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The Economics Game: Understanding Monetary Policy

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SleepWalkerX

Platinum Member
Jun 29, 2004
2,650
0
0
Originally posted by: 3chordcharlie
Originally posted by: SleepWalkerX
Originally posted by: 3chordcharlie
You waited 6 months to make your first post... and still managed to be wrong!

Nice!

At least your spelling is pretty good.
His post seems pretty spot on to me. How is he wrong?
He is wrong for the same reason that everyone who supports a gold standard is wrong.

For all the myriad arguments about whether gold has any actual value, etc, the gold standard fails for being deflationary. It doesn't need any other destabilizing failures to be a bad idea.

edit - broke the quotes
1) Gold has actual value because its worth something whether you like it or not.

2) Being deflationary is not a bad thing at all. Prices should go down in a healthy economy! It also encourages saving and wise investments. A lot of people automatically think of the Great Depression when they think of deflation and thats not a good way to look at it at all.
 

Fern

Elite Member
Super Moderator
Sep 30, 2003
26,917
173
106
Originally posted by: SleepWalkerX

1) Gold has actual value because its worth something whether you like it or not.

2) Being deflationary is not a bad thing at all. Prices should go down in a healthy economy! It also encourages saving and wise investments. A lot of people automatically think of the Great Depression when they think of deflation and thats not a good way to look at it at all.
Deflation and falling prices are "good"?

Really?

Make that case to someone, or a company, with debt.

A company takes on debt to expand, then can't make it's payments because the price of it's products fall. The debt is pegged at a pre-deflation dollar amount. The business will get hammered

We're seeing "deflation" in certain sectors of the housing market. The price of the home has fallen, yet the mortgage debt is set at pre-deflation dollar amounts. I.e., the house is worth less than the mortgage amount.

If the price of products continue to fall (a good thing in your opinion), you will get a pay-cut as an employee. How you gonna make the mortgage payment? Food and products purchased without incurring debt, no problem. They get cheaper as your wages drop. But anything acquired with debt will kill you.

Defaltion would squeeze debt out of the equation, that'll kill an economy.

What are wise investments in periods of deflation? I can't think of anything other than cash. Every other type asset you invest in will see it's value drop relative to the dollar because of deflation. Who the h3ll would buy any investment? Oops, just killed off that sector of the economy.

Corporations can't utilize debt for growth for the above-mentioned reasons. Now they don't have access to equity markets (selling stock). Your stock price/value is a function of many things: hard assets (oops, those values are going down), income projections (oops, that's going down as sales revenue drops), dividend stream (oops that's getting smaller as prices etc drop). Stock price has no where to go but down.

Crazy stuff. Deflation sucks big-time.

Fern

 

SleepWalkerX

Platinum Member
Jun 29, 2004
2,650
0
0
Originally posted by: rchiu
Originally posted by: PC Surgeon
Originally posted by: 3chordcharlie
Originally posted by: SleepWalkerX
Originally posted by: 3chordcharlie
You waited 6 months to make your first post... and still managed to be wrong!

Nice!

At least your spelling is pretty good.
His post seems pretty spot on to me. How is he wrong?
He is wrong for the same reason that everyone who supports a gold standard is wrong.

For all the myriad arguments about whether gold has any actual value, etc, the gold standard fails for being deflationary. It doesn't need any other destabilizing failures to be a bad idea.

edit - broke the quotes
I would say neither gold or fiat is a system that works beyond the greed of men. Sad really, but I cannot see anything else that could take their place and remove that factor. So in short, the Gold standard is no better nor worse that fiat.
You are correct in saying both are just instrument of people and it's up to people how it will be used. But you are wrong saying one is no better or worse. Gold standard is like a box cutter and fiat system is like a semi-auto weapons. Gold standard is very limited and you cannot do too much with it. Fiat is much more powerful and with it, there are many more ways to defend the economy or boost the economy when it is necessary.

