The more money the banks print, the richer they get, with the side-effect that prices rise (they make the monetary units less scarce and worth less).
2-3% just happens to be the most they can get away with in the long term without the population getting concerned.
What the general population don't realise is that the value of goods and services are going down over time, due to efficiency increases, at a rate of around 5% / year. The banks can print enough money to soak that up unnoticed, and then an extra 2% just because they can. It's essentially a stealth transfer of wealth from the people to the banks and it's been going on for decades/centuries (before fiat, it used to take the form of coin shaving, impure metals etc).
You really see the effect when you look at house prices. They are roughly the same price in gold as they were in the 1970s. Rather than housing going up in value since then, it has been the monetary units going down in value, due to the supply roughly doubling every decade (look up M2 USD).
You can understand the incentive to print money when you realise that every year the banks are collecting interest on every dollar/euro/pound etc. in existence. And the banks don't really own any of them - they printed them out of thin air as loans and have to destroy them when the loans are repaid, but total debt only increases every year...
> They are roughly the same price in gold as they were in the 1970s
So you're implying that there was no inflation between 2011 and 2022 (gold prices were basically the same) or that prices increasing 8 times or so between 2000 and 2011 because gold got a lot more expensive?
Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin). Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
> when you realise that every year the banks are collecting interest on every dollar/euro/pound etc
That doesn't work that well when the real interest rates (i.e. after you subtract inflation) are negative or close to negative (as they were in the Eurozone between around 2012 and 2022).
> So you're implying that there was no inflation between 2011 and 2022 (gold prices were basically the same)
He doesn't mean the price of gold in dollars, he means the price of houses in gold. In dollar terms, he's just saying that the price of gold and the price of houses have inflated by the same amount.
> Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin). Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
Not as absurd as printing money and then spending it on things that nobody wants, and then claiming that that "stimulates the economy". Which is what our current monetary regime has been doing for decades now.
In gold houses are about 3x cheaper now than they were back in 1970. Yet in the mid 2000s they were even more expensive than in 1970. What can we make of that besides that the price of gold is very unstable and increase in money supply is not the primary reason of that? (e.g. compare 2000s and 2010s..)
There is nothing special about gold, it's just a highly speculated commodity with very volatile price and that's it. We might as well do the same experiment and use the prices of oil/wheat/etc. and it would make a lot more sense.
> Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin). Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
It's sensible to use gold or housing as a measure of value - they are both extremely mature markets with a relatively constant supply/demand ratio. It's no coincidence that after 50+ years they are still the same value relatively to each other. I'd argue that using the dollar as a measure of value would be absurd, given that it's demand is relatively constant but it's supply is doubling every decade.
> That doesn't work that well when the real interest rates (i.e. after you subtract inflation) are negative or close to negative (as they were in the Eurozone between around 2012 and 2022).
The banks are playing a much longer game. While the interest rates are held low, they increase the number of people indebted to them. When they turn the interest rates back up, they get their reward. I recommend reading the short book "The Great Taking" (https://thegreattaking.com/)
> It's sensible to use gold or housing as a measure of value - they are both extremely mature markets with a relatively constant supply/demand ratio. It's no coincidence that after 50+ years they are still the same value relatively to each other.
Have you actually examined these numbers? From my quick check, it doesn't seem to be anywhere near true. In 1970, Gold was $35.96/oz in 1970 USD. The average house was $23,400 in 1970USD. So 650 oz of gold would get you a house. Today, 1 oz of gold is $2,063.76 in 2024 USD. An average house costs $395,100 or 191 oz of gold. Houses are significantly cheaper with respect to gold today than they were in 1970.
Gold is great for people who already have wealth. (Those people also have had other good investment options.) Gold is useless for people trying to earn money to pay for a mortgage for housing today.
Also, houses built today are much more valuable (cheaper per "foot" or "room") than houses built new in 1970-- they are much larger.
not to mention new materials and insulations/energy efficiency, fireproofing etc. All of these things are improvements - it's just "invisible" because people who claim the opposite just don't see it as an improvement (aka, they take it for granted).
It is the same with a lot of other "wealth" increases - it's invisible because that wealth is available to everybody. They only see it as wealth when said wealth is made only available for themselves (or wealth that someone else has that they themselves don't have).
There's an enormous difference between things you "value", and economic value.
We probably value air more than anything else, but it's worthless.
Economic value = demand / supply. Simple.
It can be useful to think of economic value as a more abstract form of energy - a "monetary energy" - with the same conservation-of-energy properties. For example, if I create a TV that's better than all the existing TVs, the economic value of my TV is sucked from all the existing TVs which are suddenly worth less and contain less economic value.
It depends heavily on which year of the 70s you look at (I was using 1974), but yes, it's true, at the very start of the 70s, houses were 3x the price they are now (measured in gold).
You're right - this is even stronger evidence that whereas most people believe houses have increased in value over the last 5+ decades, they have at best remained the same value, and the price increases have simply been the devaluation of the dollar (which incidentally increases in supply at the same rate as house prices increase - roughly double each decade)
> It's sensible to use gold or housing as a measure of value - they are both extremely mature markets with a relatively constant supply/demand ratio
Look at how the price of gold changed between 2000 and 2020. It's not at all constant (it's actually more volatile than the dollar)
> I'd argue that using the dollar as a measure of value would be absurd,
Perhaps. Still less absurd than using gold for that.
> When they turn the interest rates back up, they get their reward
When the interest rates go up the price of bonds goes down. If you're holding a lot of bonds and interest rates go up you're certainly not in a good position (that's how the Silicon Valley Bank went bankrupt). Just basic math. Of course if we're talking about variable rate debt then you do have a point (however almost all household debt in the US is fixed rate, it varies by country though).
> Look at how the price of gold changed between 2000 and 2020. It's not at all constant (it's actually more volatile than the dollar)
It's pretty rich for you to be using the word "absurd" to describe what other people are posting, when you come out with this.
Let me translate into actual plain English: the price of gold in dollars has gone up quite a lot between 2000 and 2020. (But note that it still hasn't reached the peak value it reached around 1980, after the huge inflation of the 1970s.) That is not because anything about gold has changed: it has the same industrial and other uses (such as jewelry) as before. The reason the price of gold in dollars has been so volatile is that dollars are volatile--because the government keeps monkeying with them. From 2000 to 2020, the government was printing dollars. In the early 1980s, by contrast, the government was destroying dollars (under Volcker), and the gold price in dollars dropped significantly.
Not only that, but this observation isn't limited to gold. It's true of, well, basically everything that isn't money. For instance, houses, as npoc observed. And cars. And food. And clothes. And...
The obvious conclusion from observations like this is that what is absurd is using dollars as any kind of measure of value, because the thing they are actually measuring has nothing to do with value to us, producers and consumers, and everything to do with how the government is messing with the money supply. Any commodity that has an actual use independent of government manipulation of the money supply--gold, wheat, whatever--is a better measure of value than money.
Or "Let me leave out most of the details that matter"..
> quite a lot between 2000 and 2020.
> From 2000 to 2020, the government was
So specifically between 2001 and 2011 governments have printed several times (~5x) more money than between 2011 and 2022? Because that's obviously not the case. In the first ten year period the price of gold increased fivefold during the second (despite growth in money supply only accelerating) it collapsed and didn't start recovering until 2019 (it's now worth only only slightly more than in 2011..). How does that fit in with the with whole printing hypothesis?
> In the early 1980s, by contrast, the government was destroying dollars
Just like after 2011?
> that dollars are volatile
It's not though. Generally the dollar depreciates at a fairly predictable rate. There is a spike here or there but it's nothing compared to the volatility of gold.
