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Galbraith: loose monetary policy does not create inflation

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  • #16
    Re: Galbraith: loose monetary policy does not create inflation

    Originally posted by blazespinnaker
    There is a coroallary to all this ... just as inflation isn't a risk, the absence of inflation is not necessarily a good sign either.
    Can you provide some supporting logic for this audacious remark?
    Finster
    ...

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    • #17
      Re: Galbraith: loose monetary policy does not create inflation

      Originally posted by WDCRob
      ... 'stuff' (to use one of Finster's tightly defined economic terms) ...


      Actually, it's an attempt to be rigorously broad. Goods, services, labor, capital ... anything that is bought and sold for currency.
      Finster
      ...

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      • #18
        Re: Galbraith: loose monetary policy does not create inflation

        Originally posted by blazespinnaker
        The fact is, because of the trade deficit, we're no longer in a closed system. People can import cheap barbie dolls, and our inflation doesn't impact the wages of people in China.
        We have never not been in a "closed system". The whole world - all of humanity - is a closed financial system and we've always been in it. The problem comes with the conventional view of looking at the US economy as a system and the rest of the world another system that it interacts with.

        And upon what basis do you assert that "our inflation doesn't impact the wages of people in China"? What currency are you measuring those wages with?
        Finster
        ...

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        • #19
          Re: Galbraith: loose monetary policy does not create inflation

          Originally posted by blazespinnaker
          Well, if there is a barbie doll out there for 5$ and then someone tells it for 10$ and you have twice as much money as you did yesterday, are you suddenly going to buy the 10$ barbie doll instead? I don't think so...
          this reminded of a piece that's been hanging around my hard drive for years. i think it's by mogambo guru, but i present..

          THE BARFMOBILE

          To illustrate with one of my usual stupid examples, the kind that illustrate both a pitiful cry for help and for the powerful psychoactive medications that I so obviously need, suppose that, for some bizarre reason, I own a 1963 Dodge Dart that is rusting away out in the backyard. Then one day, for some slightly less-bizarre reason, I sell it to you for, oh, say a thousand dollars. The bank looks at the deal and lets you borrow the thousand.

          Then, wondrous to tell, you sell it to another guy for two thousand dollars because he knows a guy that wants one so bad that he is willing to pay three thousand dollars for it. The bank looks at the deal and lets him borrow the two thousand, and other guy borrows the three thousand to buy it from him.

          Then he, in turn, sells it to a guy who thinks he can prove that Elvis got carsick in the back seat of that very Dodge Dart after chugging shots of tequila with the Beatles, and he pays four thousand dollars for the car because he know an Elvis museum that will pay five thousand dollars for the car. The bank looks at the deal and lets him borrow the four thousand, and the museum borrows the five thousand dollars.

          The Beatles museum, lusting after the car for reasons we probably don't want to even know about, wants to buy the car from the Elvis museum for ten thousand dollars. The bank looks at the deal and lets him borrow ten grand. Then there is another Elvis craze, and the Elvis museum wants to buy it back, and offers fifty thousand dollars. The bank looks at the deal and lets the museum borrow the fifty thousand.

          Now, let's stop, catch our breath - pant pant pant - and review. What is the asset? An old car that would need a paint job just to be upgraded to "eyesore." What is it's real-world value? Zero. What is it's "pretend-world" value? Fifty grand. What is owed on the car? Fifty grand.

          So, is that fifty grand asset "money?" Well, yes and no. Mostly no. There never was, not one time if you care to go back and read, the use of any money already in the system. All of the money, all wonderful fifty grand of money, was created out of borrowing. Not one single time did any transaction involve the use of money that belonged to the buyers. Every transaction involved only the use of the bank's money. The only money was the bank's money, and it went into the pockets of the sellers.

          And since the bank created this money out of thin air to start with, thanks to the glory (or Horseman of the Apocalypse, depending on where you are in the business cycle) of fractional banking, we end up with fifty grand of money created out of thin air, fifty grand of debt created out of thin air, and the same old car. The actual stream of cash that was paid to the line of sellers has since gone into 1) extinguishing the old debts, and 2) bidding up the price of other things, and has now has bid up the price of bullfighters painted on velvet, figurines of funny-looking children playing with ugly dogs and stocks of companies that lose money. And houses.

