So, how much more does the dollar fluctuate versus gold and over what period?

“During a noninflationary environment, a fall in consumption must mean increased investment activity; it’s self-evident.”

And yet, that hasn’t happened at all. In fact, the increased monetary base is resulting in very little extra money in the actual economy. Banks aren’t lending much and consumers continue to save. So, where’s the increased investment, and against what baseline?

“And this so-called “stickiness” is the cause of unemployment. Say’s law holds; real money balances would be restored.”

Say’s law is an accounting identity, not an empirical concept. Show me evidence that there is such a thing, or that it’s even relevant when investment has dropped considerably and is flat.

“Utter nonsense; this failed a long time ago buddy, the FED can’t target the money supply. Try to stay within this decade.”

The Fed just hasn’t done it right. Set a nominal GDP target and stick to it through thick and thin and the markets will respond much more positively. Most of this mess was avoidable.

And the Fed doesn’t have to anticipate inflation. They can respond to price levels. Some Austrians are very wrong to claim that increases in the monetary base are the same thing as inflation. As the current situation demonstrates, when there’s a bottle neck concerning bank lending, this is far from the case.

”
“Yes, the FED has been able to push back this great depression for quite some time through perpetual (and often rapid) expansion of the money supply. Unfortunately, this little scheme must eventually destroy itself. By the way, the FED began open market operations in 1922 under your idol Fisher, causing an inflationary environment, and an inevitable bust, just like Hayek and Mises predicted (Hayek predicted the great depression 3 months in advance). Milton Friedman was a Fisherite chosen by the Statists to represent “capitalism.” His theories were obliterated in the 20s-30s, and he has caused much harm with his “floating exchange rate” scheme. We’ve had steady price levels (as we did in the 20s), and now we’re pumping massive “monetary stimulus” into the economy; let’s see how it works out. Fisher gets to be discredited Once again!”

How much malinvestment was there in the 20s? In what proportion was it to the downturn beginning in ’29? Where are your numbers? It’s easy to demonstrate mathematically that if Roosevelt hadn’t chickened out on his pro-dollar debasement policy, the depression may have ended years before it did. The market needed a clear signal regarding monetary supply meeting the extreme demand to bring employment and price levels closer to full employment levels.

“”The Austrian approach just does not make sense, and worse, it doesn’t fit the data.”

Try understanding it before you criticize it.”

Are you aware that Hayek was not a liquidationist during the Great Depression? He changed his mind. Apparently, you don’t even know the history of what has long been a purely historical, as opposed to theoretically vibrant, economics.

See this link, for example:

http://economics.sbs.ohio-state.edu/jmcb/jmcb/07056/07056.pdf

Yes, but one fluctuates more rapidly than the other, thus the desire to use the more stable currency. Only when the government, by decree, sets an arbitrary fixed exchange ratio amongst two different types of currency does Gresham’s law hold (the “better currency” will be saved for international transactions).

“You’re forgetting that decreasing consumption leads to decreasing investment”

You’re forgetting that that’s complete nonsense; it didn’t make sense when Keynes said it, and it doesn’t make sense today. Only in inflationary scenarios can this possibly hold true (since the rate of interest will rise even if there’s an increase in savings, due to a prolonged artificial reduction in interest rates). During a noninflationary environment, a fall in consumption must mean increased investment activity; it’s self-evident.

“And wages are sticky in deflationary environments, except when the money supply is increased.”

And this so-called “stickiness” is the cause of unemployment. Say’s law holds; real money balances would be restored.

“When economic actors know the Fed has a target inflation rate of 3% in a given year and are reasonably sure that rate will be realized, they will factor it into their economic decisions in the first place and very little actual purchasing power will be lost.”

Utter nonsense; this failed a long time ago buddy, the FED can’t target the money supply. Try to stay within this decade.

“Inflation is only important when it’s unexpected, or when expectations for continuous, untargeted inflation develop.”

Expecting the actual rate of inflation is impossible, as interpreting individual’s demand for money requires omniscience. This is why the FED cannot target the money supply; it is uncontrollable. There exists a multi-tier debt structure, all of which create fiduciary media. This is why, during hyper-inflationary scenarios, P rises faster than M (to use simple terms you’re familiar with).

“Also, long before the current Fed and fiat money, there were far more severe crashes and downturns than this one.”

Yes, the FED has been able to push back this great depression for quite some time through perpetual (and often rapid) expansion of the money supply. Unfortunately, this little scheme must eventually destroy itself. By the way, the FED began open market operations in 1922 under your idol Fisher, causing an inflationary environment, and an inevitable bust, just like Hayek and Mises predicted (Hayek predicted the great depression 3 months in advance). Milton Friedman was a Fisherite chosen by the Statists to represent “capitalism.” His theories were obliterated in the 20s-30s, and he has caused much harm with his “floating exchange rate” scheme. We’ve had steady price levels (as we did in the 20s), and now we’re pumping massive “monetary stimulus” into the economy; let’s see how it works out. Fisher gets to be discredited once again!