> houses
Yes. I certainly a agree that houses, food, cothers, cars etc. are much better units of measurement than gold (which is just commodity with a highly distorted/inflated price due to speculation..
As was noted above. If your claims are true, then inflation was 800% in the 2000s and then 0% in the 2010s. There's clearly market supply/demand driving changes in gold price, not simply exchange rate fluctuation.
> There's clearly market supply/demand driving changes in gold price
Of course. And in all other commodity prices.
But in a world where the money supply was stable, those price changes, over time, would average out to zero. Or, if you factor in increased productivity over time, they would average out to a steady (if probably slow) decrease in the prices of goods and services.
What you would not see is an average increase in the prices of goods and services over time. You would certainly not see such an increase normalized in everyone's expectations, so that everyone expects cost of living increases in their pay, everyone expects things to gradually get more expensive, etc. That requires monetary manipulation by the government.
There’s no natural state of money is there? I feel like characterizing monetary policy that way, as manipulative, is normative and kinda begs the question that there’s a natural state of monetary policy.
How could there be growth in the economy with a fixed pie of money? It is contradictory. There’d be a tremendously high bar for investment in any enterprise which could generate dollars if I could buy more tomorrow with the dollars I already have today.
Think about how much bitcoin is being put to work in the productive economy versus hodled.
If you mean there is no specific quantity of money that is "natural", that's true. Any quantity of money can work. But that does not mean that changing the quantity of money as a routine, common operation is a good thing.
> How could there be growth in the economy with a fixed pie of money? It is contradictory.
No, it isn't. Economic growth means producing more goods and services. With a fixed quantity of money, that means either the velocity of money increases (money goes around in a circle faster in order to facilitate an increased number of transactions) or average prices decrease (so less money is required on average per transaction)--or more likely a combination of both. Both of those things are perfectly possible. (And even that leaves out increasing quality of goods and services, which results in more value created even if quantity stays the same, and with a fixed quantity of money means more value for the same money even if nothing else changes.)
> There’d be a tremendously high bar for investment in any enterprise which could generate dollars if I could buy more tomorrow with the dollars I already have today.
If the quantity of money is fixed, what does "enterprise which could generate dollars" mean? It can only mean a productive enterprise, which produces goods or services that people will pay money for. You want to encourage such enterprises, not discourage them.
Indeed, it is only in an environment where the quantity of money is not fixed--where people can scheme to be given the privilege of printing more--that people end up squandering resources on activities which produce no useful goods or services, but do result in more money going into their pockets. Which is the situation we have now, where the government prints money as a way of stealthily transferring wealth to financial institutions without those institutions having to produce useful goods or services.
> Think about how much bitcoin is being put to work in the productive economy versus hodled.
But that is because the quantity of Bitcoin is not fixed. People can mint more. So Bitcoin is irrelevant to analyzing the case where the quantity of money is fixed.
Yes, we saw that in the 1800s and the subsequent period leading to the great depression. Money supply was growing too slow, deflation was pretty rampant and the economy was stuck in a permanent boom and bust cycle (with depressions which were generally much worse than anything we experience these days).
In such an environment using debt to invest becomes extremely risky. If the interest rates are relatively high (as they were) it makes more sense to just live on income from government bonds (how British aristocrats were able to maintain their lifestyle) than to invest into anything risky.
> which produce no useful goods or services, but do result in more money going into their pockets. Which is the situation we have now
In a deflationary system (i.e. based on gold in a growing economy/bitcoin/etc.) you'd become richer just by hoarding money it and waiting for its value to increase. That doesen't seem to be particularly better.
> Bitcoin is not fixed. People can mint more
It is effectively fixed. The amount being "minted" is insignificant relative to demand.
> So Bitcoin is irrelevant to analyzing the case where the quantity of money is fixed
Don't be silly. If that's the case so is gold (a lot less fixed than bitcoin) or anything else, this would make it completely pointless discussion.
> Economic growth means producing more goods and services.
How do you incentivize this? Your view seems fairly communist. Also how does a net new innovation factor into this framework. New pharmaceuticals for previously untreatable diseases for example. What slice of the fixed money pie do those get?
> But that is because the quantity of Bitcoin is not fixed. People can mint more.
Sorry pal this is sophistry. Your contention is people hodl bitcoin because the supply of btc is not fixed?
> how does a net new innovation factor into this framework. New pharmaceuticals for previously untreatable diseases for example. What slice of the fixed money pie do those get?
Whatever slice the free market determines. And any "slice" that anyone gets is constantly changing, since money is exchanged constantly. So thinking of a fixed supply of money (or even a non-fixed supply of money) as having some fixed allocation among everyone is simply wrong. That's not how it works.
(Note that common descriptions of the wealth of wealthy people, say Bill Gates, are misleading since they always give a dollar figure--Gates is worth $50 billion, let's say. But the vast majority of that $50 billion is not money. It's assets like stocks, bonds, real estate, etc., and the $50 billion figure is just an estimate of the sum of the prices all those assets would fetch if Gates sold them on the market. It is certainly not a measure of money that Gates has stuffed under his mattress or is otherwise hoarding.)
Who needs to incentivize it? People already have an incentive to produce goods and services, because people want and need things in order to live whatever life they want to live (food, clothing, and shelter at a minimum, but of course there are lots of other things people want), so they have to either produce those things themselves or produce something that can be traded for them. Of course the latter is the most common alternative since much more wealth can be created by specialization and trade than by everyone producing only for themselves. So the natural state is for people to be doing specialization and trade in a free market. That is what you get when nobody tries to "incentivize" anything.
> Your view seems fairly communist
Not at all, it's the opposite of communist, since it involves no central planning (which doesn't work).
> Your contention is people hodl bitcoin because the supply of btc is not fixed?
My contention is that since the supply of Bitcoin is not fixed, Bitcoin is irrelevant to the discussion we are having, which is about the case where the supply of money is fixed.
As far as why people hold Bitcoin instead of spending it, obviously that is because they expect its value in terms of other things they want to go up. I have made no claim about why that is. All I am saying is that it can't be because the supply of Bitcoin is fixed, since it isn't.
Also note that the people who are holding Bitcoin are still spending money to get things they want, which means they are still having to earn money to get things they want. So the fact that they are holding Bitcoin does not mean they are holding money. They are not treating Bitcoin as money. They are treating it as an investment asset like stocks or bonds. So again their behavior regarding Bitcoin is irrelevant to a discussion of how people behave with money.
Indeed. So will Bitcoin become relevant to this discussion in 2140 when new issuance ends? I’m not sure there’s much difference between then and now in practice as 95% it all Bitcoin possible is already live on the chain.
> Not at all, it’s the opposite of communist, since it involves no central planning
Central planning is a feature of state capitalism, not communism.
(It’s true that regimes–universally of the Leninist bent which adapted Marxism in the hopes of getting it to work in situations where the prerequisites did not exist–claiming to be Communist in ideological orientation almost invariably got stuck in state capitalist phase, but even by their own description that was a step on the road to communism, not communism.)
Of course, yes, I recognize that people using “communist” as a pejorative would probably also not make that distinction.
By your definition of "communism", it has never existed and never will exist, since any country that tries it will get stuck at what you are calling "state capitalism".
While I agree that "state capitalism" is a fair description of the current system in the US and other Western countries, I don't think it's a fair description of the Soviet Union, or of Pol Pot's Cambodia, or of the People's Republic of China under Mao (to give some examples of states that are usually called "communist"). It might be a fair description of the PRC today (even though the PRC still calls itself "communist").
I would agree, though, that all of those regimes are examples of central planning.
