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

[Munger]

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

So what is your point?

To comment on the absoluteness of your assertion of morality. I might argue that it is immoral not to erode the value of savings if necessary to get the working-poor working and/or eating again.

[jtabeb]

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

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.



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



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



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).



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



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



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.

I HATE (and I use that word reservedly, as a person of arab descent must do:rolleyes the RENTIER system. Inflation Fuels that system and destroys labor and productive capital, and that is why I HATE inflation too.

NO RENTIERS (at least tax the hell out of it for god's sake), and no inflation.

If I had the time, I'd lay out the data and argumentation from my grad thesis in Sociology for you.

Bottom line is this. Each and EVERY social ill, can be, in the end, traced back to inflation. EACH AND EVERY ONE!

Abortion, Drug abuse, Violent Crime, teen pregnancy, social dependence (welfare), income stratification (wealth disparity), etc. It's all there. It's not that we would not have these things without inflation, we just get a much broader spectrum of social ills AND a much higher prevalence and frequency of occurrence with inflation. In other words, Inflation gives us the worst of all possible worlds. (And the more inflation, the worse it is). It's truly saddening that people think otherwise.

When I publish, I'll be sure to send you a copy. You might change your mind after reading it.

[Milton Kuo]

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

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.

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!")

The problem you are describing is not inflation caused by devaluation of money; your scenario has a problem with price inflation due to the value of labor going up (due to scarcity).

Let's take your thought experiment one step further. Why wouldn't at least one of the retirees come out of retirement to gouge his fellow retirees? If I were a retiree, perhaps I would be willing to pick up each retiree's trash for one million dollars per annum. That would quickly bankrupt my fellow retirees and make me fabulously wealthy.

Continuing, what would eventually happen is that enough other retirees would unretire to cash-in on the track pickup boom and lower the overall price of trash pickup until some equilibrium is reached.

It has always been my belief that being "rich" is a relative phenomenon. That is, a rich person cannot exist without one or more corresponding non-rich people. The society you use in your argument assumes 99% of the population as rich, since they are expecting to retire on whatever savings they have. The ability for such a society to come into existence in a closed system is just not possible per my beliefs on what being rich is.

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.

While prices do rise in both cases (increased money supply or decreased labor supply), there is a fundamental difference in that in one instance, purchasing power is diminished due to the actions of bankers while, in the second instance, purchasing power is diminished due to market forces.

I'd much rather take my chances on market forces that may never occur (Note: I am 100% certain that the closed system of your hypothetical retirement community could never exist in reality) over a guaranteed loss of purchasing power at the hands of bankers.

[Munger]

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

It has always been my belief that being "rich" is a relative phenomenon. That is, a rich person cannot exist without one or more corresponding non-rich people. The society you use in your argument assumes 99% of the population as rich, since they are expecting to retire on whatever savings they have. The ability for such a society to come into existence in a closed system is just not possible per my beliefs on what being rich is.

Agreed.

While prices do rise in both cases (increased money supply or decreased labor supply), there is a fundamental difference in that in one instance, purchasing power is diminished due to the actions of bankers while, in the second instance, purchasing power is diminished due to market forces.

I'd much rather take my chances on market forces that may never occur (Note: I am 100% certain that the closed system of your hypothetical retirement community could never exist in reality) over a guaranteed loss of purchasing power at the hands of bankers.

Agreed.

[The Outback Oracle]

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

To comment on the absoluteness of your assertion of morality. I might argue that it is immoral not to erode the value of savings if necessary to get the working-poor working and/or eating again.

It doesn't...they end up hungrier

[The Outback Oracle]

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

I HATE (and I use that word reservedly, as a person of arab descent must do:rolleyes the RENTIER system. Inflation Fuels that system and destroys labor and productive capital, and that is why I HATE inflation too.

NO RENTIERS (at least tax the hell out of it for god's sake), and no inflation.

If I had the time, I'd lay out the data and argumentation from my grad thesis in Sociology for you.

Bottom line is this. Each and EVERY social ill, can be, in the end, traced back to inflation. EACH AND EVERY ONE!

Abortion, Drug abuse, Violent Crime, teen pregnancy, social dependence (welfare), income stratification (wealth disparity), etc. It's all there. It's not that we would not have these things without inflation, we just get a much broader spectrum of social ills AND a much higher prevalence and frequency of occurrence with inflation. In other words, Inflation gives us the worst of all possible worlds. (And the more inflation, the worse it is). It's truly saddening that people think otherwise.

When I publish, I'll be sure to send you a copy. You might change your mind after reading it.

Amen. You can send me a copy too JT (some o0f my thinking needs correcting )

[blazespinnaker]

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

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.

