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

[unlucky]

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

Simply sitting on a pile of gold coins does nothing for the economy and the world.

Structurally, we need inflation to force people with money to invest. Buy businesses, create businesses, invest in businesses.

There must be something that erodes the savings of people who are not TAKING RISKS.

Because it is risk taking which naturally moves the world forward. It's taking chances, making mistakes, trying new things.

Hang on a sec. I already work to earn the money I have. I take risks, make mistakes, and possibly even make the world a better place.

So why do I have to do those things all over again just to keep the money I earned? (Or pay someone else - like Madoff - to do it for me. Now there's a guy who's allegedly pretty good at taking risks and making mistakes).

[labasta]

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

I think the iTulip crowd is one of the smartest around, if a bit misguided)

hahaha. Don't we all. I think the reason for this is that we don't agree with each other 100%. We'd be the Borg if we did. My opinion is as flexible as a Fina Fail politician (the business party in Ireland - very flexible).


I agree about the need to invest and that gold coins would take the money out of the system unless of course that gold coins BECAME the system. I think we all hope it won't come to that.

However, I've thought a little about the money in the bank thing and to be honest that is also a form of investment. The bank invests the savers money in ventures which would hopefully deem it a return, and they give us some of that return back (which seems to be equal to inflation at the very most). So it's the banks responsibility to invest in enterprise rather than real estate. Loans made in Ireland in 2006 were 91% for property! Maybe if they had invested in export-based enterprises we would be a slightly less mess than we are today. When I see 91% invested in business then I will know that property has hit bottom.

[grapejelly]

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

hahaha. Don't we all. I think the reason for this is that we don't agree with each other 100%. We'd be the Borg if we did. My opinion is as flexible as a Fina Fail politician (the business party in Ireland - very flexible).


I agree about the need to invest and that gold coins would take the money out of the system unless of course that gold coins BECAME the system. I think we all hope it won't come to that.

However, I've thought a little about the money in the bank thing and to be honest that is also a form of investment. The bank invests the savers money in ventures which would hopefully deem it a return, and they give us some of that return back (which seems to be equal to inflation at the very most). So it's the banks responsibility to invest in enterprise rather than real estate. Loans made in Ireland in 2006 were 91% for property! Maybe if they had invested in export-based enterprises we would be a slightly less mess than we are today. When I see 91% invested in business then I will know that property has hit bottom.

The banks don't invest this way. That is old fashioned and isn't what happens at all. The banks only get a small amount of their lending through intermediation of bank deposits. Almost all the lending they do is through money created out of nothing from the central bank.

The entire financial system is a fraud designed to favor banks, the federal government's ability to tax and spend, and the powers that be.

It isn't any different in Ireland, or the UK.

The only cure for it is to eliminate the government monopoly on money and let people use commodity money of their own choosing. Money backed by and fully redeemable 100% on demand for goods at Walmart, or gold coins, or bushels or wheat, or barrels of oil.

Competing money issues would solve the problem of inflation once and for all.

The biggest problems today relate to the lack of private property rights due to the government monopoly on money. We are not secure in our property when the government and central banks can render our stuff worth less and eventually worthless.

There is no reason for fractional reserve banking when you can allocate savings 100% as you wish, through a brokerage account rather than through a funny money bank.

I pray and hope that banks all go out of business. That would be the end of this horrid destruction of savings and investment. Businesses that needed to borrow would do so, and the money they were loaned would come from pooled savings of individuals and businesses with excess capital.

And this would be the end of war as we have known it.

[due_indigence]

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

I would suggest there are two major subsets of investing. Investing in others through some sort of intermediation mechanism and investing in oneself by starting a business. With the moral/ethical tenor of the society at a nadir, the intermediation channels cannot be trusted.

We often hear the phrase 'do you due diligence' as though it is something that can reasonably be performed within the purview of regular folks. After all the SEC performed an in-depth investigation of Madoff's outfit giving it a clean bill of health, God help us.

When the corruption is systemic, the system should be avoided as much as possible.

[c1ue]

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

The higher the inflation, the more it rewards energy and intelligence, as opposed to rewarding inherited wealth.

That is so wrong a statement as to be unbelievable.

In our past era of inflation - have the rich become poorer?

I think not.

Your error is associating upper middle class inherited wealth/nouveau riche vs. old money wealth. The nouveau/middle class are easy come, easy go.

But the old money hire the true professionals. Or do you think the Rockefellers, the Morgans, the Kennedys, Rothschilds, etc etc as being uniformly more energetic and intelligent than the rest of the 99.999% of the human race?

I again point out that there are 15M Americans who survive on Social Security.

Certainly at least a few of them should have saved, but equally a large number of them could not have. Inflation will throw them into even greater depths of poverty than they already live in.

I just drove an old lady to Trader Joe's to buy her monthly half dozen bottles of 2 Buck Chuck - or Charles Shaw as it is known. She used to be a hairdresser and had her time in the sun.

But are you going to be the one to shove her even lower into poverty?

That's why I do think there needs to be another option.

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.

[Starving Steve]

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

Savers are not good for the world's economy?