> By your definition of "communism", it has never existed
Yeah in communist theory, “communism" as a thing is an ultimate goal (and in many schools of communist thought, a relatively distant one).
> and never will exist, since any country that tries it will get stuck at what you are calling "state capitalism".
No, only the Leninist-derived approaches that try to bypass private capitalism get stuck in state capitalism (or migrate from that toward a system that looks a lot like fascist corporatism, as in the PRC.)
The displacement of the system Marx originally described as “capitalism” with what has been described as “mixed economies” is closer to what you might expect if Marxist (not Leninist) Communists tried to implement their program of moving toward communism in the conditions Marx saw as necessary to begin that transition.
> While I agree that "state capitalism" is a fair description of the current system in the US and other Western countries
It is not, it is a description Lenin made of a deliberate choice made by the USSR as a transitional step, which doesn't resemble anything done in the US very closely.
> I don't think it's a fair description of the Soviet Union, or of Pol Pot's Cambodia, or of the People's Republic of China under Mao (to give some examples of states that are usually called "communist").
All of those involved the state acting in the role of a major or sole legally tolerated capitalist. It's possible to imagine, I suppose, central planning in a decentralized, cooperative, voluntary way without that feature, but no actual regime has done that (though subsidies and incentives that fall short of coercive directive commands in mixed economies are, at least, something vaguely in that direction compared both to the absence of central planning in pure [private] capitalism and the authoritarian central planning in “communist” state capitalism.)
> How do you incentivize this? Your view seems fairly communist. Also how does a net new innovation factor into this framework. New pharmaceuticals for previously untreatable diseases for example. What slice of the fixed money pie do those get?
To be fair that did mostly work in the 1800s. The gold standard probably did have a significant negative impact on growth but to be fair I can't really think of a different system that might have worked back then considering how thoroughly corrupt and unstable pretty much all governments were back then.
Not really? Adjusted by inflation it's very volatile and not at all stable. Gold now is worth ~7x more than in 1970 but 25% less than in 1980, yet 4x more than in 2000 but still less than in 2011... There were some periods since 1970 where the (CPI adjusted) price of gold was relatively stable but that's certainly the exception and not the rule.
> but it's the most stable denomination of value that exists
You might use oil instead? It's not that much more unstable than gold.. Or wheat?
I'm guessing it's that the US Currency was backed by gold and later silver and the central banks couldn't print currency without some precious metal to back it up.
It's the other way around. US switched from a bimetallic system to the gold standard in 1873.
> I'm guessing it's that the US Currency was backed by gold
Well sort of, only until 1971 (or to some extent 1933) though. So you maybe could do that if you wanted to compare the price of housing in the 1870s and 1920s, certainly not between 1970 and the 2020s.
Price increases come in fits and starts. Gold is not entirely arbitrary. It is a commodity with a restricted and steady supply. As such it can be used as a measuring stick to judge how distorted prices are getting. Mind you, (price) inflation is measured by the government as a relative change in a cherry-picked basket of goods that changes over time. It's not honest and does not accurately account for changes in credit conditions.
> As such it can be used as a measuring stick to judge how distorted prices are getting
It can. It would just be a pretty bad idea to use it for that since it would indicate that prices where consistently falling during the 80s and 90s amongst other. I mean the nominal price of gold in 1980 was exactly the same as in 2007... I can barely think of a worse measuring stick (we could just use the price of oil instead? It's hardly less stable).
> inflation is measured by the government as a relative change in a cherry-picked basket of goods that changes over time
perhaps. Seems fairly tangential, unless you're implying that governments generally tend to severely underreport inflation most of the time.
You're right I guess. The price of gold is manipulated heavily by the banks so it is not a perfect measuring device. There is literally a Federal Reserve memo on Wikileaks describing how the government would create FUD about gold through the futures market. But the supply of it is nevertheless fairly constant compared to just about anything. People have remarked that an ounce of gold today buys about the same as it did thousands of years ago. I think they are right. The price of oil is clearly less stable than the price of gold. You could do better if you compared many goods in a basket, perhaps, but you just can't trust the government to do it right.
>perhaps. Seems fairly tangential, unless you're implying that governments generally tend to severely underreport inflation most of the time.
Yes that is exactly what I'm implying (or stating directly). I am mainly talking about the US government because I don't know how other governments calculate their rates, but it is probably about the same everywhere. I think in recent times you could do well by doubling their number.
The US government also misrepresents unemployment. For example, if an unemployed engineer gets a job at Starbucks one day a week while applying for a new gig, he is not counted as unemployed anymore. He is also not counted if he is unemployed for any longer than 6 months. Perhaps we need to report them all as unemployed along with the median time to get a job, and/or have a separate number for skilled workers that does not exclude them if they are forced to take an inadequate job.
Not arguing for the OPs argument but observing a pattern over a longer timespan doesn’t mean that the pattern can be observed during the whole timespan.
At the same time IMHO you’re right in pointing out that gold is a poor measurement of the true cost of a house.
If you take out a lone you get money in exchange for signing a contract that forces you to pay everything back [say] 3x over 30 years.
The party giving you the money loses nothing, they trade one kind of paper for the other.
They get more money in return because there is a small risk you wont pay. (if they get 1/3 they have their money back)
This would be sensible if the bank had this money. They don't, they bring nothing to the table and give you freshly minted fiat.
This is only possible because you've signed on the dotted line.
If you are buying a house the risk you wont pay is tiny! Government could easily force you to get insurance and give you an interest free lone that you won't need to pay back.
This would bring some serious fiat into circulation.
Well if we're using the price of gold to measure that there was no inflation (which of course wasn't really the case). To be fair examples are pretty bad, the iPhone 4S and iPhone 14 are not equivalent products, you can get more capable smartphones for $100-200 or less these days indicating that their prices actually went down quite a bit over the period.
It's flawed, but 1x1GHz -> 4x4GHz is literally 16x upgrade, and there was also loss-leader $399 iPhone SE in 2022 much better in performance than $649 iPhone 4S. The experiences(here comes the dodgy part) are way closer between two iPhones than the gap between PIII and Sandy Bridge.
The 2% target started as a nonsense 'dog ate my homework' line from inconsequential characters in an obscure corner of the world, that the world's elite latched onto in the last two decades as a post-hoc rationalization for debasing the currency to ensure politically-important businesses never go broke and politicians never have to say 'I'm sorry.' A real fairy tale.
You can safely ignore most of the mainstream economist schools of thought since the actual operational side of money as required by law is mostly a blind spot for them. Economic schools of thought do not link to relevant legislation when sharing their fairy tales since the laws the banks operate under result in behaviour distinct from that claimed by any major economic school of thought.
Although a great deal of smoke and mirrors is used when justifying the banks unique right to print money, and it's easy to miss the wood for the trees as you get lost in the details, the bigger picture is quite simple:
1) the banks print new money every time a loan is taken out and charge interest on that money
2) the amount of money loaned out is increasing every year
3) the total amount of money currently loaned is essentially all the fiat money in existence i.e. even 2% interest is a mind-blowing amount of annual income
Sure, we can debate about between the banks and government, who receives what proportion of the interest, but if you disagree with any of those three points, please explain.
1) incomplete statement - When the bank creates new money (its liability to you) it does so because it agreed a loan contract with you (its asset).
The consequences of this are wide ranging, but relevant to this thread, it means a bank does not get richer when creating money, it gets richer when you pay interest in excess of its costs of providing you with money. Although the bank created the loan money from nothing, it still ends up with significant costs to provide that money, for example through capitalisation regulations on the asset.
