Dumb money should go to Zero - ie: inflation is necessary.

[LargoWinch]

Re: Dumb money should go to Zero - ie: inflation is necessary.

My view is that the government should create a fund whose charter is matching CPI - no more and no less. That might be a good option, because even while CPI is understated, at least it is something.

Exactly, but the government prefers the "hidden tax" of inflation over caring for the poor. These usurpers of wealth know exactly how much they print.

Until people wake up to this scam, gold is the best proxy to what you just outlined.

[LargoWinch]

Re: Dumb money should go to Zero - ie: inflation is necessary.

It's a nice dream. I think humans should be able to fly around by sheer will. Both thoughts are fairy tales.

For demonstration purposes only, imagine there are 100 people on earth, all saving away diligently but for one ignorant sot who spends every dime. What happens when the 99 people decide to retire and the 1 guy is left working?

The value of their savings is decreased appropriately as they all compete to have the 1 worker serve them food, drive them around, mow their lawns, etc. There is no way around this - whether you have saved a big pile of gold or a big pile of dollars will not make a difference.

Ask a Japanese retiree if this scenario is a possibility.

Imagine there are 100 people on earth working hard and "I" the all mighty central bank make sure to convince all workers that I will look after the "system" of Winch paper notes so to make sure that their labor is not stolen, but I simply lay on the beach all day long.

Now, after 30 years I quadruple the money supply ("taking" 3/4 of all the wealth for myself to spend on booze and cigars).

Do you think it makes a difference if the 100 people saved in "Winch Central fiat crap paper" or gold?

You bet it does, because as the central bank, I cannot print gold, but I can certainly print Winch notes. Gold skyrocket in Winch paper terms.

Ask a Zimbabwean retiree if this scenario is a possibility.

[Munger]

Re: Dumb money should go to Zero - ie: inflation is necessary.

TRIPE is too kind a description for the arguments presented here.

A$$HOLE, savings are necessary for capital formation you dipsh!t.

False. Effort and atoms are necessary for capital formation.

When you destroy savings, you destroy capital formation. What don't you get about this?

False. When you destroy savings you destroy attempts to store past human effort. You have traded your past efforts for shiny yellow metal. If I do not want to trade my effort for your shiny yellow metal your attempts have been unsuccessful. The human effort you expended years ago is as gone as that expended by Adam. "Savings" are not necessary to form new capital. Effort is necessary. Inflation encourages people to continue efforting. Bad for savers. Good for average living standards.

I can't put my capitalistic skills at play because the barrier to entry is so high that by the time I save enough money, it is no longer enough.You "solution" is exactly the damn problem. My capital is destroyed faster than I can put it away. Is that helpful for starting a new business? This is what is driving Amercia and the world into the shitter and you want more of it?!?

Inflation is supported by the idea that it is good to have people expend effort at creating goods and services. The more humans working the more goods and services produced. The more goods and services produced the higher the average standard of living. It makes some sense to not have half the population sit around living from the yellow metal they've accumulated and buried in their back yard.

DEFLATION is the only thing that restores balance to the system. It makes capital come out of hiding WHEN PEOPLE FIND VALUE. Inflation causes them to waste capital in anything and everything that will protect principle (purchasing power).

If I had traded my past efforts for shiny yellow metal I suppose I would pine for deflation as well.

[Munger]

Re: Dumb money should go to Zero - ie: inflation is necessary.

Imagine there are 100 people on earth working hard and "I" the all mighty central bank lay on the beach all day.

Now, after 30 years I quadruple the money supply ("taking" 3/4 of all the wealth for myself to spend on booze and cigars).

Do you think it makes a difference if the 100 people saved in "Winch Central fiat crap paper" or gold? You bet it does, because as the central bank, I cannot print gold, but I can certainly print Winch notes. Gold skyrocket in Winch paper terms.

Ask a Zimbabwean retiree if this scenario is a possibility.

The central bank can co-opt the savings, true. Whether the savings be in gold or fiat, however, all 100 cannot retire.

[rj1]

Re: Dumb money should go to Zero - ie: inflation is necessary.

The benefits of a correct amount of inflation can be demonstrated by noting two things:

(1) certain prices are sticky in that they are not easily negotiated down to market efficient levels. A basic example of this is wages: it is hard for employers to cut their employees' wages to market appropriate levels. If they are not worth what they have been paid in the past in real terms, however, they will not get raises - bringing their real cost to efficient levels.

(2) the money supply needs to increase at least by the amount of real GDP growth. If not the result is deflationary, by definition. The gold supply does not grow at this rate. Not growing the money supply causes the value of yesterday's labor to be worth more than the value of today's or tomorrow's labor - a completely wrongheaded approach if you seek to grow the economy and raise standards of living. The gold-backed currency advocates need to come to grips with this and understand why it is destructive.

