Inflation, deflation & the future of money

Login or register to post comments Last Post 7174 reads   22 posts
Viewing 10 posts - 11 through 20 (of 22 total)
  • Sat, Oct 18, 2008 - 07:48pm

    #11
    switters

    switters

    Status Gold Member (Offline)

    Joined: Jul 19 2008

    Posts: 435

    count placeholder0

    Re: Inflation, deflation & the future of money

Here’s a scenario I’d like to hear your thoughts on:

It becomes clear that we’re mired in a deflationary recession/depression.  The price of gold and silver continues to fall due to widespread selling of paper contracts.

However, those holding physical metals do not sell.  They think it foolish to let go of their physical bullion, because they are convinced that at some point the price will rise again.  Although deflation is winning out over inflation, they are losing confidence in the future strength of paper money and in central banking.  So they deem it wise to hold on to their metal.

Because of this, the shortage of physical gold and silver that has become pronounced over the last few weeks continues.

At some point, the government’s efforts to print its way out of deflation begin to take effect.  Inflation and then hyperinflation ensue.  Then the dollar crashes.  At that point there is a massive rush to own physical gold and silver.  Only there isn’t much left to buy, since those who were holding during deflation are certainly not going to sell when the dollar collapses and paper money is looking worse and worse as a store of value.

This seems possible and perhaps even likely to me.  What about you?

Perhaps this is one reason why Chris (and others) believe that it’s still wise to hold gold and silver even if we’re headed for deflation? 

  • Sat, Oct 18, 2008 - 08:57pm

    #12
    jackal122004

    jackal122004

    Status Member (Offline)

    Joined: Oct 18 2008

    Posts: 1

    count placeholder0

    Re: Inflation, deflation & the future of money

 

With all due respect Gentleman, I do not doubt your knowledge.

But we are in a period of information overload. Academics and other have been crapping on for so many years to guarantee themselves an income that we have lost sight of what its all about.

The share market employs people because we the human race breeds too much, the Pyramid of consumption has under written the human population explosion, because nature can no longer feed the masses. Unfortunately it has always been greed that has undermined the foundations of this Pyramid. It is all of the consumers coming in on the base and the money/economy flowing up that is in itself the economy. When the money reaches the point, somebody/something removes the cash and turns it to Gold, starving the economy at its base by high unemployment and government debt because the Tax man and the Bankers who normally take their share as the money flows up are suddenly starved of funds. Depressions follow, Wars follow to reduce the starving masses by 68 million in two world Wars which were both started by the yanks in 1890 and 1930. However there were still too many people in Europe so people migrated to Australia from England and Europe.

Recently Australia invented the Superannuation Industry to create employment for the people the banks were throwing out onto the streets. The USA was loosing Jobs to India and China because U.S corporations were chasing cheap labor, the yanks tried the housing boom to employ those people, it packaged those bad loans to foreign banks and it has now come home to roost. The problem is the Yanks lost the plot because they thought they were hero’s who fought for freedom and democracy when they really only got rid of humanity that we couldn’t feed and who themselves were of no use to the Pyramid of consumption which had collapsed. Most other Pyramid games are Illegal why?

  • Sun, Oct 19, 2008 - 03:27am

    #13
    srbarbour

    srbarbour

    Status Bronze Member (Offline)

    Joined: Aug 23 2008

    Posts: 52

    count placeholder0

    Re: Boom and Busts

[quote]I think you are unfamiliar with the Austrian School of Economics
(mises.org). The Austrians maintain that boom and bust cycles are
caused by bank credit and monetary expansion.[/quote]

They are wrong.  The California Gold Rush is an example of a boom and bust caused by events completely unrelated to credit and monetary expansion.

That is only one of dozens of examples.  But as with any theory, one counter example is all it takes.

[quote]They don’t have confidence in the predictability of statistics and see them as pseudo-science. [/quote]

There is nothing pseudo-scientific about statistics, though lots of pseudo scientists make use of them.    In fact, with out quantification (and hence statistics) you can’t really have science at all.

I will therefore extend, that any science that does not attempt to measure the world and then use those measurements to verify their hypothesis, is not a science, but rather, a pseudo science.

[quote] Prices are not uniformily distributed and they don’t necessarily all move in the direction with the money supply.[/quote]

Which proves that defining changes in money supply as inflation/deflation, which were terms intended reference the real world experiences and challenges real people face, is inheriantly wrong.

[quote]It is confusing which is why Austrians are opposed to market
intervention. Intervention leads to bad calculations about future
prices, causing imbalances that build up over time until they reach a
critical threshold.[/quote]

That might have some merit, if prices weren’t distorted in the first place.