Another relevant consequence of this is that a bank is not incentivised to have a huge balance sheet - which it would have if it only made loans. Instead these loans made are securitised and removed from the bank’s assets. This means interest paid on the loan no longer goes to the bank but to whoever bought the loan.
> it gets richer when you pay interest in excess of its costs of providing you with money.
Apart from the costs of running the bank, any other costs are simply what I would call money laundering (i.e. smoke and mirrors - as I mentioned, we can argue over who exactly receives what proportion of the money, but it doesn't escape the facts that the population is paying interest on trillions and trillions that were created out of thin air by a select few).
> This means interest paid on the loan no longer goes to the bank but to whoever bought the loan.
The key words here are "...whoever bought the loan". So someone has paid the bank money (I assume relatively equal to the outstanding balance of the loan) for money (the loan) that the bank printed effortlessly. This is simply more money laundering.
The costs of running the bank include the costs of administering the loans, the cost of the bank paying interest on reserves it needs to borrow and the costs of defaults. No "money laundering" is involved.
Banks are going to earn money on the margin between the rate they can lend at and the rate they need to pay to secure reserves regardless of monetary system. The alternative without Fed access is the population paying much more interest plus random bank busts, and this doesn't seem to be an obvious improvement to anyone except the superrich earning much more interest on the money they can offer long term loans on.
There is no real cost of defaults.
The money that wasn't paid back was created out of thin air with no effort from the bank.
Money laundering is taking ill-gotten gains and processing them to make them look legitimate. This is exactly what the central banking system, in partnership with the government, does.
However much you try to justify what they are doing you can't deny that the banking system is charging interest on every unit of currency in existence and they created them all for essentially free.
People absolutely should pay more interest - the free-market rate. It's absolutely wrong that people who get into debt are rewarded for doing so, at the cost of people who don't, who have the value of their savings, wages and pensions stolen.
It's a vicious cycle - lower than free-market interest rates force people to have to borrow money. Look at what it has done to prices of houses relative to wages over the last 50 years. It's reached the point that many people are now forced to take on 35, even 50 year mortgages, just to buy a very modest home.
I'm going to be honest, if you put half as much effort into learning the very, very basics of how the system worked as you did into campaigning against it by furiously incorrecting everyone in this thread, you'd probably feel a bit embarrassed to be posting stuff like "there's no real cost of defaults" .
The money was "created out of thin air" is the loaning bank's debt to the account the borrowed money is assigned to, not the bank's asset, so there's a very real cost to them if the borrower defaults and stops repaying them. Banks can become bankrupt, just like any other business, and no, they can't "print" their way out of it.
If you're still struggling to believe there's no real cost of defaults to banks, I invite you to look up bank insolvencies. Perhaps someone could make a wtfhappenedin2007 website.
I'm also chuckling away at you complaining that the current system means mortgages take too long to pay off a sentence after complaining that people who get into debt are rewarded! For the record, what you're actually advocating for with higher "free-market" interest rates is that poor people pay rich people more over the course of 25 years than they currently do over 35 or even 50 years to secure a house, which is less likely to appreciate in value. US home ownership rates were down at 40% before governments got involved in the mortgage market. It's impossible to pretend that anyone benefits from such a system other than people who are much, much richer than average home buyers.
> The money was "created out of thin air" is the loaning bank's debt to the account the borrowed money is assigned to, not the bank's asset, so there's a very real cost to them if the borrower defaults and stops repaying them. Banks can become bankrupt, just like any other business, and no, they can't "print" their way out of it.
I think the confusion is down to the fact that I'm looking at the central banking system as a whole, rather than individual banks. You're not looking at the bigger picture.
The point I'm making is that when the loan is made, fresh money is handed to the debtor, at no cost to the banking system (they simply change some electronic digits) and so if it isn't repaid, the banking system is no worse off than it was before. This is something you're blind to. Sometimes it's difficult to see the wood for the trees.
This is the fundamental problem with Keynesian economics as we know it - for all the talk of elasticity of money, human nature determines that the elasticity only goes one way - expansion. The system is incentivised to keep increasing total debt (because of interest payments on money it doesn't really own) and because it doesn't have to work for the money it lends out, it can hold interest rates below the free-market rate, ensuring it has a monopoly on the money lending..
>I'm also chuckling away at you complaining that the current system means mortgages take too long to pay off a sentence after complaining that people who get into debt are rewarded!
The two are not contradictory.
They are punished with a long mortgage, but are still better off than the poor folk who try to save up for house instead and have the value of their savings stolen while they try.
You're not "looking at the bigger picture", you're just unambiguously and spectacularly wrong.
The banking system is composed of banks, and being insolvent is bad for a bank, for a bank that is owed money by an insolvent bank, and for banks which are owed money by banks which are owed money by insolvent banks, for banks that aren't owed money by banks, and ultimately, for consumers that are owed currency. The fact the bank "freshly created" the IOU doesn't mean they don't owe anyone anything. Perhaps someone really does need to make the wfthappenedin2007 website.
Someone with no understanding of how things works might say "but if it's true that banks can print all the money they like, can't the bank and its creditors just print themselves whole again", but that isn't because they've come up with some great economic insight that has thus far eluded everyone except a few random bloggers, it's because they have no understanding of how things work and what bank credit is (the hint is in the name, it's a debt, not an asset). Delinquent loans are removed as assets from banks' balance sheets, the liabilities they owe to other banks or the Fed remain, and that bank actually needs an external injection of non-"printed" money to make them whole again. Incidentally, this is no different to a "hard money" system, except that "hard money" systems don't have the systemic capacity to meet short term withdrawal rates for solvent banks in the event of a bank run either.
And no, the elasticity of the money supply goes both ways. USD M2 went down last year, for example. Again, this isn't a very difficult fact to establish if you're not really, really determined to be wrong.
Nor is it difficult to establish that there is nothing more inherently "market based" about a state arbitrarily tying its money supply to a particular commodity than a state deciding to to tie its money to the amount of lending generated by credit markets at a particular rate.
> The two are not contradictory. They are punished with a long mortgage, but are still better off than the poor folk who try to save up for house instead and have the value of their savings stolen while they try.
It's not difficult to find savings opportunities at above the average rate of inflation, unless you define "saving" as "bury money in the ground". But yes, if you think the purpose of the economy is ensure the unproductive maximize their returns, the existing system is definitely worse...
As I've seen time and time again from pepple with views like yours, you simply can't see the wood for the trees.
Fact 1: The amount of dollars is continuously increasing, at a rate of ~100% per decade. The amount which it has dropped in the last 2 years is tiny - that you use this as a counter is a simply ridiculous.
https://fred.stlouisfed.org/series/M2SL
Fact 2: The money is created effortlessly.
Fact 3: The banking system is collecting interest on every single dollar in existence.
Assuming 3% average interest, and $100 trillion total, that interest would amount to ~$3,000,000,000,000 per year or * ~15% of the total GDP of the USA*. I'd love to hear your justification for how this is value for money.
It's absolute theft through deception.
> It's not difficult to find savings opportunities at above the average rate of inflation, unless you define "saving" as "bury money in the ground". But yes, if you think the purpose of the economy is ensure the unproductive maximize their returns, the existing system is definitely worse...
Yes, "saving" is storing your earnings for use later. This is entirely sensible and natural. Most people who are not aware of hard money are forced to either
a) lend their life savings to the stock market for essentially free (7% returns only make up for the 7% devaluation due to money printing).
b) take a house off the market and rent it out to a tenant who is unable to buy due the monetisation of real estate, only making it even harder for the next person to buy.
The only reason this whole scam continues is because the general population has no idea of the rate at which the banking system is stealing value from their money. And people like you only exacerbate the problem.