I don't have to come to grips with anything, I have zero policy power. And everyone else on this board has zero policy power. We just observe the policy and act accordingly in our own self-interest, which is capitalism in action.

[LargoWinch]

Re: Dumb money should go to Zero - ie: inflation is necessary.

The central bank can co-opt the savings, true. Whether the savings be in gold or fiat, however, all 100 cannot retire.

2 things:

a) savings not in gold can be "co-op" by CBs (as you acknowledged above) is immoral and wrong. period. end of story.

b) if humanity cannot reproduce; all economic assumptions no longer hold, and we have a lot more to worry about than CBs stealing our wealth. However, I urge you not to base your argument on such a delusional scenario.

[blazespinnaker]

Re: Dumb money should go to Zero - ie: inflation is necessary.

I don't have to come to grips with anything, I have zero policy power. And everyone else on this board has zero policy power. We just observe the policy and act accordingly in our own self-interest, which is capitalism in action.

Exactly. So, in order to figure out what will happen we must first figure out what *must* happen.

I believe not participating in a gold standard is what must happen, and therefore based my investments on that conclusion.

[jtabeb]

Re: Dumb money should go to Zero - ie: inflation is necessary.

False. Effort and atoms are necessary for capital formation.

False. When you destroy savings you destroy attempts to store past human effort. You have traded your past efforts for shiny yellow metal. If I do not want to trade my effort for your shiny yellow metal your attempts have been unsuccessful. The human effort you expended years ago is as gone as that expended by Adam. "Savings" are not necessary to form new capital. Effort is necessary. Inflation encourages people to continue efforting. Bad for savers. Good for average living standards.

Inflation is supported by the idea that it is good to have people expend effort at creating goods and services. The more humans working the more goods and services produced. The more goods and services produced the higher the average standard of living. It makes some sense to not have half the population sit around living from the yellow metal they've accumulated and buried in their back yard.

If I had traded my past efforts for shiny yellow metal I suppose I would pine for deflation as well.

1. I know where you get effort from but don't you have to BUY atoms, if you aren't lucky enough to already possess them? Seems I would need savings to do that.

2. False, when you destroy cash savings, you punish the people who are least able to protect themselves from the ravages of inflation. Zimbabwe comes to mind. You also destroy capital when you destroy savings, don't think you can argue against that. And you are wrong about inflation being good as it forces people to efforting. That's is categorically not true. Why would I work if the real reward for doing so is totally out of proportion with the effort exerted. Also you are further incorrect when you argue that inflation encourages people to be productive, that IS FALSE, it encourages people to go into DEBT. Why work when I can buy an asset with borrowed money and watch it appreciate while sitting on MY ASS doing nothing. How exactly does that enocourage me to be productive charlie? All that it does is encourage me to be and ASSET HOARDER, and that is not very productive nor a very effective use of capital now is it. Did my standard of living go up because if I went from being able to feed my family to only being able to buy an icecream cone due to inflation? I think not. As an example, I do the same job that I do now, and the purchasing power of my pay was say $1, enough to buy an Ice cream cone, do you really think I would work for an entire year just to be able to buy one ice cream cone. (hint, I wouldn't, I would get fired from my job and go on welfare and exert no effort and still collect 1/2 of an icecream cone or go live by digging through piles of garbage like they do in argentina).Plus, Inflation destroyes the ability to use money to shift time preferences. If I want to buy a tractor for my farm next year that costs $10000 right now, I can't save for it directly because the value of the savings (going towards a captal good for productive purposes mind you) will not be sufficient to complete the transaction at the future price. So I must intermediate the cash, put it to work to hopefully be able to maintain it's productive value to the point at that future date when I need to actually buy that replacement tractor. (All good you say, right, inflation is serving it's intended purpose?) Wrong! because that intermediation could be postive OR negative. Sure if it is positive, that is good and I can buy the tractor and make a profit maybe. BUT, if it results in having FEWER dollars than required, I've harmed my production by not being able to get that bigger faster more fuel efficient tractor. So what you claim as a one-side benfit can manifest itself as a negative just as easily.



3. "It makes some sense to not have half the population sit around living from the yellow metal they've accumulated and buried in their back yard."

Ah, yes, vs just sitting around collecting interest payments or capital gains through NO EFFORT of my own, other to point and click on BUY or sell for houses, say for example. I guess that would classify as effort in some people's minds.

Also, you know what you are right, why should all those retiree's just sit around all day and play golf, let's put them to work in factories so that they can continue to be productive. We can make them do it if we destroy their retirement savings (oops! that's been done already). Hey, at least we should have a VERY productive economy with all those seniors seeking work out there. BTW, are you planning on retiring, charlie? Shouldn't we destroy your savings too so that you can continue to be a productive member of society, charlie? I mean,what's good for the goose is good for the gander, right charlie?

