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Are you going to tell me that if the amount of money in the US economy were to double overnight, that prices wouldn't rise??
You guys are mixing economic principles, specifically the principle of supply and demand with the principle of the value of money. The value of an item based on supply and demand does not change over time unless either the supply or demand changes. If the relative supply and demand remains constant, the value of the object will remain constant with respect to other objects. This is true even if it requires more dollars to purchase the item. If a apple and an orange both cost a dollar and their demands and supply are constant, then a year later at a 4% inflation rate, both would cost $1.04.
The amount of money in an economy is a contributing factor in inflation. It is not the sole factor, but it does factor in.
As for flooding a market with money not working .. England did it to the Continental dollar. Their counterfeit dollars and other factors resulted in the dollar being worthless. India is currently having issues with it's economy due to counterfeiting of their currency. The Nazi plot was foiled because the bank of England found out about it beforehand and manger to counter it.
I think a big point is where that new money resides. and as Erik shows the new Fed money, not being out in the general circulation, has not ignited onerous inflation.
Money comes from your willingness to work for that money. The fact that you will work for the money gives the money its value. Everything else is secondary. It doesn't matter how much money is printed, nothing really matters for as long as those pieces of papers can be used to extract your labor. Gold has no intrinsic value either, it's valuable because it can be used to make you jump just like paper money makes you jump. The exact history of how paper money (or gold) become valuable is irrelevant for as long as paper money can be used to make you jump. Equally, the history of paper money will be irrelevant at the point it can no longer be used to entice you to do (unpleasant) labor .
This is a very interesting post that has a unique perspective that was at the back of my mind but I had not seen it articulated like this and it seems true. You can hold money up and make people do mostly anything you'd like.
Are you going to tell me that if the amount of money in the US economy were to double overnight, that prices wouldn't rise??
No, at least not proportionally. That would be a single variable.
Usually currency inflation requires a full-employment scenario to become inflationary. In a full employment (~4%) scenario, adding additional cash in circulation will just artificially increase the demand for goods and services, which would cause inflation. It isn't quite as simple as double the money supply jack up the price. If an economy is not at full peak, there is still demand that needs to be filled first.
Currently, deflation is far more of a concern than inflation. We have an entire generation of people retiring soon, so the demand for many services will drop (thus, the prices).
Inflation typically is caused by energy and home prices I've found. Those are the most pressing needs of society. During an economic boom, more energy and living quarters are needed (inflation!). During a demographic decline, the opposite will be true. Interest rates and inflation will be at / near historical lows for the next 10 years or so.
For example, gas prices are based on global demand. The U.S. has very little to do with domestic gas prices. The increase of the past 7 or so years have been caused by globalization, particularly China and India putting a lot more cars on the road. Oil prices increase the prices of everything else in our economy, so they drive inflation. Money printing has virtually nothing to do with it.
Except for the coins we use, all money is loaned into existence.
Coins are the only true currency of the USA and just about every country. All paper is fake. You won't see anyone maring the face of a coin, nor will you see anyone trying to mint their own Sacajaewa or Susan B Anthony coins. Coins from the US mints are sold at face value to banks.
This may be simple minded. But money has always been predicated on future value. The use of gold backing came simply from the confidence that people would take gold for anything. National governments didn't have a track record. Nowadays, hard currencies have HUGE track records. People dump currencies for gold only because what else could they dump it for? Barrels of oil? And it is not common for people to actually buy the gold bullion. More likely they buy certificates representing gold. And even that is probably electronic, not paper. So gold is really an emotional investment, not rational because nobody makes gold artifacts anymore to show how wealthy they are. Gold is close to useless. Buying currency is like buying a share of a stable government. That's sounder than gold.
Who here believes Nixon's decision to remove us from the gold standard was a good move for this country? Why?
I do. Gold has no connection to the US economy or the government's ability to borrow and spend. Our floating currency is connected to the US economy and its ability to grow and generate revenue for the US government that will be used to provide services and service the federal debt.
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Originally Posted by Zelpha
You mentioned doctors. Doctors earn so much because they're backed and supported by corrupt pharma and gov't-supported Monsanto which keep citizens ill and dependent on "health"care. Angioplasties, anyone? And medical school costs so damn much, so doctors are implicitly deemed entitled to higher pay in part to pay off their costly educations.
I would not say that. I do think that unhealthy lifestyle increases the demand for healthcare services. I think that medical school costs so much because med students are willing to pay it in order to secure a career in medicine. I also think that the AMA and med schools have artificially limited the supply of doctors through credentialing (this is both a good and a bad thing).
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Originally Posted by Zot
Money itself comes from the mint, which is part of our Treasury. Creation of money is generally from debt. The greatest source of money creation is the Federal Reserve, which is a part of the government that denies it is part of the government and spits out about 65 billion in new money every month of late. Nixon took us off the gold standard in the early 70's due to France's constant demand that our gold back dollars be converted to gold. Nixon had an audit done at Fort Knox, and a week later took us off the gold standard. To this day I wonder if the cupboard was bare.
The Fed sets the interest rate at which the government will loan to banks. Treasury is sort of like the accounting department for the US government. Treasury issues debt to cover Congress' expenditures and pays US debt with cash brought in through revenues (taxes). If the Fed lowers interest rates, the result is basically equivalent to putting more money into circulation. Your gold conspiracy theories are unfounded. The US economy is worth an awful lot more than the gold in US vaults.
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Originally Posted by Hoonose
I think a big point is where that new money resides. and as Erik shows the new Fed money, not being out in the general circulation, has not ignited onerous inflation.
Fed money (lowered interest rates and other quantitative easing measures) does, in fact, wind up in general circulation. It has not ignited onerous inflation because a weakened economy decidedly decreased demand throughout the economy. QE and low interest rates propped up demand somewhat, but not so much as to cause inflation.
Paper bills can be printed off as the Treasury sees fit, but that doesn't mean it has any inherent value other than the fact that we say it does.
Some people are paid more, some people are paid less. Decided by those in upper eschelons.
These days money is simply a number electronically transmitted in and out of bank accounts. It's no longer solely in the form of printed bills or paychecks, and certainly there are not enough precious metals or gems in all the world to back up all of the trillions of dollars we hear about.
What is money if nothing more than an intangible point system with tremendous power that everyone works so hard for?
We are not on the gold standard.
However, I agree with the last sentence.
Fed money (lowered interest rates and other quantitative easing measures) does, in fact, wind up in general circulation. It has not ignited onerous inflation because a weakened economy decidedly decreased demand throughout the economy. QE and low interest rates propped up demand somewhat, but not so much as to cause inflation.
The bulk of QE moneys are being sat on as reserves gaining interest from the Fed:
One use of currency is to buy stuff a country has to sell. The more a country has to sell, the more desired its currency is. So the most productive countries have the stronger currencies. I'd say the "backing" is simply the size of the productive machine in a country. It, rather than a metal, backs up the currency. And the countries that have little of that have to get the currency of a productive country to make international purchases.
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