What you don't understand that most of the time, the problem with the Economy is unrelated to the monetary system we use. There are business cycle,there are wars, there are natural disasters, and many others that can have huge impact on the economy. Monetary system is there so we can use it to do something about the economy when necessary. We need a powerful and flexible monetary system, not an ancient, inflexible one for today's economy.
Your analogy doesn't work that well. Because most of the adjustments made are artificial and the market eventually realizes the actual worth of the money being used. Its not actually any more powerful. If our system is so powerful then how come the dollar is no where near worth as much as it was in the 1700s? Is it a healthy thing when the purchasing power of the dollar gets smaller and smaller?

http://www.measuringworth.com/uscompare/

You are correct in that the government is just another thing the market has to work around.

Business cycles are a result of contractions/expansions in the money supply and could happen in either system. The reason is because when the money supply becomes worth less it takes a while for everyone in the market to adjust and realize that. Once the market realizes the actual value of the money being used then they adjust their prices, wages, etc to reflect that trend. (if it costs someone $30 to make a product and if the same $30 is now only worth $20 then the person is going to adjust his price or he will actually lose money on the product. now apply this on a bigger scale).
 

SleepWalkerX

Platinum Member
Jun 29, 2004
2,650
0
0
Originally posted by: Fern
Originally posted by: SleepWalkerX

1) Gold has actual value because its worth something whether you like it or not.

2) Being deflationary is not a bad thing at all. Prices should go down in a healthy economy! It also encourages saving and wise investments. A lot of people automatically think of the Great Depression when they think of deflation and thats not a good way to look at it at all.
Deflation and falling prices are "good"?

Really?

Make that case to someone, or a company, with debt.
If businesses like to be in debt then I really can't help them. If you like to encourage businesses being in debt then something is wrong with you.

Originally posted by: Fern
A company takes on debt to expand, then can't make it's payments because the price of it's products fall. The debt is pegged at a pre-deflation dollar amount. The business will get hammered
That's just wrong. Businesses should only exist if they can provide a product/service to the market that people will pay for and can remain profitable. Prices of the business's goods will fall, but does that mean that the business can't raise their price to make profit? Capitalism already skews towards producers because they have higher concentrations of wealth or obtain higher concentrations of wealth.

Originally posted by: Fern
We're seeing "deflation" in certain sectors of the housing market. The price of the home has fallen, yet the mortgage debt is set at pre-deflation dollar amounts. I.e., the house is worth less than the mortgage amount.
Sudden deflation that exists in an inflationary environment is a bad thing. Just like sudden inflation in a deflationary environment is a bad thing. Then again, its relative isn't it? Its bad for the people who made bad decisions, but its good for those who held off and are buying houses now. The people who decided to get subprime loans in hopes of those loans going higher made a bad decision. The market punishes bad decisions.

What's unfortunate is that we are rewarding bad decisions for some reason. :\

Originally posted by: Fern
If the price of products continue to fall (a good thing in your opinion), you will get a pay-cut as an employee. How you gonna make the mortgage payment? Food and products purchased without uincurring debt, no problem. They get cheaper as your wages drop. But anything acquired with debt will kill you.
Wait a second. Prices only go down in relation to the money supply. If the money the business receives suddenly becomes worth more only THEN can the business choose to lower prices down. Else, why would it lower the price? And if the business is receiving money that is worth more then why would it deck your pay?

Originally posted by: Fern
Defaltion would squeeze debt out of the equation, that'll kill an economy.
It'd work as an incentive to avoid debt as much as possible. However, people still choose to make businesses because its profitable later on. Businesses did just fine on the gold standard and people invested nonetheless. Of course the economy might not explode with production like it does right now, but at least it doesn't crash either.

Originally posted by: Fern
What are wise investments in periods of deflation? I can't think of anything other than cash. Every other type asset you invest in will see it's value drop relative to the dollar because of deflation. Who the h3ll would buy any investment? Oops, just killed off that sector of the economy.
Just sitting on gold was a good investment. Businesses that could manufacture products at an affordable price and make profit were good investments too. Anything that could produce higher returns than the initial investment are wise investments.