"Inflation is supported by the idea that it is good to have people expend effort at creating goods and services. The more humans working the more goods and services produced. The more goods and service produced the higher the average standard of living."

THAT is FALSE FALSE FALSE.

you forget to mention USEFUL or BENIFICIAL goods and services. Which is a better use of resources, making nintendo's or say being a teacher. What about say an airline pilot vs a medical researcher. WHich is more beneifical to society? What about being a corrupt CEO vs an excellent teacher? Hmm, who get's paid more. What inflation does my friend is penalize honest productive work and rewards non-benifical income exctaction. If you think that income extraction is a service, well, let's just say I'd be more than willing to provide you that service for FREE.

Also, charlie, whe has the american standard of living gone down since 1970? Please tell me that, what to encourage people to work, that's has happened, we've got all those women in the workforce now, right (don't forget elderly people who won't be able to retire). And this is the most productive time in our history and the best time in terms of quality of life right?

I don't think so and I'll tell you why. When my mom when to a PRIVATE LA college in the 1960's her father (my grandfather) who was a butcher, was able to pay for his daughet to go to school for all 4 years. Imagine that today, A butcher paying his kid's way through PRIVATE SCHOOL for all for years, just imagine that would you.

The point is as EJ and so many others have pointed out, is that in terms of the real costs, EDUCATION, HOUSING, HEALTHCARE are unaffordable to real productive working people that produce real goods and services and that the the difference has gone to the coperations that employ them.

You call this a "good thing" (real wages not NEARLY keeping pace with your lovely friend, inflation)

I call this a disaster, and one of the worst time in american history to have kids. Unless things change, which is what I hope will happen. There was persistent DEFALTION for over 100 years in the US and you know what, standars of living ROSE, we were MORE productive, and dare I say it happier as we had what we needed vs having what we wanted. Deflation is very good and making sure we buy what we need, vs inflation being good at making sure we buy everything we don't. That to me seems to be a SENSIBLE way to allocate capital, where is needed vs inflation's way of allocating it where it's NOT NEEDED.

I respectfully disagree with each and every last one of your points, but at least I wanted to give you some of the reasons why. ( I just don't have the time to respond as fully as I would like as that would require a lifetime).

Cheers,

[Munger]

Re: Dumb money should go to Zero - ie: inflation is necessary.

2 things:

a) savings not in gold can be "co-op" by CBs (as you acknowledged above) is immoral and wrong. period. end of story.

Savings in bananas can be cooped by microbes. Such is life.

b) if humanity cannot reproduce; all economic assumptions no longer hold, and we have a lot more to worry about than CBs stealing our wealth. However, I urge you not to base your argument on such a delusional scenario.

You missed perhaps my "for demonstration purposes only" disclaimer.

[Munger]

Re: Dumb money should go to Zero - ie: inflation is necessary.

1. I know where you get effort from but don't you have to BUY atoms, if you aren't lucky enough to already possess them? Seems I would need savings to do that.

I take your definition of savings to imply the idea of personal property rights. I am simply noting that capital creation does not require this - all that is required is physical stuff. The govt. may own those atoms or they may be collectively owned, yet capital may be produced.

As an example, I do the same job that I do now, and the purchasing power of my pay was say $1, enough to buy an Ice cream cone, do you really think I would work for an entire year just to be able to buy one ice cream cone. (hint, I wouldn't, I would get fired from my job and go on welfare and exert no effort and still collect 1/2 of an icecream cone).

Inflation such as in Zimbabwe is clearly counterproductive. Inflation created by irresponsible central bank policies is counterproductive as well. The money supply should be expanded to reflect real GDP growth - keeping prices generally stable. There are some compelling arguments for a small amount of additional inflation to keep wages efficient and money circulating.

Ah, yes, vs just sitting around collecting interest payments or capital gains through NO EFFORT of my own, other to point and click on BUY or sell. I guess that would classify as effort in some people's minds.

I am with you on this one - sitting around collecting interest payments or capital gains is not productive. That large amounts of unearned income is taxed so lightly borders on criminal. A progressive tax on effortless income is appropriate. I am confident we will not be seeing that any time soon.

[rj1]

Re: Dumb money should go to Zero - ie: inflation is necessary.

Exactly. So, in order to figure out what will happen we must first figure out what *must* happen.

I believe not participating in a gold standard is what must happen, and therefore based my investments on that conclusion.

Dear God man, put down the marijuana. This country WILL NEVER RETURN TO A GOLD STANDARD. It will never be allowed by the people with power.

