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Ask an Economist (Post #1005 and counting)
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JerichoHill
Bedrock of Knowledge
@@DNK
Now, assuming that all else remains neutral (supply and demand for everyday goods, fuel prices, wage rates, etc), is this a true statement or completely baseless, and why?
Seems to be a logically coherent , but not a true statement. Debt itself doesn't increase money supply. And money supply increasing doesn't cause inflation if the economy is growing. If our economy is worth 1000 and our monetary supply is 1000, and a year later our economy is worth 1100 and the monetary supply is 1100, there's no inflation.
From another forum on a debate on the pros and cons of the gold standard and the concept of the "compound interest paradox" (any words on those?).
As best as I can tell from my quick googling, those who believe in that do not understand monetary theory. They seem to be gold bugs who think that the income tax is illegal. They also seem to ignore the fact that the money for the loans was already in the economy to begin with .
@@GodwynnDo you expect the Fed to cut again in January?
Sadly, I do, and I expect a quarter cut. I grow more fearful of a Japanese style recession in the US. We don't have that far to go until real interest rates are negative again. We have inflationary pressure. I don't see how the Fed can justify a rate decrease with a good many outward signs of inflation. But I fear they will because its an election year. Folks like Lew Summers want to trade short term solutions for long term problems.
@@EconomistBR
First, the unemployment statistics don't cause any need for increased worry about the economy. 5% is darn low and right around where we have been historically. Alot of other signs should have been troubling you for awhile.
Now, assuming that all else remains neutral (supply and demand for everyday goods, fuel prices, wage rates, etc), is this a true statement or completely baseless, and why?
Seems to be a logically coherent , but not a true statement. Debt itself doesn't increase money supply. And money supply increasing doesn't cause inflation if the economy is growing. If our economy is worth 1000 and our monetary supply is 1000, and a year later our economy is worth 1100 and the monetary supply is 1100, there's no inflation.
From another forum on a debate on the pros and cons of the gold standard and the concept of the "compound interest paradox" (any words on those?).
As best as I can tell from my quick googling, those who believe in that do not understand monetary theory. They seem to be gold bugs who think that the income tax is illegal. They also seem to ignore the fact that the money for the loans was already in the economy to begin with .
@@GodwynnDo you expect the Fed to cut again in January?
Sadly, I do, and I expect a quarter cut. I grow more fearful of a Japanese style recession in the US. We don't have that far to go until real interest rates are negative again. We have inflationary pressure. I don't see how the Fed can justify a rate decrease with a good many outward signs of inflation. But I fear they will because its an election year. Folks like Lew Summers want to trade short term solutions for long term problems.
@@EconomistBR
First, the unemployment statistics don't cause any need for increased worry about the economy. 5% is darn low and right around where we have been historically. Alot of other signs should have been troubling you for awhile.
JerichoHill
Bedrock of Knowledge
What kind of economist are you? The obvious answer there was depends.
happy_Alex
Happiness set to 11
First up, whats with all the bold? I can hear you 
Thanks for taking the trouble to write such a thorough answer
, you're actually begining to make sense in your old age 
Okay this makes sense. I imagine one problem of the public sector is quantifying the work done- as you say positive externalities are not renumerated, fro example meaning that counselling a student might be beneficial to society, but not involve any 'renumeration', right ?
I thought 'free riders' were people who sponged of the system, i.e. staff not pulling their weight or adding surplus value?
Thanks for taking the trouble to write such a thorough answer
, you're actually begining to make sense in your old age Okay I get this. Thing one is, presumably, what is 'public' good is determined by the values of a culture, and their democratic expression, which is what you go on to say, For example, we currently have a universal education system, whereas in the past, education was provided to a priviledge few... Does this affect excludability? In the UK some kids still go through the entire system without being able to learn to read and write, so somewhere along the line they are not getting the 'goods' they need. For example, in a class, where some students use up the finite time and resources of a teacher, does this not exclude other students from using that time. It happens alot.
Okay this makes sense. I imagine one problem of the public sector is quantifying the work done- as you say positive externalities are not renumerated, fro example meaning that counselling a student might be beneficial to society, but not involve any 'renumeration', right ?
I thought 'free riders' were people who sponged of the system, i.e. staff not pulling their weight or adding surplus value?
JerichoHill
Bedrock of Knowledge
Aww Shucks I missed that pun!
@@happy_Alex
First up, whats with all the bold?I can hear you
I bold the response so it stands out as what I said when responding. Italics are too feminine.
Thanks for taking the trouble to write such a thorough answer
, you're actually begining to make sense in your old age That's dangerous Alex. Next thing you'll tell me that capitalism isn't so evil
Okay I get this. Thing one is, presumably, what is 'public' good is determined by the values of a culture, and their democratic expression, which is what you go on to say, For example, we currently have a universal education system, whereas in the past, education was provided to a priviledge few... Does this affect excludability?
