Originally posted by Mr. Clutch Not all would, but many would because a lot of mainstream economics were very influenced by Keynes, a liberal economist. There are a lot of free market thinkers who would disagree with the idea that monetary value is just a hallucination. Since we went off the gold standard many years ago, what is it to you? Remember Keynes advocated a lot of government printing and spending of money to get us out of the recession. That's something I disagree with. It's the same idea at work here. You disagree w/ monetary AND fiscal policy? What do you mean by 'disagree', anyway? That they shouldn't be used or they don't work?
On the first point, I am talking about whether money itself has value. It has nothing to do with the gold standard. Does the dollar have any value outside of the government? I say it does, because people agree upon it as a unit of exchange. This is mostly philisophical, but it is important when we talk about the effects of the printing of money. On the second point, I don't "disagree" with them. I think they won't work. I think the government SHOULD spend money on welfare, the military, bureaucracy, etc. But as a matter of controlling the economy it will just do more harm. When the government prints money, it is devaluing the dollar and causing inflation. In the long term we will feel it. Printing money is the wose problem.
We would still have an artificial increase in inflation. Sure the net result might be 0, but printing out a bunch of money is going to have an effect. Just because it's an offsetting effect doesn't mean it doesn't suck.
First (to be technical), it sounds like it's federal reserve funds (M0), not new currency. That said, M1, M2 and M3 do not include foreign held dollars. How does that jive with your explanation?
If no new money is being printed, then good. What can I say?That is much better than just printing money out of thin air and devaluing what is in everyone's pockets. I don't understand your 2nd question. What explanation are you talking about? Why are you acting like I am holding some extremist viewpoint? These ideas were formulated by F.A. Hayek and Ludwig von Mises, both of whom championed free markets and capitalism over socialism and government control of the economy. There is nothing very different about their views except that they believe that the supply of money is very important, and that printing money out of thin air is going to have serious effects on the economy- inflation and boom- bust cycles. Unfortunately, since World War ii every administartion has been built around the ideas of Keynes and has not hesitated to print and spend as much money as possible when they felt it necessary.
Originally posted by Mr. Clutch On the first point, I am talking about whether money itself has value. It has nothing to do with the gold standard. Does the dollar have any value outside of the government? I say it does, because people agree upon it as a unit of exchange. ... That is the 'hallucination' part. It could disappear overnight. Would the failure of the US government do it? Maybe; it certainly would at least cause the dollar to plummet. On the second point, I don't "disagree" with them. I think they won't work. I think the government SHOULD spend money on welfare, the military, bureaucracy, etc. But as a matter of controlling the economy it will just do more harm. When the government prints money, it is devaluing the dollar and causing inflation. In the long term we will feel it. Printing money is the wose problem. Sorry, but that sounds like a simplistic view of the money supply. What happens as the economy grows? When the velocity of money increases? When demand for dollars overseas increases? Should the Fed sit passively by and let the dollar strengthen to ungodly proportions, thus suffocating our exports?
Oh I see what you mean about your 2nd question. Well, just because M1, M2, and M3 don't account for foreign held dollars doesn't mean that an increase of foreign held dollars won't have an effect. By the way, any economist who subscribes to the free market theories I am talking about saw the current recession coming from 100 miles away.
So the value of money can disappear overnight? So what? You could say the same thing for some fancy new clothes by some French designer. I am saying that money HAS true value and that is NOT just some magic trick the government is pulling on us. I am not an economist and am not explaining this view of monetary policy in all it's complexity. Other theories are similarly simplistic. Look at the Monetarists, the school of Milton Friedman, he simply believes the money supply should increase at a small rate to keep up with economic groth. I believe money supply should be stable. I don't think the dollar will strengthen to ungoldy proportions, but even if it does, I don't see how printing money to drive down the value of it can possibly be any good. If you want an explanation of how my theory takes the velocity of money into account, I could find one. (I have read it before but I can't possibly memorize it.)
Originally posted by Mr. Clutch Oh I see what you mean about your 2nd question. Well, just because M1, M2, and M3 don't account for foreign held dollars doesn't mean that an increase of foreign held dollars won't have an effect. True, but it does show how even though at least 50% of our currency is overseas, the inflationary impact is very minimal since it was created by a demand in the first place. By the way, any economist who subscribes to the free market theories I am talking about saw the current recession coming from 100 miles away. Just because a model has good predictive ability doesn't mean that it can be used as a basis to recover from a correction. And as for seeing the recession coming, it was the longest expansion ever, the dot.com bust had already started, and many indicators started turning about a year before the recession.
I have no problem with our currency being overseas. If the Bush wants to ask Congress to send more money out of the budget to Iraq, then it is just fine with me. My problem comes when they print NEW money and increase the money supply, whether it is used here or in Iraq. Just because 50% of our money is overseas doesn't mean there is a 50% increase in the number of dollars, as far as I know. Well, it isn't just about predicting when a recesson is coming. It's about looking at the fundamentals of the economy and figuring what is going wrong when there are so many business cycles. I was expecting a recession much sooner. The very rapid boom was enough for lots of people to start looking at comparisions to earlier booms and busts.
I think I understand your point but the point I and others are making is that increasing money supply, even by just printing new money, is not a problem if the increase is proportional to the increase in the total amount of goods and services based on the dollar. Since the US dollar, even freshly printed ones, is replacing the Iraqi dinar, at least temporarily, it is not as big a deal as you think. Let me demonstrate: Say the total US economical value is represented by 10 brand new BMWs. And the money supply is US$100. (so $10/BMW). Now Iraq's total economic value is represented by one 20 year old Volkswagen that still runs but is a little run down. Currently it is represented by Iraq D$100000. Since the Iraqi Dinar is nearly worthless and no one wants it is a bad currency and people won't use it for trade and won't accept it as payment for salaries, good, services, etc. Trade and commerce slows down in Iraq if it continues using Iraqi D$. So the US will burn the Iraq D$10000 and replace it with $1 which is printed out of nothing. So now the total US money supply is $101 representing 10 brand new BMWs and 1 old Volkswagen. Yes the new $1 is printed from nothing but since it "represents" the addition of the 1 old volkswagen, there is no inflation and no devaluation of the $US. (OTOH, there would be inflation if we printed out a new $1 but $101 represented still the same 10 BMWs and didn't add any additional goods and services to the mix that the dollar represents.) Does this make sense and do you now see why it is not an issue to increase the money supply to replace the Iraqi Dinar?
I understand that r35353, but I think it's wrong. After all there are new products and more demand created every day through the normal economic process. Oh well, I'm too tired to try to explain the opposing view...