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” - Henry Ford
Ultimately digital hard money doesn't care about your Keynesian pseudo-science. Just like the law of gravity and the law of nature, Thier's and Gresham's Laws will prevail and shut the whole central banking scam down.
I assume by "people with views like yours" you mean people who haven't formed their impression of how the financial system works from solely from lists of falsely-attributed pithy quotes
Learning how stuff actually works doesn't mean you can't see woods, but it does save the embarrassment of claiming that the banking system is no worse off if debts aren't repaid. I mean, I've encountered some pretty wild takes on the 2007 financial crisis before, but I've never encountered anyone that thinks it didn't happen!
It also means you can say stuff like "Fact 4: "printing" dollars and bearing the risk of non-repayment of loans represents a cost to banks", and come to the conclusion that seems to give them a pretty good reason to be able to charge interest. And also to suggest that if you think current interest rates aren't "value for money" you should probably rethink your calls for them to go up!
The irony of shilling for "digital hard money" - i.e an ever increasing range of entirely synthetic assets entirely printed in the last 15 years whose demand is driven partly by counterfeit dollars and partly on people borrowing to speculate on other-newly printed entirely synthetic assets... after complaining about expansionary dynamics in M2 (which unlike "digital hard money" sometimes has a downslope) is just chefs kiss.
Once again you're entirely missing the bigger picture. Bank interest rates aren't paying for money - they're just paying for the banking system. The banking system doesn't provide money - it just provides credit, backed by more of their credit, which is all just worthless digits in their database.
I would happily pay higher interest rates on real money, money the banking system can't just magic out of thin air. What a scam it is.
By "people with views like yours", I'm referring to those who are educated in finance, but
a) have sadly been indoctrinated with Keynesian nonsense
Bless, you're still feigning superior understanding.
Hint: if you want to insist that it's other people who "don't understand what money is", it helps for you not to flip from "fresh money is handed to the debtor" to "the banking system doesn't provide money" in mid-argument. And nope, even eliding definitions of money doesn't salvage an argument as hopelessly ignorant as "if it isn't repaid, the banking system is no worse off than before".
(For the record I understand the theory that a "sound" monetary system is ideally based on quantities of a durable commodity of naturally limited supply perfectly well, just like I understand other terrible nineteenth century theories like the idea that value is ideally based on a fixed quantity of labour. Judging by your utterance of the phrase "digital hard money" to refer to digits in a distributed database created out of thin air, I'm not so sure you actually do.)
Ugh, you know, I think what I hate most about the market fundies is that their perception of what interest rates would be is absolutely untethered from any semblance of empirical reality. Like, sure, it would be fucking nice if the long-run equilibrium rate were anywhere near where they think it would be, but believing r* is close to what it was back in the 70s is a bit like believing you can will the economy into having higher productivity growth through the magic power of wishful thinking. But nooo, it's definitely not having enough free market that's the problem, we should just finish what Reagan started, certainly the union busting had no contributions to the declining labour share at all.
It would be funny if it wasn't fucking terrifying.
That created money is lent to borrowers, who in aggregate benefit from it more than the interest costs. The banks don't get to just spend the deposits.
Lending out money at the rate of inflation is 0 profit after inflation.
All the fiat currency units in existence are a loan to a bank somewhere. That is over a hundred trillion dollars for the US alone. If you're receiving 2% of $100,000,000,000,000 each year, for money you printed out of thin air, you're not going to worry about the effects of CPI on your monthly budget.
The banks are not just in the business of lending out money. They also take deposits and pay interest on those deposits. It's a fraction of what they make on loan interest payments, but it's still a significant expense.
Borrowers can go bankrupt and default on debt. That's also effectively a huge expense.
Banks are competing to offer the best interest rates to their customers. If a bank could still make a lot of money while offering a lower interest rate than their competitors, they would.
> The more money the banks print
The only way they can print more money, is to issue more debt. But issuing debt is an expense for a bank. Either you do due diligence, which takes a lot of work. Or you accept the risk of issuing risky loans that may be defaulted on, which again, will be an expense. And then there's a mountain of regulations on top of that to try to prevent the banks from taking the second option, which also takes work.
It's not the free money machine you make it out to be. (Edit: Not that I'm saying it's not at all lucrative. But it's a risky and difficult high-skill job, which is extremely important to every aspect of society so that in itself isn't remotely surprising)
> they printed them out of thin air as loans and have to destroy them when the loans are repaid, but total debt only increases every year...
Sure.. that's how the economy has worked since the dawn of time.
Money is just an abstraction over credit in general, and credit is always how most of the economy has worked, even before money was invented.
You need a barn built? You ask your neighbors to help you build it, and promise them some grains or something in return. Boom. Credit (i.e. money) created from thin air. And the more the economy grows, the more this kind of debt is created.
Some of the earliest texts we've discovered was records of this kind of debt. That's exactly what paper (and digital) money is.. a record of debt distilled to its purest essence and made easily tradable.
The difference now is that instead of credit being created through these informal arrangements, you go to the bank, which does the work of ensuring that you're good for the debt. You get some numbers in an account which then lets you go to the neighbors and pay them to help. Whether you repay them by doing work for them directly, or work for someone else in the community, doesn't matter anymore. Which makes the whole system much more efficient.
> You need a barn built? You ask your neighbors to help you build it, and promise them some grains or something in return. Boom. Credit (i.e. money) created from thin air. And the more the economy grows, the more this kind of debt is created.
You're missing the bigger picture. The difference is that banks are handing out unlimited credit notes for something they don't have, and are charging interest on them.
it's not unlimited. There's a regulated amount for which they're not allowed to go over (reserve requirement - which has since 2020 been set to zero), and they are required to have enough equity/capital (called capital requirements outlined here: https://docs.google.com/viewerng/viewer?url=https://www.fede... )
If it is indeed true that a bank could just print unlimited loan notes, then why did Silicon Valley Bank collapse? Wouldn't it be possible to just print themselves out of their troubles?
You're missing the bigger picture too. Silicon Valley Bank didn't collapse - it was bailed out with unlimited money from the bigger banks.
The only limitation the banking system faces is excuses to loan money (one of the reason long-standing wars that last for years are increasingly common - the banking system gets to fund both sides)
There's no such thing as equity ownership anymore. The banking system has seen to that by slowly changing the legislation in every country around the world.
I see it as a wealth tax and I agree, 2% is roughly long term stable maximum returns that leaves enough on the table for the middle class to prosper. I think at 3.5% or whatever they want to up the target to be will not be long term stable. It’ll work for a little while as GDP increases with increased inequality but civil unrest will from said inequality will reduce efficiency as more will need to be spent on security.
Inflation is absolutely not a wealth tax. You should spend some more time understanding the impact of inflation and I suspect you will come to the opposite conclusion and that it is a tax on the poor.
I agree that inflation hurts the poor which is the mechanism that exasperates the wealth inequality. But inflation coupled with capital gains tax becomes a wealth tax.
You have capital gains tax on it eventually, much of that capital gains is from inflation. The only way for it not to be a wealth tax is if capital gains is indexed to inflation.
Capital gains tax is just a % of your gains. So assuming the appreciation of your asset is due entirely to inflation, capital gains tax will be strictly less than the depreciation of the same amount of cash.
If it's a wealth tax, it is giving the best deal to the people with the most non-cash assets, i.e. the wealthy.
The asset has a nominal increase in value but not a real increase. After paying the capital gains tax you end up with less than what you had. In real terms your wealth has diminished. I think people are conflating a speculative asset bubble with inflation on the basis that they tend to occur at the same time and for the same reasons - easy monetary policy. But it does not necessarily follow that if you have inflation you also have a speculative asset bubble.
