a society under any type of goods/value system won't be perfect or will have flaws.
    The only true perfect society would be based on good will and helping others (and people will never agree to it, and the reason why it would fail for the most part is people dislike, disagree ,...and don't have the same goals , "THE BIGGEST PROBLEM USUALLY IS PEOPLE CANN'T REACH A HAPPY MEDIUM" )
    So we are F'ed. I do think something of humans should be more controlled like birth rates we shouldn't overpopulate or get to a point where it is chaotic levels it should be at a level where everybody controls the problems they create (or the major ones, for example children , crime ,..etc)
    Only then we could at least control the world/US in a more fair way.

    I believe anybody should be able to walk into a health care or doctors office and get fix for free ... cann't put a price on health quality of life, food should also be free , and shelter should be free, the rest should be paid for. (anything that a human requires should not be based on money i.e are basic needs)

    For example a human that cann't work due to health or other reasons should not starve or freeze to death... point being money should only come in when it comes to non-basic needs. The basic needs everybody should be allowed a fair amount of food / shelter at no cost. Now if you wanted a particular big house or types of food like ton of prime rib that should cost... but a basic amount should be free.
    This would cure human hunger in the US as well as homelessness provided we keep population grow managable.

    So essentially any system other then money that could create a standard way to have buyers and sellers in agreement, or what is a fair value for of judging something worth would work.
    In theory if somebody figured out a system that did this better then money system did we would essential be better in using that system...if we could translate the people to that system in a non-chaotic way.


    I still don't get why we have debt ceiling ,...etc that would imply we are oweing people,countries more then we have gave.
    Another way to look at it is that means we owed people values/service/product.
    I would think debt only accrues if it is from outside the US since if it is are own debt from with inside the US in a particular area we could just say F'it and start are debt back to zero provided the parties agree.

    How did we accrue so much debt when other countries have not ?
    It seems over the years US has helped out alot with foreign countries , I guess you could say the opposite. But by doing the rough quick math it would seem they cancel out or we should be at alot less of a debt then the numbers at?

    Either the other countries are not valuing are help as much ( in that case stop help or interfering or using that country )

    I guess it comes down to what the other countries valued ....
    Hell couldn't we just turn it around and say we don't value what you do for us as much that would indirectly cut are debt down.
     
    Last edited: Feb 9, 2012
  10. DSGE
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    DSGE VIP Member

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    Why would it? Either way, nobody would see that much deflation in their life time.

    Like when? :eusa_eh:

    Not sure what you're saying it's implying...

    It's to stop the government from borrowing too much. Government debt is, after all, just future tax burden. It's implemented very poorly though.

    No, because not everybody lent to the government equally. Imagine a country with 5 people. The government wants to borrow money, so they sell a Treasury bond to person 1. 10 years later, what has to happen? The government taxes all 5 people to pay back person 1. It's not like... owing yourself money or anything. There's no accounting tricks going on.

    Other countries have.


    Don't know what that means.
     

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