That said, in inflationary environments, the value of gold will rise in dollar value.

[jtabeb]

Re: Dumb money should go to Zero - ie: inflation is necessary.

I take your definition of savings to imply the idea of personal property rights. I am simply noting that capital creation does not require this - all that is required is physical stuff. The govt. may own those atoms or they may be collectively owned, yet capital may be produced.

Inflation such as in Zimbabwe is clearly counterproductive. Inflation created by irresponsible central bank policies is counterproductive as well. The money supply should be expanded to reflect real GDP growth - keeping prices generally stable. There are some compelling arguments for a small amount of additional inflation to keep wages efficient and money circulating.

I am with you on this one - sitting around collecting interest payments or capital gains is not productive. That large amounts of unearned income is taxed so lightly borders on criminal. A progressive tax on effortless income is appropriate. I am confident we will not be seeing that any time soon.

CTMF, I had to edit my post because my computer hung up on me, please look at my entire response, when you have the opportunity.
Thanks

JT

[LargoWinch]

Re: Dumb money should go to Zero - ie: inflation is necessary.

Savings in bananas can be cooped by microbes. Such is life.

So what is your point? I admit gold is not perfect as money, but is the best we have in my view and unlike bananas, which can be cooped by microbes, gold is virtually undestructible an essential element of real money.

[jtabeb]

Re: Dumb money should go to Zero - ie: inflation is necessary.

If and when the SEC allows Prosper.com to reopen, we can lend to each other in the iTulip community.

Good, I'm starting an organic buffalo and ostrich farm in Oregon for meat production and a Algal BIO-Diesel production plant. The farm is cheap, the BIO-D plant is going to run about $15-20 Million for the plant equipment and acreage.

CTMF, that's where my gold is going BTW (remember that time value of money thingy I was talking about).

[Munger]

Re: Dumb money should go to Zero - ie: inflation is necessary.

Also, you know what you are right, why should all those retiree's just sit around all day and play golf, let's put them to work in factories so that they can continue to be productive. We can make them do it if we destroy their retirement savings (oops! that's been done already). Hey, at least we should have a VERY productive economy with all those seniors seeking work out there. BTW, are you planning on retiring, charlie? Shouldn't we destroy your savings too so that you can continue to be a productive member of society, charlie? I mean,what's good for the goose is good for the gander, right charlie?

I didn't say I like the idea of not retiring. I said that, from some policy makers' views, it makes sense to have people working.

"Inflation is supported by the idea that it is good to have people expend effort at creating goods and services. The more humans working the more goods and services produced. The more goods and service produced the higher the average standard of living."

THAT is FALSE FALSE FALSE.

Actually it is true by definition - on average.
http://en.wikipedia.org/wiki/Standard_of_living

you forget to mention USEFUL or BENIFICIAL goods and services. Which is a better use of resources, making nintendo's or say being a teacher.

Depends on who decides - you or a 10 year old boy.

What about say an airline pilot vs a medical researcher. WHich is more beneifical to society? What about being a corrupt CEO vs an excellent teacher? Hmm, who get's paid more. What inflation does my friend is penalize honest productive work and rewards non-benifical income exctaction. If you think that income extraction is a service, well, let's just say I'd be more than willing to provide you that service for FREE.

You seem to be talking debt/creditor here. I do not like the rentier regime currently in place - the tax code should favor working and saving/investing (although investment income and transfers of wealth should be taxed progressively).

Also, charlie, whe has the american standard of living gone down since 1970? Please tell me that, what to encourage people to work, that's has happened, we've got all those women in the workforce now, right (don't forget elderly people who won't be able to retire). And this is the most productive time in our history and the best time in terms of quality of life right?

Where do you get your data? GDP, life expectancy, access to technology, etc etc has increased markedly since the 70s.

I don't think so and I'll tell you why. When my mom when to a PRIVATE LA college in the 1960's her father (my grandfather) who was a butcher, was able to pay for his daughet to go to school for all 4 years. Imagine that today, A butcher paying his kid's way through PRIVATE SCHOOL for all for years, just imagine that would you.

The point is as EJ and so many others have pointed out, is that in terms of the real costs, EDUCATION, HOUSING, HEALTHCARE are unaffordable to real productive working people that produce real goods and services and that the the difference has gone to the coperations that employ them.

The cost of education has been inflated by debt financing and the myth that all should attend. Housing and healthcare are similar.

I respectfully disagree with each and every last one of your points, but at least I wanted to give you some of the reasons why. ( I just don't have the time to respond as fully as I would like as that would require a lifetime).

Cheers,

Cheers to you as well. I would note that I do not approve of the current rentier system. Ideally CBs would keep prices stable - something that is not possible with a gold standard. I realize this is a fantasy.