And you may ask why I despise the economics curriculum being taught in universities to-day?

With this kind of thinking, if it were even remotely correct, Zimbabwe, Yugoslavia, and Argentina would be the economic success stories of the world.

With his war on savers and his trillions of new fiat money injections, Bernankee would have succeeded by now in turning-around the American economy, but he has not. The savers have been decimated, but the American economy is continuing to sink even deeper, hitting new lows every week.

One would think that to turn-around the American and the world economy, savers should be rewarded, but that common sense is harasy to central bankers.

A good article for your reading about this outrage in current economic thinking is available from London Banker at www.moneytalks.net . The title of the article is, "Deflation Has Become Inevitable".

[Munger]

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

So per you, I should always go up to my boss asking for a pay raise? Because if there is continuous inflation, if I have a set salary or hourly wage, I should be consistently seeking a pay raise because the set amount of money I am making would buy less for my set standard of living that my salary is supposed to represent.

blaze, I understand your point, but you're still wrong. You're not rich I'm assuming, otherwise you most likely wouldn't be on this board. Certain people benefit from consistent inflation, and they're not my class or the class of most people on here. Why? Because most of us make set wages. We "make things" for a living. We're not bankers, we're not financial engineers, or people that put a bunch of numbers on a spreadsheet and that's supposed to make money. So having consistent inflation benefits the people that get their hands on the money first because they can spend the money first while the rest of us don't, while the rest of us see our standard of living decline a little bit, and they get to pay back what they borrowed first with cheaper dollars (which is what is going on now for those in debt).

In reality, it's something to not worry about. If I see high inflation, I'm going to put my money into items that take advantage of high inflation while everyone else around me sees their wealth eroded away. If I see deflation, I'm going to keep my money. It's not my job to singlehandedly fix the economy. It's my job to take care of myself, my family, and our financial future.

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.

[Munger]

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

Blaze, I have to disagree with your comments: I think savers should be able to keep their purchasing power no matter what.

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.

[vinoveri]

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.

To what extent is it a fairy tale, you're simple thought experiment notwithstanding? While you may be practically correct, I know of no law of nature (or perhaps economics) which would prevent such a system from existing - do you?. In fact, what's to prevent the opposite.

Not knowing whether this website below is the accurate or not, it does give some insight assuming it is inthe ballpark.
http://www.measuringworth.com/ppowerus/

$122.76 in the year 1913 has the same "purchase power" as $100 in the year 1774. (delta = 139 yrs)

$2159.81 in the year 2007 has the same "purchase power" as $100 in the year 1913. (delta = 95 yrs)

I choose 1913 as the year of establishment of the Federal Reserve.

this shows that purchasing power was relatively preserved for that 139 period prior to 1913 (20% devaluation), whereas in the last 95 years our money has been devalued by > 20x.

Perhaps inflation is inevitable as you claim; I as a saver wouldn't object to 20% every hundred years or so.

[Munger]

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

To what extent is it a fairy tale, you're simple thought experiment notwithstanding? While you may be practically correct, I know of no law of nature (or perhaps economics) which would prevent such a system from existing - do you?. In fact, what's to prevent the opposite.

Not knowing whether this website below is the accurate or not, it does give some insight assuming it is inthe ballpark.
http://www.measuringworth.com/ppowerus/

$122.76 in the year 1913 has the same "purchase power" as $100 in the year 1774. (delta = 139 yrs)

$2159.81 in the year 2007 has the same "purchase power" as $100 in the year 1913. (delta = 95 yrs)

I choose 1913 as the year of establishment of the Federal Reserve.

this shows that purchasing power was relatively preserved for that 139 period prior to 1913 (20% devaluation), whereas in the last 95 years our money has been devalued by > 20x.

Perhaps inflation is inevitable as you claim; I as a saver wouldn't object to 20% every hundred years or so.

Not that inflation is inevitable; with population growth stored wealth may have as much or more purchasing power than when earned if the money supply is controlled. Tying the money supply to a yellow piece of metal that does not keep pace with GDP growth is unfair to new workers though.

I look at Japan's demographic problems and at the eminent (attempted) retirement of the baby boomers and wonder what the similarities might be. Population growth in western economies is stalling out - where are the workers to keep the value of retiree savings from diminishing? What happens when retirees start pulling money from the stock market to live off of? Is the market dead for the next generation until the boomer money is liquidated?

Try this:
http://finance.wharton.upenn.edu/~ab...ndMeltdown.pdf
And this:
http://finance.wharton.upenn.edu/~ab.../PopChg16a.pdf

[Milton Kuo]

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.

There is a significant difference between loss of purchasing power due to the devaluation of money and a loss of purchasing power due to changes in supply and demand. In your hypothetical situation where there is a loss of purchasing power due to changes in supply and demand, what would happen is that some of the retirees would recognize the enticingly high wages being paid for doing certain types of work and those retirees would thus re-enter the workforce to make themselves richer than the other retirees. What exists in this example is a shortage of supply and/or an excess of demand. All in all, the purchasing power of savings is not truly diminished in your example; it is only fluctuating as a function of supply and demand.