“The Austrian approach just does not make sense, and worse, it doesn’t fit the data.”

Try understanding it before you criticize it.

“To Mr. Sandifer this is from Wikipedia: “Gresham’s law is commonly stated: ‘Bad money drives out good.’

This law applies specifically when there are two forms of commodity money in circulation which are required by legal-tender laws to be accepted as having similar face values for economic transactions.’”

Wiki is supposed to substitute for an evidence-based argument? Think for a minute. Both commodities and paper money fluctuate in value… That alone pokes a hole in any idea of continuous commodity currency dominance. And what if the commodity the private money consists of experiences a bubble? Wouldn’t the private issuer have an incentive to issue more currency over reserves without raising interest rates for depositors? Speculation sometimes takes hold until the whole thing ends up in a bank run when the commodity bubble collapses.

“Mike Sandifer: “There is nothing wrong with fiat currencies when there is discipline. There is nothing right about gold standards when there isn’t.”

I don’t think I even understand the second statement. Please explain.”

Politicians have always watered down or abandoned gold standards or competing currencies whenever it suited them. That’s why there are virtual no non-fiat currencies around today. So, even if you think a gold standard or competing currency is a good idea, it’s very, very unrealistic.

“No, people make more frequent smaller purchases. Isn’t that an increase in the rate of purchases?

But what’s your point? How is this damaging? People make less frequent purchases and save their money. This includes businessmen and corporations as well (you can see this happening today). Bad companies go away, resources are freed up, people are now sitting on real capital. The people saving their money see an opening and use their savings to fund new ideas/innovations/investments/whatever.”

You’re forgetting that decreasing consumption leads to decreasing investment and increasing job losses that are mutually reinforcing on the downside. Deflation of this sort is a trap that is hard to get out of.

This law applies specifically when there are two forms of commodity money in circulation which are required by legal-tender laws to be accepted as having similar face values for economic transactions.”

In the system Austrians want to go to there wouldn’t be legal tender laws so Gresham’s law doesn’t apply according to that definition.

But regardless, wouldn’t people stop accepting the crappy currency eventually? Businesses would just stop wanting to take it, which is what would happen if banks could issue their own currencies. The stuff not worth anything would just stop being traded at some point because the bank went under or it was deemed to be worth less than dirt. But again, that’s a moot point without legal tender laws.

Mike Sandifer: “There is nothing wrong with fiat currencies when there is discipline. There is nothing right about gold standards when there isn’t.”

I don’t think I even understand the second statement. Please explain.

To the first sentence, I’d prefer a system not as easily subject to to whims of politicians. Call me crazy.

Mike Sandifer: “People don’t stop buying food and gas, the rate of purchases slows. People wait on the more expensive food items and put less gas in their cars-per-trip to the gas station to save money.”

No, people make more frequent smaller purchases. Isn’t that an increase in the rate of purchases?

But what’s your point? How is this damaging? People make less frequent purchases and save their money. This includes businessmen and corporations as well (you can see this happening today). Bad companies go away, resources are freed up, people are now sitting on real capital. The people saving their money see an opening and use their savings to fund new ideas/innovations/investments/whatever.

They still haven’t recognized it is the scheme that is flawed (Keynesian)

What they don’t seem to be grasping, is the scheme has run its course, by falsifying values to the point that a correction is due and they have no idea how deep it will correct or where or for how long.

So to protect the status quo and try to protect the tax flow they are falsifying worth and value to a heightened state by printing money in hopes it is a temporary glitch they can use to find another income stream…….HEALTHCARE seems to be that target; that stream.

The government isn’t fixing the problems it created but trying to find another lucrative cash flow to sustain its falsification of worth delivered by political merit and not market worth to maintain there political position.

They are in fact in hot pursuit of whatever income stream is left, to corrupt the system of worth by merit or market value and replace it with government selected value based on political favor and whim.

Socialisms claws of deception. Market worth is nearly fully corrupted and will soon be under house arrest when they pass of this boondoggle of a bill to insure the last vestiges of financial wealth creation are under the government perversion of value.

“That was my point. Deflation doesn’t stop people from consuming necessities, on the contrary and it does not stop them from buying what they want to buy right now.

Those who wait to make a purchase probably would still have waited in an inflationary environment.

That’s my point.

It’s easy for a Keynesian to say that people will stop to buy big Plasma TV’s in a deflationary environment because people want to wait for a better price of a better TV.

But what about food and gas, people need it now and will not wait.”

You completely missed my point. People don’t stop buying food and gas, the rate of purchases slows. People wait on the more expensive food items and put less gas in their cars-per-trip to the gas station to save money.

Would you fill your tank up this week if gas prices would be ten percent less next week and you don’t expect to use a whole tank of gas? Maybe, but what about a 20% expected drop in prices?