If we are talking about say a house, i think the poorer person who rents (and has rent increase with inflation) would be much more negatively affected over time, notwithstanding the extra capital gains tax the person who owns the house would have to pay upon sale.
I agree that it would increase inequality not decrease it like people would assume a wealth tax (inflation + capital gains tax) would do. The problem I see with the government having their revenue tied to wealth tax becomes incentivized to do things that will make the wealthy wealthier, like maintain a higher rate of inflation.
However, fixed inflation targets (with central bank using interest rates to control) are generally not that beneficial for that purpose, as the inflation is known ahead of time and would be priced in.
Inflating away your debt only works if you can increase the inflation to be more than what the person you borrowed from thought it would be.
Erm... no. That's how people imagine it's supposed to work, but in reality, the wealthy fund their consumption from loans using their wealth as collateral, enjoying the benefit of their wealth while avoiding capital gains taxes. Warren Buffet has famously criticized this, it's not some unheard of thing. There are many, many loopholes and they are very much there on purpose.
Certainly, I'm talking about the middle class that are not afforded such opportunities. The rich can not only often dodge such taxes but can benefit more easily from government largess.
some people are the people in question here. This discussion started as a conversation about a wealth tax and “capital gains” is mentioned. The wealthy largely do not pay a proportionate amount of this tax. Additionally, you will see “massive amounts” of anything in an economy as large as the united states. Capital gains tax is not a very big percentage of US taxes collected, and the taxes that are collected are mostly shouldered by people who are not wealthy. So, in the context of this discussion, I’m not sure what your point is. some people pay capital gains tax. My point wasn’t that no one does.
Capital gains tax is one of the more disgusting taxes. Most capital gains are simply due to the devaluation of the unit of account. The banks and government work hand-in-hand. The more money the banks print (as interest-chargeable loans), the more the government makes you pay in capital gains taxes. A win-win situation for them.
One way the wealthy get around this is by taking on debt against their hard assets - generally real estate.
As the price of their assets go up, they take out larger and larger loans, each time paying off the old loan and pocketing the difference tax free. The money is devalued faster than the interest rate, so even after paying interest, they are left with free money (our money), tax-free.
CPI is a useless metric. It doesn't take into that goods and services are going down in value over time (at around 5% per year), and doesn't include hard assets that retain their value such as housing. It's a trick.
> Also, capital gains are unearned.
On average, capital gains aren't gains at all. They are simply the price of your asset going up, not its value. Housing is a perfect example - it increases in price at the same rate at which the dollar is devalued through supply increase.
Inflation is like the opposite of a wealth tax - it affects poor people much more then rich people (since rich people have more of their wealth in owning assets which are less affected by inflation).
Many people take inflation as an immutable law of nature, but that has not always been so. Food for example, for a long time, became cheaper. Computers and technology as well. Think how nuts it would be if you could get a better house for less money every few years.
food became cheaper because it became cheaper to produce. Inflation is a very natural consequence of the fact that If I have money now, I can also very easily have that same money later, but the same cannot be said of having money later. Strategically, having money now dominates having money later, so money now is worth more than money later. How much? Who can say, but some.
> food became cheaper because it became cheaper to produce.
Which was caused by technological progress which is the key source of deflation (being able to buy more with the same amount of money). It is deflation is happening regularly:
> But Inflation is not inevitable. There are numerous countervailing forces that have been at work for much of the past 50 years. The three big Deflation drivers: 1) Technology, which creates massive economies of scale, especially in digital products (e.g., Software); 2) Robotics/Automation, which efficiently create more physical goods at lower prices; and 3) Globalization and Labor Arbitrage, which sends work to lower cost regions, making goods and services less expensive.
> Put into this context, Inflation is periodic, driven by specific events; Deflation is consistent, the background state of the modern economy. To fully understand this requires grasping how scarcity and abundance act as the drivers of the price of labor and goods. My suspicion is many economists who came of age during earlier eras of inflation fail to discern how the world has changed since.
This 1991 Radio Shack add illustrates the point quite well IMHO:
There are 15 electronic gimzo type items on this page, being sold from America’s Technology Store. 13 of the 15 you now always have in your pocket.
So here’s the list of what I’ve replaced with my iPhone.
* All weather personal stereo, [US]$11.88. I now use my iPhone with an Otter Box.
* AM/FM clock radio, $13.88. iPhone.
* In-Ear Stereo Phones, $7.88. Came with iPhone.
* Microthin calculator, $4.88. Swipe up on iPhone.
* Tandy 1000 TL/3, $1599. I actually owned a Tandy 1000, and I used it for games and word processing. I now do most of both of those things on my phone.
* VHS Camcorder, $799. iPhone.
* Mobile Cellular Telephone, $199. Obvs.
* Mobile CB, $49.95. Ad says “You’ll never drive ‘alone’ again!” iPhone.
* 20-Memory Speed-Dial phone, $29.95.
* Deluxe Portable CD Player, $159.95. 80 minutes of music, or 80 hours of music? iPhone.
* 10-Channel Desktop Scanner, $99.55. I still have a scanner, but I have a scanner app, too. iPhone.
* Easiest-to-Use Phone Answerer, $49.95. iPhone voicemail.
* Handheld Cassette Tape Recorder, $29.95. I use the Voice Memo app almost daily.
* BONUS REPLACEMENT: It’s not an item for sale, but at the bottom of the ad, you’re instructed to ‘check your phone book for the Radio Shack Store nearest you.’ Do you even know how to use a phone book?
You’d have spent [US]$3,054.82 in 1991 to buy all the stuff in this ad that you can now do with your phone.
This is an interesting point. I wonder if a source of inflation you are not taking into account is population growth. If inflation happens when you have the same money chasing fewer goods, it stands to me that given the same money, and the same amount of goods, but more people chasing those limited goods, that you'd have an inflationary effect.
That being said, the person should also be generating more goods if they are a productive member of society which should cancel out their new demand on the base of goods.
This makes me wonder, are we adding many more people who are not making as much stuff as they are consuming? Or potentially is the huge increase in size of organizations causing each individual to be much less productive? I've never heard anyone discuss this side of the equation.
This is a (possibly) intentional (not by you) abuse of language in order to to rip people off.
Inflation/deflation is decrease/increase in the value of money, separate from technological progress or supply and demand of real products.
It's impossible to measure this directly, so dishonest people pushed to simply measure price increases/decreased, ignoring technologocal progress, so that powerful interests good steal from the public good.
> Inflation/deflation is decrease/increase in the value of money, separate from technological progress or supply and demand of real products.
If $1 gets you X capabilities, but the same $1 gets you X-1 capabilities later, is that not inflation? The same $1 gets you less. Whereas getting X+1 for $1 is deflation: the $1 gets you more.
The capability is how many calories you can get (Food), how much space you have to live (Shelter), how far you can go (Transportation: $y gets you z litres).
In the Radio Shack example, $1600 got me some capabilities in 1991, and some other capabilities in 2024: am I getting more, or fewer, capabilities? Further, how many hours would I have had to work in 1991 (e.g., minimum wage) to make that $1600 versus the hours I have to work in 2024?
I'm not sure it's a meaningful question... for $1600 I can get an iPhone which is more capable than anything you could buy for any price in 1991. Is the argument that this means there's been deflation? To me its a category difference and you can't compare because prices aren't set entirely by capability conferred but also by cost of production and demand.
This is not the same effect. You'd still rather have money prior to the industrial revolution than the same amount of money after. The money itself is worth more earlier. The phenomenon I described is mathematical fact.