          So, what happens if the Elvis museum goes under, and there are no buyers for the Elvis-Beatles Barf-Mobile? That is the problem over which the Fed is losing sleep. The bank repossesses an old car and has to write off a fifty grand loan.

          And, and this is the worst part, the money was created by the banks as a multiple of deposits, and now the defaulted loan is eating up the bank's capital at a dollar-for-dollar rate! Yow!

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          • #20
            Re: Galbraith: loose monetary policy does not create inflation

            Originally posted by Jim Nickerson
            Finster, you have likely elaborated on this somewhere, but truly my memory is poor.

            Take oil as perhaps a good example, if its price increases in bonars, is it possible to sort out how much of that increase is due to the bonar's being worth less vs. there actually being the case where oil is worth more? If there is less of something, the more valuable it is, to state differently what you wrote above. It seems to me that if something gains value, the price increase is not a reflection of inflation in some degree.
            does this help?

            Energy and Money Part I: Too Little Oil or Too Much Money?

            Inflation is not only determined by the supply of goods available relative to the supply of money to buy them, but also the demand for the currency in which goods are priced relative to the supply of that currency. It can be hard to tell which factor is primarily driving prices.

            http://www.itulip.com/energyandmoney.htm

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            • #21
              Re: Galbraith: loose monetary policy does not create inflation

              Well, you have to work on an assumption that Galbraith is right, that the fed can't control inflation. It makes it interesting, because if inflation isn't high (and it isn't, not really), then things could still be very very screwed up.

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              • #22
                Re: Galbraith: loose monetary policy does not create inflation

                Originally posted by metalman
                does this help?

                Energy and Money Part I: Too Little Oil or Too Much Money?

                Inflation is not only determined by the supply of goods available relative to the supply of money to buy them, but also the demand for the currency in which goods are priced relative to the supply of that currency. It can be hard to tell which factor is primarily driving prices.

                http://www.itulip.com/energyandmoney.htm
                Metalman,

                You have either a fantastic memory or either a lot of intellectual curiosity to zero in on the reference you kindly put up for me. Thanks for it, but you know it really does not help answer the question I posed, nor did Finster's reply which I also appreciated.

                I got off on contemplating what is the value of anything a year or two ago, and I decided that there really is no way to truly assess the value of anything. Sapiens toyed with this same dilemma in another thread here I think with regard to gold. Finster argues about the value of an hour of a person's time, but one cannot as I see and understand actually apply that to things for which we spend bonars or ounces of gold (if anyone is actually doing that). Had Finster put up graphs of the price of oil measured against old master's art creations, then likely the price of oil over the past 25 or 100 years has diminished significantly.

                The only conclusion I can reach about value of stuff (goods and services) when confronted with purchasing them is do I think what I believe I will gain from ownership of the stuff worth the bonars with which I am willing to part. A lot of utilitarian stuff at Wal-mart, dollar stores, and second hand items stores seem like incredible deals whereas the cost of services may or may not seem like a good deal--basically the more educated the person providing the services the higher the cost--though that higher cost seems to me to seldom carry with it any serious warranty that there is necessarily the value received for the bonars paid.

                Then when it comes to purchasing stocks-shit, who know these days.

                I think arguing, which I take none of this to be, about value is right up there with arguing about religion and politics. A lot of time is spent, but seldom is anyone's mind changed.
                Jim 69 y/o

                "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

                Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

                Good judgement comes from experience; experience comes from bad judgement. Unknown.

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                • #23
                  Re: Galbraith: loose monetary policy does not create inflation

                  Originally posted by Jim Nickerson
                  I decided that there really is no way to truly assess the value of anything.
                  Jim, you as an individual set value to anything in relation to you. You can't set value to something for someone else, what you can set is cost.

                  Just because you set the value of something at X dollars, but the something's price is selling at X + Y dollars in excess to your set value, does not mean it is overvalued to to others, it is overvalued in reference to your gage. What you are looking is for an objective standard of value, where there is no such thing.

                  -Sapiens

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                  • #24
                    Re: Galbraith: loose monetary policy does not create inflation

                    if individuals all agreed with one another on every valuation, there would be no trade. why would anyone bother?

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