Culture has a role to play yes, because its going to affect the cost/benefits of some externalities based on what cultures value, which will be different across societies. We haven't really gotten a handle on how to price in culture to our models. It's a difficult concept to quantify, and the best we can do is use a one-off approach, which is only approximate.
In the UK some kids still go through the entire system without being able to learn to read and write, so somewhere along the line they are not getting the 'goods' they need. For example, in a class, where some students use up the finite time and resources of a teacher, does this not exclude other students from using that time. It happens alot.
I think we call this "dumbing down" in America, where you teach to the level of the slower students. You've now stumbled upon one reason why some advocate a fully privated educational system. I think, though, generally speaking, most economists would agree that education of a society is a public good. But we'll need to define education, because I may mean basic primary education, and another may mean education in pre-medieval art...
Okay this makes sense. I imagine one problem of the public sector is quantifying the work done- as you say positive externalities are not renumerated, for example meaning that counselling a student might be beneficial to society, but not involve any 'renumeration', right ?
It is a difficult task to quantify the contribution of counseling to an individual in a income or otherwise measurable fashion. It's pretty easy to quantify education. It's tougher to quantify counseling, because there we now have to quantify not only what that individual gains, but all those that interact with them, and then those that interact with them...and so on.
I thought 'free riders' were people who sponged of the system, i.e. staff not pulling their weight or adding surplus value?
Free rider will mean several things, but yes, that's most commonly what it means.
Thanks for the response.
In order for the money supply to not shrink, therefore, new loans must be made so people can pay back interest. Soon enough, all money is owned to banks. If the banks did not give out new loans, the economy would collapse and they would start gaining assets through defaulted collateral debts even faster.
The point was made that "some economists" believe that there isn't enough money in circulation today to pay back all current loans.
Another point is that banks create money out of nothing, but your average person cannot, therefore the banks control all the money. If your average person takes a loan and then loans it to another person, it is not truly their money, it's still the central banks'.
Another pair of points was that the Fed has no real oversight and is "loaning the government its own money", money which only the government should have the authority to print, but a private bank gets to instead.
The Fed is "lending people their own money".
It's confusing.
Oh, and Greenspan is for a return to a gold standard. Yes, they're gold bugs. I'm failing to see why a return to a gold standard would be beneficial in any way... They are not very convincing. And they have given no hard evidence to back up points like "there isn't enough money in circulation to pay back all loans".
Perhaps the debt issue was distracting. I equated economic growth with growth in "goods", including whatever you wanted in throw into that category. Basically, anything worth something that one would pay for. Not sure if that's the right definition.
The argument I keep getting over and over again is: that all money in the economy is created by loans. Each year new loans are created that require interest to be paid. When the loan is paid back that "money" is destroyed, but the interest paid is removed from the economy (where it goes I don't quite get, apparently the banks are just hoarding money and sitting on it?). So each year more interest is paid to the banks, and they slowly accumulate all wealth in existence.
In order for the money supply to not shrink, therefore, new loans must be made so people can pay back interest. Soon enough, all money is owned to banks. If the banks did not give out new loans, the economy would collapse and they would start gaining assets through defaulted collateral debts even faster.
The point was made that "some economists" believe that there isn't enough money in circulation today to pay back all current loans.
Another point is that banks create money out of nothing, but your average person cannot, therefore the banks control all the money. If your average person takes a loan and then loans it to another person, it is not truly their money, it's still the central banks'.
Another pair of points was that the Fed has no real oversight and is "loaning the government its own money", money which only the government should have the authority to print, but a private bank gets to instead.
The Fed is "lending people their own money".
It's confusing.
Oh, and Greenspan is for a return to a gold standard. Yes, they're gold bugs. I'm failing to see why a return to a gold standard would be beneficial in any way... They are not very convincing. And they have given no hard evidence to back up points like "there isn't enough money in circulation to pay back all loans".
JerichoHill
Bedrock of Knowledge
With the Euro appreciating, I don't see how it can be called "overflow"
The Euro economy seems to be a mixed bag of really good and really mediocre, and a little bit of god awful bad. I'm tempted to make no claim until I see how France sorts itself out.
JerichoHill
Bedrock of Knowledge
@@DNK
Thanks for the response.No problem, that's the purpose of the thread.
Perhaps the debt issue was distracting.
I think it typically is
I equated economic growth with growth in "goods", including whatever you wanted in throw into that category.
Then some debt wouldn't be a good so to speak, because debt is simply the purcahse of a good, so you'd be double counting if you counted the physical good and then also debt itself.
The argument I keep getting over and over again is: that all money in the economy is created by loans.