Rj, you and I are pretty much in agreement. I have been preaching non stop that the country will not return to a gold standard. Unfortunately, that viewpoint is not widely shared on iTulip. In fact, the majority of the iTulip luminaries are basing *some* of their investment decisions on the *distinct possibility* that a gold standard is the inevitable conclusion to the financial panic we see today.

However, your second point, will gold rise in dollar value? Considering other precious metals have been dropping hugely, the only reason gold will rise is because it is seen as a currency of sorts. An informal gold standard.

That's a reasonable possibility. I worry, though, if the country does not see it as a viable and serious currency that other outcomes could occur. For example, the IMF could decide to re-value its gold reserves (as it has frequently threatened to do), which could cause a significant panic drop in the price of gold.

Also, when Russia invaded georgia .. gold prices DROPPED. That had me extremely doubtful about gold and the common wisdom regarding it is a currency in times of panic. In fact, I think some global manipulation may have occurred at that point. I sometimes wonder if such manipulation could not occur again.

[blazespinnaker]

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

You're confusing investors and consumers.

Consumers are the worst thing for the world.

After that, savers.

It is only investors who can save us all.

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".

[*T*]

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

(I realize a lot of iTulipers are going to take offense to this. But the reason I post this here and not elsewhere is because I think the iTulip crowd is one of the smartest around, if a bit misguided)

Basically - inflation means that dumb money should go to zero.

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.

People who consume too much are bad for the world, but so are people who SAVE too much.

What we really want are people who INVEST.

Inflation forces people to invest.

I simply swap a bunch of notes for a bunch of coins. The money doesn't disappear. Although I agree it can no longer be used as the basis on which to expand credit.

How is it different from putting money in another unproductive asset... say... a house?

In any case good risks should be rewarded by positive expected returns, holding gold is only sensible in times of negative real returns.

[c1ue]

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

I think this discussion is polarizing to the extent that any message is being lost.

Inflation per se is not necessarily evil - strictly speaking prices going up as a function of greater productivity is fine.

However, what has been happening is not this.

Again, while I absolutely agree that those who take on risk, should be able to reap greater rewards, I do not agree that everyone must be forced to do so.

A 10 minute study on wealth trends during periods of recession, depression, inflation, growth will quickly show a trend - that is for each individual to perform.

My point all along is that if government has its purpose - that of providing a collective good - one such action would be to provide a way where those not able or desirous of playing the risk game can still survive.

Not live on the production of the producers, not hoard their wealth to pass to their kids, nor speculate. But be able to maintain the value of what was already earned.

The hypocrisy of many of those who decry inflation is that they can no longer earn economic rent on their inflation fueled investments in real estate or cash.

The hypocrisy of those who decry the passive investors is that they know they are more nimble and energetic.

The point is to subsidize neither.

[LargoWinch]

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

For example, the IMF could decide to re-value its gold reserves (as it has frequently threatened to do), which could cause a significant panic drop in the price of gold.

Blaze, I fail to see how this would be achieved.

I think market forces will always prevail in the long run. Hence, if IMF says that their gold is worth $100/oz, then buyers will just buy it all up no? If they are not selling at $100/oz, then how is this gonna affect the price?

[mikedev10]

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.

is this community still active? didn't appear to be much on there. i stopped lending to the greater community of prosper because these are crazy times and i lack trust in people even with AA ratings. i would however have far greater trust for itulip borrowers!

[VIT]

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

The hypocrisy of many of those who decry inflation is that they can no longer earn economic rent on their inflation fueled investments in real estate or cash.

The hypocrisy of those who decry the passive investors is that they know they are more nimble and energetic.

The point is to subsidize neither.

Well said. Balanced. Not everybody should be investor, lawyer and engineer in one instance. You can not be good on all three at one time. It should be "fair" share of wealth for all of these persons in society. I believe inflation must be slightly greater then productivity grow to dissipate the excessive wealth. But I do not see the mechanism for that.

[blazespinnaker]

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

How is it different from putting money in another unproductive asset... say... a house?

I don't know about you, but my house is pretty productive for me and my family. Arguably, the most productive asset we have in our lives.

Buying gold is like buying any other particularly useless luxury item that does no good for nobody.

I think we should get rid of income tax, and just tax people who buy things that are useless.

Nothing personal, btw. I love all you guys!!

[LargoWinch]

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

Buying gold is like buying any other particularly useless luxury item that does no good for nobody.

Due to negative real interest rates, lets assume that all participants decide to "invest" in crude oil (not energy stocks but the commodity itself), therefore pushing its price up.

How would this be good for the rest of us? Could this possibly squeeze margins of households and businesses alike? Perhaps this could also decrease the standards of living?



PS: Blaze we like you too and not only because you have the coolest avatar.