Btw, you are also negating that inflation does exist with regards to gold because gold is still being mined and even asteroids bring new gold. I believe the rate of new gold introduced is like 3% or so.

However, it doesn't matter if money is renewable in a money supply. It actually can be definite! The only thing that matters are the characteristics of money (it can be divisible, you can carry it, weigh it, etc).

Originally posted by: Fern
Corporations can't utilize debt for growth for the above-mentioned reasons. Now they don't have access to equity markets (selling stock). Your stock price/value is a function of many things: hard assets (oops, those values are going down), income projections (oops, that's going down as sales revenue drops), dividend stream (oops that's getting smaller as prices etc drop). Stock price has no where to go but down.
Its about supply/demand. Companies would invest in stocks that return more than they initially invest. There are plenty of other metals worth twice more than gold like platinum, rhodium, etc. Its not about worth, however, its about potential worth.

And hard assets like metals are great investments as they are normally harder to find which means they go up in price. Income projections? Why is the company not making profit? They need to raise the price if they are not making profits. Things like toys, groceries, dvds, etc are not bought because they are good stores of value. They are bought because they are consumed. Dividend streams? You mentioned that sales revenue are dropping. This has nothing to do gold and all to do with the product not selling.

You're kinda confused when prices are lowered. Prices are lowered after the company make more money. In fact, I think you're really confused with supply and demand and economics in general.

Originally posted by: Fern
Crazy stuff. Deflation sucks big-time.

Fern
Gold is deflationary but its not as dramatic as you're thinking. If gold was as bad as you were talking about then how come we did just fine on it? You neglect our history and even the consumer side of the equation entirely
 

SleepWalkerX

Platinum Member
Jun 29, 2004
2,650
0
0
Btw I'd like to add, when you have shit for money then any investment looks like a good investment.

What about the average American citizen that lives day to day through his job? Is it fair to potentially (and I say potentially) bolster our economy by manipulating our money supply and promote businesses at the expense of the normal workers? That's not really fair. Before saving money actually was a good investment.. Its not fair when an authority manipulates the money supply and changes that for everyone. If you let the free market decide our monetary policy I guarantee you everyone would drop their paper dollars for real mediums of worth (of course assuming the government doesn't force things to be money). I can only hope people find stable sources of value soon anyway..

edit: Oh and here's probably the best article I've read about how deflation is not as bad as how people say it is. Please give it a good read.

http://www.mises.org/story/1254
 

halik

Lifer
Oct 10, 2000
25,708
1
0
Originally posted by: SleepWalkerX
Originally posted by: 3chordcharlie
Originally posted by: SleepWalkerX
Originally posted by: 3chordcharlie
You waited 6 months to make your first post... and still managed to be wrong!

Nice!

At least your spelling is pretty good.
His post seems pretty spot on to me. How is he wrong?
He is wrong for the same reason that everyone who supports a gold standard is wrong.

For all the myriad arguments about whether gold has any actual value, etc, the gold standard fails for being deflationary. It doesn't need any other destabilizing failures to be a bad idea.

edit - broke the quotes
1) Gold has actual value because its worth something whether you like it or not.

2) Being deflationary is not a bad thing at all. Prices should go down in a healthy economy! It also encourages saving and wise investments. A lot of people automatically think of the Great Depression when they think of deflation and thats not a good way to look at it at all.
Ha, that right there is a proof that you're clueless. Ask Japan how was their economy doing under deflation.

edit:

If businesses like to be in debt then I really can't help them. If you like to encourage businesses being in debt then something is wrong with you.

Wow...so you've never taken a single business/econ/finance class in your life. Please go back to illuminati and youtube videos, this sort of idiocy has no place in this thread. FYI deflation destroys the entire credit system: money tomorrow is worth more than today...try to swirl that idea in your tiny head.

