Author: 468259058

What's inflation? [Copy link] 中文

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Post time 2012-2-28 11:07:42 |Display all floors
This post was edited by 468259058 at 2012-2-28 11:08

Harrington  inflation is when the u.s prints lots of money to bring down the value of the dollar, and pay back nothing to its creditors

If so, Why mainland China's government (PRC), Taiwan's government (ROC), and HongKong's government is the largest creditor of U.S. government?
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Post time 2012-2-28 11:57:55 |Display all floors
1 Dollar = 1 Cent

1 Dollar = 100 Cents

= 10 Cents * 10 Cents

= 0.1 Dollar * 0.1 Dollar

= 0.01 Dollar

= 1 Cent

no 0.01 Dollar = 0.01(100 cents) where Dollar = 100 cents

you were fine up to the conversion
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Post time 2012-2-28 12:14:33 |Display all floors
inflation means several things

most of the time it refers to price increase in the mainstream media

I understand it to actually mean a rise in the supply of currency (M0) or maybe broader instruments of "money", such as MB (Federal Reserve Credit)

however, I think the M system mainly refers to deposits

when thinking of money and inflation, we should really be thinking of debt, because money is literally created out of debt and dies when debt is repaid.

and it is the rise in debt money that causes prices to rise (eg house prices rising because more people are taking out "loans" - the bank simply creates the money out of thin air when such loans are made)

more precisely, this debt based fiat is not actually "money" in the true sense of the word, as I understand, as it is denominated essentially in the capacity to repay, ie human work converted into goods and services

in fact, the story is a little more complex as the USD is the basis of international trade and was backed by gold until 1971

from that time, the Fed, a private banking organisation, can create "money" (MB) out of thin air

this is not creating debt in the traditional sense of a contract between borrower and lender for repayment in the future

however it does create debt in the sense that the new currency created by the Fed dilutes the purchasing power of existing currency and the lost purchasing power is transferred into those newly created Fed dollars

this is an oversimplification as in truth, this transfer occurs in the future

however, it is the fact of "payment" in the future (by everyone exchanging work for those dollars) that means this is a form of debt, albeit without any formal contract and generally the "borrower" will never know he "borrowed"

anyway, maybe the economists can help us out here...LC?)
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Post time 2012-2-28 12:20:48 |Display all floors
however it does create debt in the sense that the new currency created by the Fed dilutes the purchasing power of existing currency and the lost purchasing power is transferred into those newly created Fed dollars

more specifically, the Fed loans money it invents out of thin air to creditors it thinks can repay

this includes the US government

the Fed loans credit to the US government in exchange for US Treasury Bonds

like the Fed, the US Treasury simply creates these bonds from thin air

however, unlike the Fed, the US Treasury Bond is a contract for the US taxpayer to pay the bondholder, both in interest yield and payout the principal on expiration of the duration of the bond

the Fed "buys" the T-Bonds with its own "money", essentially thin air.

Essentially the whole process relies on confidence in the system, good risk management and a legal mechanism to extract the pound of flesh
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Post time 2012-3-1 13:37:17 |Display all floors

Guru Intoxication: Keynes as Shaman and Drug Dealer

John Maynard Keynes (1883-1946) was the famous British economist who advanced the provocative notion that governments could and should smooth out the business cycle by manipulating the supply of money.  This was to be accomplished by creating new currency (easy enough to do since every modern government has gone off the gold standard), and by directly spending it.  Or by creating new money and lending it out at zero interest or by borrowing money against a promised prosperity in the future, and by directly spending it. Of course when countries play the borrowing game they create “sovereign debt”.  They tend to collaterize these loans with the promise that the sovereign will use its taxing power -or fiat money creation power as a last resort.  How is that working out?

Reality check: Ultimately, all sovereigns must pay the borrowed money back, not because their debtors can sue them but because when their credit-worthiness falls into question, only fools will lend them more.  Note here that the Chinese are not fools.


Here is a short description of Keynes’ theory, excerpted from the “Concise Encyclopedia of Economics” — available on the web “Library of Economics and Liberty”:

“Keynes’s General Theory revolutionized the way economists think about economics. It… introduced the notion of aggregate demand as the sum of consumption, investment, and government spending; and … that full employment could be maintained only with the help of government spending…Why shouldn’t government, thought Keynes, fill the shoes of business by investing in public works and hiring the unemployed? The General Theory advocated deficit spending during economic downturns to maintain full employment.”

The most foolish thing Keynes ever advocated (and – to be fair – later partly retracted) was his example that full employment can be attained by burying money and employing people to dig it up.

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course by tendering for leases of the note-bearing territory), there need be no more unemployment and with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.” The General Theory of Employment, Interest and Money by John Maynard Keynes (1935).

Keynesian economic theory is a spectacular 21st century failure due to the operation of three factors, all of which have been recently demonstrated in the laboratory of real world experience:

(1)   The utter lack of discipline of popular democracies, whose politicians are ever seduced by the promise of a free fiscal lunch;

(2)   the profound impact of the world economy, the monetary effects of which are fully capable of swamping local currency and money supply policies, and;

(3)   The complete incompetence of government bureaucracies when it comes to the creation of wealth-generating enterprises.

The edifice of Keynesian-derived policy among the Western democracies has been discredited.  That which remains should be cautiously implemented by clear eyed economists and political leaders who have undergone reality therapy.

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