My comments here assume that, in your example, the retirees are not all the same age and that there is not negative population growth. If those conditions are not met, then I guess everyone on the island should just commit suicide because, in the end, they'll all be dead anyways.

[Starving Steve]

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

Yes, the gold bugs don't want to count-in the increase in the GDP when they count inflation. So they end-up with too high of an inflation figure.

I worked 14 years in the public schools and produced just as much value for the economy as teachers with less credentialing and less education than I had. And yet, I was paid at about half of their compensation.

The GDP is the key figure to use in deflating the economy. Yes, there is a lot more currency around, but there is one H of a lot more to purchase with that currency.

My cars don't break-down or need servicing like they used to. Anyone figure that improvement into what money is worth now--- in the second largest purchase a person makes in life? And homes are far better quality than the homes of 30 or 40 years ago. There is simply no comparison. Anyone figure that improvement into their calculation of what money is worth?

I just got back from the grocery store in Victoria, BC, and unless I am really out-to-lunch in my observations, prices are FALLING for just about everything.

Yes, a lot of money has been printed-up by the Fed, but there are few borrowers for that money. And that money has to be paid back. It's not exactly free money.

My suspicion (sp?) is that the Fed and the other world central banks are faking the hyper-inflation story in order to get people to spend money. My suspicion is that the outcome of all this just may be a slow grinding deflation, worldwide.

Anyway, I am often wrong, but this is what I am thinking now: deflation until the cows come home. That would fake-out nearly everyone and yield an opportunity for the U.S Treasury to finance its absurd deficits at zero interest rates. That is the smart move, assuming Bernankee is smart. ( Let's hope Bernankee and the other central bankers worldwide are smart. )

[Munger]

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

There is a significant difference between loss of purchasing power due to the devaluation of money and a loss of purchasing power due to changes in supply and demand.

The loss of purchasing power due to inflation is results from an increase in the supply of money in relation to the supply of labor/consumable goods produced.

In your hypothetical situation where there is a loss of purchasing power due to changes in supply and demand, what would happen is that some of the retirees would recognize the enticingly high wages being paid for doing certain types of work and those retirees would thus re-enter the workforce to make themselves richer than the other retirees.

There is still the loss of purchasing power of stored wealth. I see little difference. Would the retirees not bitch about the value of their savings eroding and having to come out of retirement to keep up? ("Back when I was young I could have lived off this much savings for the rest of my life! Damn inflation!")

What exists in this example is a shortage of supply and/or an excess of demand. All in all, the purchasing power of savings is not truly diminished in your example; it is only fluctuating as a function of supply and demand.

They can not purchase as much as they used to be able to purchase = loss of purchasing power. Would you disagree that this fluctuation in the purchasing power you describe is straight down, making the savings unable to purchase the same amount of goods/services?

Inflation is an increase in the supply of money - money represents a claim on human labor - past, present or future.

Increasing money supply or decreasing workers/consumable goods produced = same thing.

[labasta]

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

The banks don't invest this way. That is old fashioned and isn't what happens at all. The banks only get a small amount of their lending through intermediation of bank deposits. Almost all the lending they do is through money created out of nothing from the central bank.

The entire financial system is a fraud designed to favor banks, the federal government's ability to tax and spend, and the powers that be.

It isn't any different in Ireland, or the UK.

The only cure for it is to eliminate the government monopoly on money and let people use commodity money of their own choosing. Money backed by and fully redeemable 100% on demand for goods at Walmart, or gold coins, or bushels or wheat, or barrels of oil.

Competing money issues would solve the problem of inflation once and for all.

The biggest problems today relate to the lack of private property rights due to the government monopoly on money. We are not secure in our property when the government and central banks can render our stuff worth less and eventually worthless.

There is no reason for fractional reserve banking when you can allocate savings 100% as you wish, through a brokerage account rather than through a funny money bank.

I pray and hope that banks all go out of business. That would be the end of this horrid destruction of savings and investment. Businesses that needed to borrow would do so, and the money they were loaned would come from pooled savings of individuals and businesses with excess capital.

And this would be the end of war as we have known it.

The fractional reserve thing occured ot me as well. They still require the 10% deposit though.

I agree that you are probably right that fractional reserve lending is a bad thing. The end result may be great but getting there would be like going cold turkey. No more loans. 90% of money not being created anymore. (sounds very similiar to what is happening now). We'd have to get the heroin addicts off the drip in a least destructive way as possible

Investment by equity sounds fair but is it enough for technological progress. Very likely it is. I heard that Taiwan used to build businesses in this way, using money from the eldest member of the family. I'm not sure how accurate that informaiton is though.

[FRED]

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

The fractional reserve thing occured ot me as well. They still require the 10% deposit though.

I agree that you are probably right that fractional reserve lending is a bad thing. The end result may be great but getting there would be like going cold turkey. No more loans. 90% of money not being created anymore. (sounds very similiar to what is happening now). We'd have to get the heroin addicts off the drip in a least destructive way as possible

Investment by equity sounds fair but is it enough for technological progress. Very likely it is. I heard that Taiwan used to build businesses in this way, using money from the eldest member of the family. I'm not sure how accurate that informaiton is though.

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