Don’t believe me?  How does the free market calculate in Peak Oil?  Climate Change?   It doesn’t. If it did, these situations would be of no cause for alarm.   Instead, we watch in horror as the market willfully ignores the dangers and plunges itself off a cliff.  No government intervention needed for the market to accomplish these tasks.

These are hardly the only examples either.  There are, again, dozens of real world examples of the market continuing to drive a exponentially expanding rate of production in this finite world right up until the system collapses whole sale.  It shouldn’t be at all surprising either, because the market are in the end based off the same principles of ‘natural law’ as the biological world… and guess what animal populations often do in the real world?  Boom and bust.  (Again, no credit expansion there…)

The market starts with its prices distorted.  Though I give Austrians kudos for pointing out that wielding such monetary manipulates like a cudgel will never help.

Steve 

  • Thu, Oct 23, 2008 - 03:51am

    #14

    KKPSTEIN

    Status Bronze Member (Offline)

    Joined: Oct 20 2008

    Posts: 77

    count placeholder0

    Re: Inflation, deflation & the future of money

Top notch thread.   A really good documentary that illustrates these points and principles is "Millennium Money".  Which is available on GOOGLE video. (I don’t think I can embed it in here, simply google the title). 

Strange days indeed.  A great wealth transfer igreater than we’ve recorded in last 4,000 years could take place in our lifetime.  If you get a chance to view this film, let me know what you think. 

 

  • Sun, Oct 26, 2008 - 02:52pm

    #15
    JoeNemeth

    JoeNemeth

    Status Member (Offline)

    Joined: Oct 24 2008

    Posts: 11

    count placeholder0

    Re: Inflation, deflation & the future of money

Statistics are a measure of ignorance. Let me give an example from a completely different area.

A little over five years ago I was diagnosed with colon cancer. During the process of treatment, the physicians kept trying to force-feed me statistics: this treatment increases your 5-year survival rate by 15% over a baseline of 50% from that treatment, etc. I finally told them to knock it off, and explained why, but they didn’t really get it.

Statistics apply only to ensembles. Which is a technical term for "group." They do not apply in any way to individual cases. If you take 1000 people with colon cancer, give them all treatments X, Y, and Z, and then check on them five years later, you’ll find that 700 of them (pick a number here) are still alive, and 300 are dead. If you look at any one of them, however, that one person either lived or died. They had either a 0% chance of survival, or a 100% chance of survival – they aren’t going to end up 70% alive and 30% dead.

The reason statistics are used is that physicians and researchers have absolutely no idea what differentiates the 700 survivors from the 300 mortalities. None. Zero. It’s a complete mystery. That doesn’t mean there isn’t a reason – it just means that the doctors don’t know what that reason is. If they knew, they’d offer an effective treatment based on that knowledge (or a death sentence if the cause was untreatable), approaching 100% certainty as the last of the underlying causes is fully understood.

The statistics are a quantitative measure of their ignorance. A 50% measure in a two-outcome system represents complete ignorance. A 100% measure (or 0% measure) in a two-outcome system represents complete knowledge.

Statistics are psychologically useful for the physicians themselves, because they are dealing with ensembles of patients, and a lot of their patients are going to die, which is distressing to any physician. It is very comforting to know that 30% of their patients, more or less, are already beyond their help when they walk in the door the first time, for reasons beyond their knowledge or power to change. However, there is no way for them to determine which of their patients is which. The statistics have absolutely zero predictive value at the individual patient level.

Statistics can also be useful in determining whether a treatment is working, even when you don’t know why it works. For instance, if you treat 1000 patients one way, and 700 of them survive, and then you treat the next batch a different way, and 900 of them survive, you MIGHT be on to something. Correlations of this sort are suggestive of possible underlying causes. Please note: suggestive of possible causes. Not proof. The results could be a pure coincidence. There are statistical measures that can give you the likelihood of a coincidence (likelihood => ignorance), and some commonly-accepted cutoff levels for acceptable degrees of "statistical significance," but these again boil down to specific measures of ignorance, and the cutoff levels are based on a balance of risk versus cost, and should normally be re-evaluated for any instance, based on the cost of the experiment, versus the risks involved with making a wrong decision.