 

HombrePequeno

Diamond Member
Mar 7, 2001
4,657
0
0
Originally posted by: SleepWalkerX
Originally posted by: 3chordcharlie
Originally posted by: SleepWalkerX
Originally posted by: 3chordcharlie
You waited 6 months to make your first post... and still managed to be wrong!

Nice!

At least your spelling is pretty good.
His post seems pretty spot on to me. How is he wrong?
He is wrong for the same reason that everyone who supports a gold standard is wrong.

For all the myriad arguments about whether gold has any actual value, etc, the gold standard fails for being deflationary. It doesn't need any other destabilizing failures to be a bad idea.

edit - broke the quotes
1) Gold has actual value because its worth something whether you like it or not.

2) Being deflationary is not a bad thing at all. Prices should go down in a healthy economy! It also encourages saving and wise investments. A lot of people automatically think of the Great Depression when they think of deflation and thats not a good way to look at it at all.
Tell that to Japan which is just now starting to get over its liquidity trap which caused sluggish growth for years.

The Federal Reserve system (any decent central bank really) more than anything promotes price stability. With inflation targeting you know that prices will increase within a certain range each year. That didn't happen under the Gold Standard. There were wild swings of inflation and deflation. When there were new found sources of gold, prices would jump up sharply and when there were banking crises (happened often before the Fed came into existence) deflation was horrible. We did not do just fine on the gold standard especially without the Federal Reserve. We were the only western country that had banking crises every decade because we didn't have a central bank.

Looking at the Great Depression, the ones that were quick to abandon the Gold Standard were the first ones to start recovering while the Gold Block (France, Poland, etc) didn't experience positive growth until much later.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
If this system were so inflationary and the expansion of liquidity so horrible, then why were there 0% CPI (both core and non-core) for Feb?
 

Mavtek3100

Senior member
Jan 15, 2008
524
0
0
Originally posted by: LegendKiller
If this system were so inflationary and the expansion of liquidity so horrible, then why were there 0% CPI (both core and non-core) for Feb?
Simple after Christmas demand dropped like a rock. No excuse for the 6.5% CPI in 07 though.
 

rchiu

Diamond Member
Jun 8, 2002
3,850
0
0
Originally posted by: SleepWalkerX


Your analogy doesn't work that well. Because most of the adjustments made are artificial and the market eventually realizes the actual worth of the money being used. Its not actually any more powerful. If our system is so powerful then how come the dollar is no where near worth as much as it was in the 1700s? Is it a healthy thing when the purchasing power of the dollar gets smaller and smaller?

http://www.measuringworth.com/uscompare/

You are correct in that the government is just another thing the market has to work around.

Business cycles are a result of contractions/expansions in the money supply and could happen in either system. The reason is because when the money supply becomes worth less it takes a while for everyone in the market to adjust and realize that. Once the market realizes the actual value of the money being used then they adjust their prices, wages, etc to reflect that trend. (if it costs someone $30 to make a product and if the same $30 is now only worth $20 then the person is going to adjust his price or he will actually lose money on the product. now apply this on a bigger scale).
Heh, I don't wanna get into explaining to you how foreign exchange work, but if your sole reason for wanting gold standard is to protect US dollar, you are doing exactly what you preach against, using artificial means to mask the true health of a economy.

USD is weak, but that's not because of fiat system. Yen is strong right now and Euro is strong right now against USD, why? they are using fiat system too. In a free international trade today, your competitiveness determines how strong your currency is. Having a gold standard doesn't change the fact that US offshores lots of manufacturing, buying lots of natural resources, and not selling enough stuff other country wants. You wanna protect dollar, do something through fiscal policy and create an environment that supports economic growth and friendly to businesses. Promoting gold standard will just do the opposite.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: Mavtek3100
Originally posted by: LegendKiller
If this system were so inflationary and the expansion of liquidity so horrible, then why were there 0% CPI (both core and non-core) for Feb?
Simple after Christmas demand dropped like a rock. No excuse for the 6.5% CPI in 07 though.
Ahhh, ok, so that countered all monetary inflation of the massive rate cuts after the year *and* liquidity dumped in the market *and* falling demand? Holy crap! How could it counter all of this Weimar Republic "hyperinflation"???????