Inflation/deflation is not the same as a specific product flucuating in price.
Yes, there have been times in the past where inflation rate was much different (in either direction), but computers getting cheaper is not an example of that.
You’d think that housing would be the priority, all this other shit getting cheaper while basic necessities turn into investments.
I wonder if someone from 1950 or so would believe an average person from the future that told them almost all the work they do at a ridiculous productivity level would go to a house to live in.
Think of all the wasted opportunity of most people not being able to spend their work on other things besides basic necessities.
(I have a Canadian bias, up here we can see the world in a decade already)
> Food for example, for a long time, became cheaper
Which certainly wasn't great if you were a farmer with a mortgage back in the 1800s and 1900s (it was grender if you were a lender, rentier or a British aristocrat). Governments back then kept increasing money supply at slower (sometimes by a lot) rate than the GDP was growing. That didn't really work that well (basically the economy was stuck in a permanent boom and bust cycle with pretty severe depressions by modern standards).
> It's essentially a stealth transfer of wealth from the people to the banks and it's been going on for decades/centuries (before fiat, it used to take the form of coin shaving, impure metals etc).
I wish I could upvote this more. If enough people understood that this is the root problem, we might have a chance of actually fixing it.
1. This isn't as much of a problem as it's made out to be. It's the same problem we have with the uneven distribution of wealth and poor competition in the economy in general. If the banks are all publicly traded and the shares evenly distributed, the wealth will just go back to the general population. If you have a healthy banking market with several competitors the banks will compete to the point where none of them can extract too much profit. Same as how you end up with companies extracting wealth in any market where they get too much of a monopoly.
2. Nobody has even proposed a solution that is remotely capable of improving on the system we have. Because most proposed solutions are formulated by people who haven't bothered to truly understand how the system of money/banking we have today actually works.
> If the banks are all publicly traded and the shares evenly distributed
Which of course they're not. Nor will they ever be. Even if you forced things to be this way on some particular day, they wouldn't stay that way, because people have different needs, different expectations, and different judgments about the best ways to use their money. And in a free market, they will act differently because of those differences, and quickly trade away from any "even distribution" of anything.
> If you have a healthy banking market with several competitors the banks will compete to the point where none of them can extract too much profit.
I agree that banking should be a competitive free market (as I think every good and service should be).
> you end up with companies extracting wealth in any market where they get too much of a monopoly
If "monopoly" means "ability to buy favors from the government to avoid free market competition", then I agree with this. But such a "monopoly" in no way requires there to be a lack of competition in an industry. There is plenty of competition in banking. It just all takes place against a backdrop of monetary manipulation by the government.
The fix is already here, it's just a matter of time while we wait for the world to understand what it is.
"I don't believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can't take them violently out of the hands of government, all we can do is by some sly roundabout way introduce something they can't stop"
F.A. Hayek
Having enjoyed your other comments in this thread, I'm curious how Bitcoin fixes this issue. Because it can't be created out of thin air? Or is there something else I'm missing?
Crypto currencies are an experiment in the "denationalization of money" which was a book written by Hayek - of course he wrote this before cyrpto currencies were even a thing.
I would avoid just picking out BTC (which being stable in supply is prone to hoarding as digital gold and not really used as a means of commerce) and look at what other crypto has to offer as well, such as Ethereum which has a dynamic supply limit that is tied to its usage - in times of high usage such as today, it actually becomes deflationary. As usage slows, it becomes inflationary again which in theory should promote network usage.
We are essentially in an ongoing experiment of the denationalization of money and I personally think it will be fascinating how it will play out in the next couple decades.
Proof of work was the first of the consensus algorithms to be used with blockchains because Satoshi (imo, probably Hal Finney) likely didn't know about Proof of Stake at the time. By the time it was being discussed, Satoshi was already becoming less active in the community.
The claim PoS is not the best store of value is asinine. PoW in BTC has consolidated around a cabal of a handful of miners and the power usage is of course a well-known sounding bell for PoW apologists everywhere.
The truth is PoW was the best they had at the dawn of blockchain, then technology improved. It's really this simple and I'm baffled when people get religious about consensus algorithms. It's as if people would say we need to keep using bubblesort instead of quicksort because bubblesort was discovered first.
Proof of stake is not really any different to the fiat system it's trying to replace.
If a money isn't proof-of-work then it implies that some people can create it without doing work.
Gold's proof-of-work stood it in good stead for thousands of years. It was only some of it's physical limitations that led to fiat beating it. In fact fiat would be worthless if it wasn't boot-strapped into having value by originally representing gold's proof-of-work. Now we have digital proof of work in bitcoin. It doesn't have the physical limitations of gold, and fiat is going to hyperinflate to 0 once again - but this time it will stay there.
"Proof of stake is not really any different to the fiat system it's trying to replace." Please elaborate.
"If a money isn't proof-of-work then it implies that some people can create it without doing work" Have you seen how much work goes into being a validator? There is definitely work being done - just much more sophisticated that guessing a random value...
Agreed on crypto not having the physical limitations and on the trend of fiat to inflate. I just can't agree on the other points.
Sometimes it just happens to bleed over into the price of sneakers and steaks and that’s when people get angry
But when money is printed out of thin air, the first refuge it seeks is in housing. And housing inflation has beaten all other inflation by a mile and a half
Gold is not a good stable measure of value. In fact there are very few or no good stable measures of value. Something like bread might be, at least in places with stable food supply chains.
If we operated on a deflationary currency, the value of your labour would be tied to cost of goods, and your salary would decrease each year, while the rich continued to accumulate more of the proportion of cash. Working people would still have to spend most of their income on survival, while the rich would be free to sit on piles of deflationary currency and become even richer.
In an inflationary currency, the rich invest in assets that aren't affected by inflation. Inflation is not the problem in this scenario. Hoarding wealth is. This would be increased with a deflationary currency.
I think this is just propaganda that you've accepted. You think it's bad if things get cheaper? And you think people would just sit there while their employer decreases their wages every year? Not going to happen. Also, we already get wage decreases each year because of inflation. If you don't get a significant raise every single year you're losing purchasing power. And even then, you have to wait a whole year. The fact that people don't realize this is already happening is part of the scam.
> I think this is just propaganda that you've accepted.
It's just logical inference. Your point of view shallowly considers everyone as consumers without thinking about the fact that if "things get cheaper", that means that labour has also gotten cheaper. You assert that people won't "sit there" while employers reduce their wages, but that's exactly what would HAVE to happen in this system. Otherwise the company would go under because their product or service gets cheaper each year, but labour stays the same or increases in cost. Especially under capitalism which demands constant growth.
It simply would not make sense to pay someone the same price for a bushel of wheat when the cost of bread has reduced to a fraction of its original price. I don't know why you say that it is propaganda to acknowledge this extremely simple logical inference.
In a healthy economy, deflation (i.e. falling prices) is a good thing. Things get cheaper over time - it's the utopia we should be living in now.
We've made massive increases in production efficiency across the board over the years, but the banks and government have creamed off all those efficiency gains for themselves, by printing money, creating the illusion that everything is instead going up in value, and have made themselves mind-blowingly powerful.
As the world economies are so broken, if the money supply went down instead of up (i.e. deflationary supply), the real value of the already enormous debts would increase even if the nominal value didn't, causing the economies to collapse suddenly. By keeping the money supply increasing, the economies are collapsing slowly instead, ultimately ending in hyperinflation.
If the real costs is decreasing that's usually good, a decrease in nominal prices not so much. Why would you invest into increasing productivity etc. if you know that you revenue will only go down Longterm? Generally we'd want to quality to increase while prices stay more or less the same to encourage innovation.