As a predictive tool, you can only use statistics on ensembles. So you could say, for instance, that out of 10,000 different instances where money supply was increased over production, it was followed within one month by inflation in 70% of the cases, and by no effect or deflation in 30%, with a statistical significance of X. Therefore, we can predict that if we see another 10,000 instances of money supply increasing, we predict between 6,500 and 7,500 cases of inflation, with a confidence of X%, and between 6,900 and 7,100 with a confidence of Y%. However, if you try to turn that around and say, "The money supply has just increased, and therefore there is a 70% chance that we will have inflation within one month," it’s like the doctor telling me that I have a 70% chance of surviving. It doesn’t actually mean anything at all. If I try to use that information to decide whether to invest in gold or invest in cash, and the outcome of guessing wrong is total financial ruin, the statistics are of almost no value to me. I do say “almost” – knowing that there is a better chance of inflation than not, I’m (of course) going to play with the odds, not against them. But in the end, I either win, or lose, and there is no way to predict which it will be.

From what I’ve seen so far – and this has been a common complaint I’ve heard, which is one reason I’ve never been much interested in economics – economics has very little empirical basis, statistical or otherwise.

Instead, it has lots of a priori theories backed by cherry-picked examples (all of them competing, none of them consistently predictive in practice), and a vast number of rationalizations (listen to any investment advisor "explaining" why the market did this or did that). It isn’t clear to me that there are enough instances of inflation in different economies (or any other particular event) to even provide a decent ensemble size for a true neutral statistical analysis.

However, the academic field of economics is inherently politicized (the Chicago school, the von Mises school, the Keynesians, the Marxist school, the Joe Six-Pack school,…), and the outcomes are extremely politicized, with "right answers" and "wrong answers" based on who takes the blame and who ends up holding the bag of wealth. Doing physics in a politicized environment is hard enough. Doing economics…?

What I like about Chris’s approach is that it is very general, and its conclusions are pretty inescapeable. The current monetary system does require exponential expansion of the money supply, simply because of interest. That’s pretty inescapeable. Also clear is the fact that the true basics that underlie all of economics – population, resources, energy, trade – have been growing exponentially in a closed system, and are now approaching all their natural limits more or less simultaneously. The underlying economy has no choice but to level off, or shrink (barring a technological revolution that changes this whole picture and delays the inevitable for a while). That puts the monetary system in direct conflict with the emerging economic reality, and it is clear that (barring technological revolution), the money system is going to lose.

What kind of monetary system works in a flat or shrinking economy?

  • Sun, Oct 26, 2008 - 04:34pm

    #17

    Ray Hewitt

    Status Gold Member (Offline)

    Joined: Apr 05 2008

    Posts: 277

    count placeholder0

    Re: Inflation, deflation & the future of money

To Switters at #10

At some point, the government’s efforts to print its way out of
deflation begin to take effect.  Inflation and then hyperinflation
ensue.  Then the dollar crashes.  

I’m more certain of the dollar crashing than I am of hyperinflation, though I’m not ruling out hyperinflation. A crash of  the dollar would cut us off from foreign sources – not a pleasant thought either way.

This seems possible and perhaps even likely to me.  What about you?

I’m well stocked in silver. I ponder about whether to stock up on freeze dried food.

When we think of hyperinflation we tend to relate it to Weimer Germany and Zimbabwe. Those events happened within a few years while it’s taken the dollare almost a hundred years to depreciate 95%. Given how big our economy is, it’s a question if the feds have the means to cause hyperinflation in the Weimer sense.

All we can do is prepare for the worst as best we can. The details will get more obvious with time. By staying informed, we’ll see what comes ahead of the ignorant masses.

  • Sun, Oct 26, 2008 - 04:40pm

    #16

    Ray Hewitt

    Status Gold Member (Offline)

    Joined: Apr 05 2008

    Posts: 277

    count placeholder0

    Re: Inflation, deflation & the future of money

Srbarbour misunderstands Austrian Theory:

They [Austrians] are wrong.  The California Gold Rush is an example of a boom and
bust caused by events completely unrelated to credit and monetary
expansion.

The money supply certainly did expand, only with gold. As I recall, the boom and bust was local. The gold was shipped to England until the mines went dry. Then prices dropped.

There is nothing pseudo-scientific about statistics, though lots of
pseudo scientists make use of them.    In fact, with out quantification
(and hence statistics) you can’t really have science at all.

It depends on how the statistics are used. Economics is not a good subject for statistical analyses because they cannot predict changes in human behavior. The statistics will almost always miss turning points. Despite the best minds that have labored over mathematical models, it is a primary reason why this bust promises to be so severe. At best they are crude tools.

Which proves that defining changes in money supply as
inflation/deflation, which were terms intended reference the real world
experiences and challenges real people face, is inheriantly wrong. 

