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Chuck Dahmer's profile photoClif Sipe's profile photoFjord Lynn's profile photoMorgan Laco's profile photo
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Hilarious

Bernanke: "one of the myths that's out there is that we're just printing money"

also Bernanke: "it's akin to printing money"
 
Now if we can just move him up to understand the inflationary cycle.

My challenger in the Somalia discussion today was quoting to a media article which discussed the inflation in Somalia. Her contention was that it was because the Somalian shilling was becoming worthless. Yet the exchange rates quoted within the article clearly showed that the shilling had appreciated by 50% agains the dollar, in just four months.

The price increases of goods was because of so many U.S. dollars being dumped into Somalia via aid programs. The more they can demand the use of the dollar (when every other nation is dumping theirs), the more dollars will be available to buy American goods and destroy their native economy which not long ago was thriving.

Of course, here again was a case of when someone couldn't refute my points or support their argument with reason, they deflect into "you can believe whatever you want (cause I'm right)."

I steered her to Rothbard's A History of Money and Banking ... but I'm sure since it didn't come from Wikipedia, she would rule it invalid. However, the book is painfully footnoted.

Gotta quit for awhile.
 
Bernanke is actually correct in that the "money as debt" model has a natural dampening effect that simple printing of money does not. Weimar or Zimbabwe style high inflation was a result of new money being created into a fixed pool of value. This leads to a direct devaluation of currency. When money is created as debt, the net amount of value change is zero because there is an expectation of repayment. The trouble comes in when debt becomes rolling and systemic. Then the additional currency has time to settle into the value pool, debasing the currency overall.

Just as a short aside without going to far into it, money is an extremely complicated topic because money is not what it is. Money is not a dollar bill, but instead representative of what a dollar bill might get you in the future. This complication makes it so that simple analysis of a situation typically will fall short of capturing the detail needed for effective decision making.
 
+Fjord Lynn I had mistakenly posted this in a wrong thread after being frustrated by a browser anomaly and losing my first post. So this is as far as I got. I have much more to add but it must wait to later.

Re: When money is created as debt, the net amount of value change is zero because there is an expectation of repayment.

I disagree. Expectation of repayment doesn't erase the increase in money supply. Only actual repayment removes it (deflates the money supply).

Re: The trouble comes in when debt becomes rolling and systemic.

Agreed; kicking the can down the road.

Re: Then the additional currency has time to settle into the value pool, debasing the currency overall.

While that's true, it doesn't address the problems created by massive credit injections into certain sectors, e.g., housing. This credit is still inflation of the circulating currency even though its effects on prices are localized in that sector till eventually they, as you note, settle into the value pool.

Re: money is an extremely complicated topic

True, but needlessly so. Complications are the result of government's interference in it.

I hope to return to the topic later, but can't guarantee that.
 
> Expectation of repayment doesn't erase the increase in money supply. Only actual repayment removes it (deflates the money supply).

True, but Stewart isn't talking about monetary inflation, he's talking about price inflation. If an increase in the money supply starts to lead to price inflation by either higher velocity or weakened value, there is an effect where debt destruction goes higher because their debt has become relatively cheaper. This is the dampening effect of money as debt versus just straight issuing, because when money is just issued, the weakened value persists as there is never any motivation to practice monetary deflation. Another dampening effect is that money-as-debt theoretically represents value because the debt is typically created in order to create capital (maybe it's a loan to construct a building or open a mine). A central authority issuing currency is just diluting value.

> it doesn't address the problems created by massive credit injections into certain sectors

Yeah, I wasn't addressing that at all. I was merely defending Bernake's statement that what they do is not the same as a Weimar or Zimbabwe style printing of dollars. Even QE isn't the same because it wasn't the Fed that made the debt rolling, but the Federal Government with their long standing national debt. If anything like hyperinflation were to start occurring, then people all over would seek to unwind the $57 Trillion in total US debt (federal, state, municipal, corporate, and individual) as the dollars became cheaper.

What you are talking about here (manipulation of the credit market) is really the major problem of the Fed, but it is what gets looked over every time (including in this segment) because it is consistently pushed by the government, media, and education that this mechanism is what prevents the boom-bust cycle of the 1800s and that there would be chaos in the streets if we didn't allow it. We could probably talk at length about this, but I have a feeling we agree on these points anyway.
 
+Fjord Lynn Re: there is never any motivation to practice monetary deflation.

A few points about that:

1) Deflation (of money supply) requires no action. It occurs naturally as productivity increases while the quantity of money and credit remains the same. The currency is worth more.

2) Deflation decreases (all) prices, more than they would have if the money and credit supply grew with higher productivity. Government uses smoke and mirrors to subvert this idea. By claiming that rising prices in areas, such as (currently) the stock market, favored with high credit injections are the results of recovery, the public is convinced that inflation is good.

3) Debt is not treated kindly by deflation. This is a good thing because it should encourage savings while discouraging indebtedness. Since loans would be repaid with money that was worth more, banks would gain and the debtor would lose.

4) Fractional reserve banking profits obscenely from the debt of others. Since for every dollar they loan, they only have 10¢ real money invested. They are not motivated to make careful investments by way of loans.

5) And finally, since credit is still promoted as a lifestyle, most of the public has no interest in sound money, savings, or any thing that would require them to discipline themselves. They will likely remain debt slaves as long as they have a ready supply of scapegoats on which to blame their ever-depreciating lifestyles.
 
1) If the quantity of money stays the same, it's not monetary deflation. The quantity of money needs to reduce for there to be monetary deflation. Note that this is not the same as price deflation.

2) Monetary deflation does not necessarily decrease prices in a money-as-debt economy if the deflation occurs through debt destruction.

3) Debt is not treated kindly by price deflation, because it makes the relative cost of debt higher. However, I was just talking about monetary deflation and the fact that the Zimbabwe government would never willingly remove dollars from circulation while people who have money-as-debt do have a motivation to practice debt destruction. Again, as in point 2, if the monetary deflation is due to debt destruction, this won't have significant impact on prices.

4) Agreed.

5) Agreed and then some.
 
+Fjord Lynn Damn! This is twice in three days that G+ or Chrome has wiped out my entire comment before I had a chance to finish it. After I finish my outdoor work, I'd like to continue this but then I'll craft my comments in Evernote before copying and pasting. I should have known better. :-|
 
You two seem to be talking about different types of inflation and deflation. You should define before you go any further.
 
+Clif Sipe I suspect this as well. This is why I prefix inflation with either monetary or price to be clear on which I'm talking about. The terms monetary inflation and price inflation (commonly referred to as just inflation) have pretty standard definitions, though.
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