> We've made massive increases in production efficiency
Likely much if not most of that wouldn't have happened if monetary supply was constrained and there would have been a lot less investment.
> the real value of the already enormous debts would increase even if the nominal value didn't
Why would you even want that to happen? I mean that was a pretty common situation in the 19th century and generally and it was pretty horrible. Imagine if you were a farmer who had a mortgage and the price of the goods you were selling kept going down every year... OTH other hand you could just buy government bonds and spend your days not doing anything useful (e.g. if you were an English aristocrat on a fixed income).
> By keeping the money supply increasing, the economies are collapsing slowly instead
Except they are not collapsing. What we have now is generally a huge improvement over the permanent boom and bust cycles that kept happening until the 1930s in large part because the money supply was constrained and increased at a slower pace than the economy was growing.
Deflation is not a healthy system under capitalism, where people must work to survive. In the ideal scenario the value of work would approach zero due to a reduction of money in circulation. Work done yesterday would always be worth more than work done today and generational wealth would eventually become necessary to not be locked in servitude to the wealthy.
How can the value of work ever approach zero? Human work is value.
The value of anything simply derives from the quantity and quality (demand/supply) of the human work that goes into producing it.
In the current inflationary system, people are working for something that the banking system produces for almost nothing i.e. in the eyes of the banks/government, they are working for almost free.
> How can the value of work ever approach zero? Human work is value.
It would never reach zero, it would keep approaching zero though (relative to the amount of money of people who earnt it before you).
Basically, someone could just hoard the cash they have at 0% risk and still get richer than you over time even if you manage to save 100% of your salary. How is that a reasonable system that encourages growth in productivity?
Of course we have bonds but when real interest rates are close to zero than doesn't work that well like in a deflationary system e.g. throughout much of the 1800s yields were 4-5% and deflation was basically the standard outside of major wars since the economy was growing faster than the supply of money was, so basically you could just not do anything productive with your wealth and still do fine, that's basically how British aristocrats from all the novels (and similar parasitical classes) sustained their lifestyles while not providing anything useful in return to the working classes whose taxes and severely depressed incomes made this whole thing possible).
This isn't true historically. In ancient times, a day's labor was the unit of currency. A "talent" in the Bible, for example, is a unit of metal representative of a day's wages.
> The more money the banks print, the richer they get, with the side-effect that prices rise (they make the monetary units less scarce and worth less).
Meanwhile Japan has been increasing money supply for decades, and yet during that time they've had low and even negative rates of inflation:
> But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy.
Japan is well known to be near-unique among world economies.
It's commonly said "There are four kinds of countries: developed countries, developing countries, Japan, and Argentina".
To point at some individual thing that happened a certain way in Japan and then try to justify some broad economic policy elsewhere in the world based on that won't work. Absent the other factors that make Japan's economy unique, the lessons there do not apply elsewhere.
People don't 'run the printers' for funsies: there are usually extraneous reasons why it happens (including a good portion of what the US (and most other countries) recently experienced).
> Now think about that – did 6 different governments [including Weimar Germany], all within a 4 year time period [in the 1920s], and all bordering each other and/or in the same post WWI region and intellectual/political climate (with the seeds of the some of the farthest right and farthest left regimes in all of history within them that would lead to WWII just ~18 years later)—
> Did all of a sudden this little world region and precise time period and intellectual milieu decide to just start spending like crazy? At the same time? While the rest of the world did not?
> Or did they share the same underlying, and preceding, set of problems discussed above?
If you mean "physically print" money, you're technically right. In some countries.
But I think in this discussion, most of us are thinking about "virtually printing" money. That is, creating numbers in your bank account.
Again, you're technically right in that the government is the one steering this process. But the practical matter of actually "printing" the money is handled by the banks. It's their decision when and where to "print" money, as long as they have enough reserves at the end of the day.
Well pretty much everything is regulated by the government but banks still create money.
As for reserves, have you, or anyone you know with a good credit record, ever applied for a loan and gotten told, "We would like to lend you money, but we are all out of money to lend due to reserve requirements. Can you check back in next week?"
That doesn't happen. The bank creates the money and deals with reserve requirements later.
That is such a bizarre statement I have a hard time believing you actually mean it. I think you would be hard pressed to find any/many 'working class' people who enjoy watching the cost of goods and services go up faster than their salaries.
The rich benefit from inflation - especially if they have lots of assets like real estate that have increased dramatically in value.
If you are rich and own multiple houses or other expensive assets, they appreciate even faster during times of high inflation…compare that to a young working class couple hoping to someday buy their first house which continually gets farther out of reach…which ones are most hurt by inflation?
This sentiment stems from not being able to distinguish types of inflation.
In the current environment, cost inflation is not a problem anymore. The reason why the FEDs might not lower the interest rate, is because of salary inflation.
So right now you are at advantage working. Houses are flatlining in value due to increased interest rates and you can negotiate better pays with your employer.
Also, please avoid straw men like first time buyers etc. These are not really fitting for the debate and only add load the debate emotionally.
But to take you on your argument: The situation for young working class couples has generally not changed for decades.
(I am Danish, so statistics I know and use are mostly centered around macro dynamics of Denmark, though this is irrelevant for the broader discussion, as the ECB also seeks 2% inflation target)
>>In the current environment, cost inflation is not a problem anymore.
Everyone person who lives paycheck to paycheck, and is barely keeping their head above water as the cost of everything continues to skyrocket disagrees with you.
Good luck telling them that "cost inflation is not a problem anymore".
I can't speak to how things are in Denmark, but without a doubt the situation for young people (especially those looking to rent or buy a house ) HAS changed dramatically for the worse in the USA.
The US is not famous for their redistribution politics especially not the past 30 years.
In Denmark we have numerous policies in place, that ensures that housing stays as housing and does not become a speculative asset - this is good if you want to buy a house the popular places.
Also, remember this is macro dynamics. Yes, houses are more expensive in the bay area. But I bet that housing has comparatively gone down in value in less popular areas.
>>But I bet that housing has comparatively gone down in value in less popular areas.
You would lose that bet.
Other than a few places where the town/city as literally being abandoned (i.e. towns in the middle of nowhere were the last factory has shut down) - home process have gone up everywhere in the last 3-4 years, and pretty dramatically so.
Hasn’t the percentage an average person spends on housing significantly increased in the past 50 (or 20) years?
Additionally I can’t follow your second thought: are you saying that the inflation rate is directly correlated with the rate of the value of innovation dispersement? E.g. a high inflation should eventually lead to a high dispersion of innovations/a more innovative culture?
the idea with the second statement is: the cost of bringing innovation to a market where inflation is higher makes it easier to pay back to cost of the innovation. ie. you pay your salaries at index 100 and get to sell them at a higher index.
2-3% just happens to be the most they can get away with in the long term without the population getting concerned.
What the general population don't realise is that the value of goods and services are going down over time, due to efficiency increases, at a rate of around 5% / year. The banks can print enough money to soak that up unnoticed, and then an extra 2% just because they can. It's essentially a stealth transfer of wealth from the people to the banks and it's been going on for decades/centuries (before fiat, it used to take the form of coin shaving, impure metals etc).
You really see the effect when you look at house prices. They are roughly the same price in gold as they were in the 1970s. Rather than housing going up in value since then, it has been the monetary units going down in value, due to the supply roughly doubling every decade (look up M2 USD).
You can understand the incentive to print money when you realise that every year the banks are collecting interest on every dollar/euro/pound etc. in existence. And the banks don't really own any of them - they printed them out of thin air as loans and have to destroy them when the loans are repaid, but total debt only increases every year...