There is nothing wrong with the theory. It’s a simple relationship: general price level = money supply / supply of goods and services. The problem is that credit and money are so intermingled that it is impossible to come up with a meaningful quantitative measure of money, not to mention a meaningful quantitative measure of goods and services. This is another reason why statistical analyses is so flawed.

That might have some merit, if prices weren’t distorted in the first place. 

It is the intervention that distorts the prices. That’s why we’ve seen prices rise to $140 then drop to $70 in a short time.

How does the free market calculate in Peak Oil?

There is no free market anywhere on this planet. If there was, prices would rise with the cost of discovery and production. As they rose, other forms of energy would become competitive.

The market starts with its prices distorted.

Markets are always in disequilibrium as the factors of supply and demand change. It is government intervention that acts to prevent prices from changing in according with supply and demand that prevents the market from making the necessary adjustments. We would not be in this fix if it were otherwise.

There are, again, dozens of real world examples of the market
continuing to drive a exponentially expanding rate of production in
this finite world right up until the system collapses whole sale. 

That’s a direct outgrowth of excessive expansion of the money supply. Cheap money creates false expections of future prosperity.

Though I give Austrians kudos for pointing out that wielding such monetary manipulates like a cudgel will never help. 

As long as the political class refuses to let the market correct itself, things will continue to get worse. No one can blame them for not warning of the disastrous consequences.

  • Sun, Oct 26, 2008 - 04:48pm

    #18
    NoLogos

    NoLogos

    Status Member (Offline)

    Joined: May 17 2008

    Posts: 3

    count placeholder0

    Re: Inflation, deflation & the future of money

 I am yet another person that thinks of economics as ‘the dismal science.’ It makes few testable predictions, and the serious folks in the field are drowned out by shills who are told to support business as usual. Alfred Nobel never thought to attach his name to a prize in the field of economics-it was shoehorned in by a bunch of banks during the ’20s, if memory serves. 

 The amount of money out there is controlled by a few people. Those people and a few more decide if most of the money is stored or spent. It looks to me like the money supply is growing exponentially, and it also looks to me like many big players are sitting on much of the newly created money at present. If true, then we could have very fast changes in the value of money if a few people change their actions. What will they do? I don’t know, and increasingly don’t care.

 What I do know is that there are more and more people on this planet, and that means that essentials will become increasingly harder to afford. It matters very little to me if the price of McMansions, SUVs, and electronics decline in price faster than the price of food (and, until recently, energy) increases, because I cannot live without food and some sources of energy. So, in my humble opinion, forget the pieces of paper with dead politicians’ faces printed on them. Make sure that you can get essential goods in the future, even if you have to grow your own food and purify your own water. An unsustainable system must break at some point unless it is changed first, and it looks to me like the unsustainable economic system is being propped up as it breaks. Don’t depend upon this unsustainable system any more than you have to. 

  • Sun, Oct 26, 2008 - 05:04pm

    #19

    admin-2

    Status Silver Member (Offline)

    Joined: May 05 2007

    Posts: 150

    count placeholder0

    Re: Inflation, deflation & the future of money

[quote=KKPSTEIN]Top notch thread.   A really good documentary that illustrates these points and principles is "Millennium Money".  Which is available on GOOGLE video. (I don’t think I can embed it in here, simply google the title).[/quote]

All registered users are able to embed Google and YouTube videos on the site.  See the "Input format" section below any entry field for information on how to do so.  Just need the URL prefaced by "video:" and surrounded by brackets.  Let me know if any questions.

  • Tue, Oct 28, 2008 - 09:22am

    #20
    Bootstrapper

    Bootstrapper

    Status Member (Offline)

    Joined: Oct 28 2008

    Posts: 2

    count placeholder0

    Re: Inflation, deflation & the future of money

[quote=JoeNemeth]

What kind of monetary system works in a flat or shrinking economy?

[/quote]

One that’s not lent into existence, at interest.

The concept of ‘Money’ rightfully belongs to  the Commons, but has been ‘privatised’ for several hundred years. 

The most fundamental change that’s needed is to strip private interests ( such as the ‘Fed’ ) of their privilege of issuing or creating money and place it firmly back in the hands of the people ( through their representatives ) who will [i]spend[/i] it into existence, with NO interest component.

http://alt-money.tribe.net/thread/70e5eb29-853d-44ca-9faa-b789d1757037

http://circ2.home.mindspring.com/TGWoerglCommentDistributed.htm

http://www.appropriate-economics.org/ebooks/neo/neo.htm

I’d ban fractional-reserve banking and impose severe ( taxation ) penalties on any form of speculation.

Regards,  Paul.

Viewing 10 posts - 11 through 20 (of 22 total)

Login or Register to post comments