According to my calculation CPI didn't grow 6.5% in 07, source?
 

Mavtek3100

Senior member
Jan 15, 2008
524
0
0
Originally posted by: LegendKiller
Originally posted by: Mavtek3100
Originally posted by: LegendKiller
If this system were so inflationary and the expansion of liquidity so horrible, then why were there 0% CPI (both core and non-core) for Feb?
Simple after Christmas demand dropped like a rock. No excuse for the 6.5% CPI in 07 though.
Ahhh, ok, so that countered all monetary inflation of the massive rate cuts after the year *and* liquidity dumped in the market *and* falling demand? Holy crap! How could it counter all of this Weimar Republic "hyperinflation"???????

According to my calculation CPI didn't grow 6.5% in 07, source?
http://research.stlouisfed.org...00&recession_bars=On&s[1][id]=CPIENGNS&s[1][transformation]=pc1&s[1][scale]=Left&s[1][line_color]=%230000FF&s[1][range]=Custom&s[1][cosd]=2007-01-01&s[1][coed]=2008-02-01

Take that at 40% Food at 40% and all other items at 20% you come up with 6.51%
 

Mavtek3100

Senior member
Jan 15, 2008
524
0
0
Originally posted by: rchiu
Originally posted by: SleepWalkerX


Your analogy doesn't work that well. Because most of the adjustments made are artificial and the market eventually realizes the actual worth of the money being used. Its not actually any more powerful. If our system is so powerful then how come the dollar is no where near worth as much as it was in the 1700s? Is it a healthy thing when the purchasing power of the dollar gets smaller and smaller?

http://www.measuringworth.com/uscompare/

You are correct in that the government is just another thing the market has to work around.

Business cycles are a result of contractions/expansions in the money supply and could happen in either system. The reason is because when the money supply becomes worth less it takes a while for everyone in the market to adjust and realize that. Once the market realizes the actual value of the money being used then they adjust their prices, wages, etc to reflect that trend. (if it costs someone $30 to make a product and if the same $30 is now only worth $20 then the person is going to adjust his price or he will actually lose money on the product. now apply this on a bigger scale).
Heh, I don't wanna get into explaining to you how foreign exchange work, but if your sole reason for wanting gold standard is to protect US dollar, you are doing exactly what you preach against, using artificial means to mask the true health of a economy.

Going to a gold standard wouldn't do anything at this point except curb inflation, it wouldn't magically bring value back to the dollar. I think you might be putting words in keyboard.

USD is weak, but that's not because of fiat system. Yen is strong right now and Euro is strong right now against USD, why? they are using fiat system too. In a free international trade today, your competitiveness determines how strong your currency is. Having a gold standard doesn't change the fact that US offshores lots of manufacturing, buying lots of natural resources, and not selling enough stuff other country wants. You wanna protect dollar, do something through fiscal policy and create an environment that supports economic growth and friendly to businesses. Promoting gold standard will just do the opposite.
The Fiat system isn't helping anything.
 

NoStateofMind

Diamond Member
Oct 14, 2005
9,716
6
76
Originally posted by: LegendKiller
If this system were so inflationary and the expansion of liquidity so horrible, then why were there 0% CPI (both core and non-core) for Feb?
Got a link? I find that hard to believe. Not saying you're lying, I just would like to inspect the numbers for myself.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: Mavtek3100
Originally posted by: LegendKiller
Originally posted by: Mavtek3100
Originally posted by: LegendKiller
If this system were so inflationary and the expansion of liquidity so horrible, then why were there 0% CPI (both core and non-core) for Feb?
Simple after Christmas demand dropped like a rock. No excuse for the 6.5% CPI in 07 though.
Ahhh, ok, so that countered all monetary inflation of the massive rate cuts after the year *and* liquidity dumped in the market *and* falling demand? Holy crap! How could it counter all of this Weimar Republic "hyperinflation"???????