And wages are sticky in deflationary environments, except when the money supply is increased.

“Keynesians believe we are cursed by abundance. The only thing people have in abundance is stupidity.”

Many of you Austrian amateur economists seem to think that the only two approaches to economics are the Austrian and Keynesian. Apparently, you’ve never heard of monetarists. Most economists today recognize some monetarist/Keynesian consensus, but have different emphases on montary versus fiscal policy, especially stimulus.

There is nothing wrong with fiat currencies when there is discipline. There is nothing right about gold standards when there isn’t.

“The theory of non-fiat currency doesn’t really need a historic precedent anyway. We still keep our wealth in commodities like gold, oil, stocks, etc. Everyone knows these assets are preferable to dollars.

Everyone on mises wants to abolish the fiat currencies, which is a sound idea. Really all you need to happen is for the federal government to allow us to trade gold like we trade dollars, so that competition with better currencies can drive fiat money out of the market.”

Apparently, you’ve never heard of Gresham’s law. You have it exactly reversed. Currency with less intrinsic value tends to drive out the more valuable. People prefer to hold the better currency and offer the inferior one in trade.

Yet which ‘-flation’ are you talking about, 2A? The change in the volume of money or the change in volume in goods & services? You, like most others, want inflation to refer ‘upwards change in money supply’ whilst deflation to mean ‘more good & services in a static money supply’ thus talk about two different things.

Beside people carry on with their purchases in mildly inflationary and deflationary environment? Wow. After all, if inflation and deflation are relatively low and everyone’s constantly transacting then there’s little damage either way.

It’s funny that you didn’t get my sarcasm about food and gasoline.

Keynesians argue that deflation causes people to stop consuming. Yeah, right, like they will stop eating or filling up.

That was my point. Deflation doesn’t stop people from consuming necessities, on the contrary and it does not stop them from buying what they want to buy right now.

Those who wait to make a purchase probably would still have waited in an inflationary environment.

That’s my point.

It’s easy for a Keynesian to say that people will stop to buy big Plasma TV’s in a deflationary environment because people want to wait for a better price of a better TV.

But what about food and gas, people need it now and will not wait.

I agree, Microsoft’s Vista is ruining everything.

But my point is that technological advancement and productivity increases leads to deflation and yet this creates wealth for all.

So deflation is not the enemy.

You can trade Gold like you trade dollars. You can buy a car, groceries, pay your handyman with gold coins and if the price is right they will accept it.

Some will refuse because of the accounting hassles. But any place you pay in cash you could theoretically pay in gold.

A quick search on mises.org and wikipedia reveals that the “long depression” was not in fact a depression. There were soaring levels of economic growth, employment rates and standard of living.

The reason this period lives in infamy is because a few select groups, such as farmers, seemed to suffer while bigger players and international markets put them out of business.

Wildcat banking or the era of free banking was only free from federal regulation. States still wrote policies for reserve requirements and set interest rates.

The theory of non-fiat currency doesn’t really need a historic precedent anyway. We still keep our wealth in commodities like gold, oil, stocks, etc. Everyone knows these assets are preferable to dollars.

Everyone on mises wants to abolish the fiat currencies, which is a sound idea. Really all you need to happen is for the federal government to allow us to trade gold like we trade dollars, so that competition with better currencies can drive fiat money out of the market.

Oh yes, take one particular industry where the technological pace was at its fastest. Newflash -computers aren’t getting particularly faster or cheaper that much any more.

And, of course, Biotube ‘no one’ suffers from deflation. Not those whose loan is getting harder and harder to pay off, not those who are contracted to pay a fixed amount of money per year to someone, not those who get pay cuts in line with deflation, etc.

Quite frankly if you argue deflation is good because you’re thinking of the price of goods & services coming down whilst the money remains the same then the only bad inflation that matters is a pool of shrinking good & services where people are trying to outbid each other with the same amount of money they had before. Or, alternatively, deflation caused by a shrinking money supply doesn’t really matter the same way that an increasing money supply doesn’t really matter as long as people have some time to adjust.

If the expectations for inflation are already factored in, seigniorage isn’t a problem, other than being a tax.

96 years of sand? Surely you’re not referring to the purchasing power of a dollar 96 years ago compared to today. Inflation is only important when it’s unexpected, or when expectations for continuous, untargeted inflation develop.
When economic actors know the Fed has a target inflation rate of 3% in a given year and are reasonably sure that rate will be realized, they will factor it into their economic decisions in the first place and very little actual purchasing power will be lost.

That mistake was excusable when Adam Smith made it(economics was new), but it’s been long proven that inflation is always lopsided – that is, some gain access to the newly printed money first and benefit from the higher quantity before value has a chance to drop(this is seigniorage); this comes as the cost of the last to get access to it. The lopsided nature of inflation is why bubbles always have affect one sector more strongly than the rest(were inflation even, it might not be so bad).