According to my calculation CPI didn't grow 6.5% in 07, source?

Take that at 40% Food at 40% and all other items at 20% you come up with 6.51%
lol
 

NoStateofMind

Diamond Member
Oct 14, 2005
9,716
6
76
Originally posted by: LegendKiller
Originally posted by: PC Surgeon
Originally posted by: LegendKiller
If this system were so inflationary and the expansion of liquidity so horrible, then why were there 0% CPI (both core and non-core) for Feb?
Got a link? I find that hard to believe. Not saying you're lying, I just would like to inspect the numbers for myself.
http://www.bloggingstocks.com/...-for-the-fed-to-cut-r/
-.05 for energy for the month of February? That is an odd figure when looking at Gas/Oil prices. I personally don't believe the figures but we have no other figures than what they provide us. So we are at the mercy of their honesty. Personally, I think you would have to be ignorant to believe that figure.
 

Mavtek3100

Senior member
Jan 15, 2008
524
0
0
LK don't like my calculation? Ok so tell me what the Fed's rate is? I find it hard to believe you can hold food and energy in the same regard as imported crap.

Why don't you provide us with the numbers that the Fed like?
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: Mavtek3100
LK don't like my calculation? Ok so tell me what the Fed's rate is? I find it hard to believe you can hold food and energy in the same regard as imported crap.

Why don't you provide us with the numbers that the Fed like?
Hey, it's on you to prove that their numbers are incorrect and not to create some bullshit you think is true by guesstimating real inputs.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: PC Surgeon
Originally posted by: LegendKiller
Originally posted by: PC Surgeon
Originally posted by: LegendKiller
If this system were so inflationary and the expansion of liquidity so horrible, then why were there 0% CPI (both core and non-core) for Feb?
Got a link? I find that hard to believe. Not saying you're lying, I just would like to inspect the numbers for myself.
http://www.bloggingstocks.com/...-for-the-fed-to-cut-r/
-.05 for energy for the month of February? That is an odd figure when looking at Gas/Oil prices. I personally don't believe the figures but we have no other figures than what they provide us. So we are at the mercy of their honesty. Personally, I think you would have to be ignorant to believe that figure.
Demand in all sectors retracted, so no, not such an odd figure.
 

Dissipate

Diamond Member
Jan 17, 2004
6,829
0
0
Another huge bank bailout today, and yet the Fed cheerleaders are still spouting their propaganda. Hilarious.
 

Dissipate

Diamond Member
Jan 17, 2004
6,829
0
0
Originally posted by: halik

Ha, that right there is a proof that you're clueless. Ask Japan how was their economy doing under deflation.

edit:

If businesses like to be in debt then I really can't help them. If you like to encourage businesses being in debt then something is wrong with you.

Wow...so you've never taken a single business/econ/finance class in your life. Please go back to illuminati and youtube videos, this sort of idiocy has no place in this thread. FYI deflation destroys the entire credit system: money tomorrow is worth more than today...try to swirl that idea in your tiny head.
So why doesn't inflation hurt lenders as much as deflation hurts borrowers?

 

Mavtek3100

Senior member
Jan 15, 2008
524
0
0
Originally posted by: LegendKiller
Originally posted by: Mavtek3100
LK don't like my calculation? Ok so tell me what the Fed's rate is? I find it hard to believe you can hold food and energy in the same regard as imported crap.

Why don't you provide us with the numbers that the Fed like?
Hey, it's on you to prove that their numbers are incorrect and not to create some bullshit you think is true by guesstimating real inputs.
Their estimate for CPI as far as I can tell is essentially the "All items Urban index". Which as of 08' measured from January 07' was at least from the graph 4.2%. CPI for items not including food and energy was less than 2%, food was 4.5% and energy 19.5%. I got 6.51% from the median they provided. It's actually higher if you account it like I do, which seems to be closer. Most middle class people spend 80% of their income on food and energy and 20% on "all other".

Maybe you can explain their numbers better?
 

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