That's not true. Some money is created physically, other is created through the fraction reserve system
When the loan is paid back that "money" is destroyed, but the interest paid is removed from the economy (where it goes I don't quite get, apparently the banks are just hoarding money and sitting on it?).
They're the bank's returns. They pay out costs and the leftover is their profit
So each year more interest is paid to the banks, and they slowly accumulate all wealth in existence.
I'm afraid I laughed at that. If the banks are managing to accumulate all the wealth, they're doing a horrible job.
In order for the money supply to not shrink, therefore, new loans must be made so people can pay back interest.
New loans must be made because the economies of the world are growing. If the economies of the world are not growing, no need for money supply to grow.
Soon enough, all money is owned to banks. If the banks did not give out new loans, the economy would collapse and they would start gaining assets through defaulted collateral debts even faster.
Probably not, because debt is normally determined to be payable back to the issuer before they issue it, sound business practice and all (home mortgage crisis notwithstanding...)
The point was made that "some economists" believe that there isn't enough money in circulation today to pay back all current loans.
And that's a problem?
Another point is that banks create money out of nothing, but your average person cannot, therefore the banks control all the money.
Bank's don't create money out of nothing. They are allowed to loan out based on a fractional reserve system.
If your average person takes a loan and then loans it to another person, it is not truly their money, it's still the central banks'.
I could make loans to other people with my own holdings that are not loans. That logic doesn't seem right
Another pair of points was that the Fed has no real oversight and is "loaning the government its own money", money which only the government should have the authority to print, but a private bank gets to instead.
Very confusing. The Fed has oversight
Oh, and Greenspan is for a return to a gold standard.
I argued with Greenspan about this while we were waiting on our popcorn to cook at a movie theater about two years ago. It was entirely random that we were both there at the same time seeing the same movie with our wives. I realized I was behind him in line. Like I'm not gonna rub elbows with the Fed Chairman! I can't remember the bulk of the conversation, but I think we both agreed that a quick return would be tumultous for the economy.
Yes, they're gold bugs. I'm failing to see why a return to a gold standard would be beneficial in any way... They are not very convincing. And they have given no hard evidence to back up points like "there isn't enough money in circulation to pay back all loans".
There isn't any evidence. Sure, if you said one day to pay everything back immediately, there wouldn't be though. But that would be a violation of the loan terms (which are normally pay x back a month for 15 years, right)...so there's no issue there.
Gold bugs do not understand economics. They're also quite shortsighted.
Thanks for the response.No problem, that's the purpose of the thread.
Perhaps the debt issue was distracting.
I think it typically is
I equated economic growth with growth in "goods", including whatever you wanted in throw into that category.
Then some debt wouldn't be a good so to speak, because debt is simply the purcahse of a good, so you'd be double counting if you counted the physical good and then also debt itself.
The argument I keep getting over and over again is: that all money in the economy is created by loans.
That's not true. Some money is created physically, other is created through the fraction reserve system
When the loan is paid back that "money" is destroyed, but the interest paid is removed from the economy (where it goes I don't quite get, apparently the banks are just hoarding money and sitting on it?).
They're the bank's returns. They pay out costs and the leftover is their profit
So each year more interest is paid to the banks, and they slowly accumulate all wealth in existence.
I'm afraid I laughed at that. If the banks are managing to accumulate all the wealth, they're doing a horrible job.
In order for the money supply to not shrink, therefore, new loans must be made so people can pay back interest.
New loans must be made because the economies of the world are growing. If the economies of the world are not growing, no need for money supply to grow.
Soon enough, all money is owned to banks. If the banks did not give out new loans, the economy would collapse and they would start gaining assets through defaulted collateral debts even faster.
Probably not, because debt is normally determined to be payable back to the issuer before they issue it, sound business practice and all (home mortgage crisis notwithstanding...)
The point was made that "some economists" believe that there isn't enough money in circulation today to pay back all current loans.
And that's a problem?
Another point is that banks create money out of nothing, but your average person cannot, therefore the banks control all the money.
Bank's don't create money out of nothing. They are allowed to loan out based on a fractional reserve system.
If your average person takes a loan and then loans it to another person, it is not truly their money, it's still the central banks'.
I could make loans to other people with my own holdings that are not loans. That logic doesn't seem right
Another pair of points was that the Fed has no real oversight and is "loaning the government its own money", money which only the government should have the authority to print, but a private bank gets to instead.
Very confusing. The Fed has oversight
Oh, and Greenspan is for a return to a gold standard.
I argued with Greenspan about this while we were waiting on our popcorn to cook at a movie theater about two years ago. It was entirely random that we were both there at the same time seeing the same movie with our wives. I realized I was behind him in line. Like I'm not gonna rub elbows with the Fed Chairman! I can't remember the bulk of the conversation, but I think we both agreed that a quick return would be tumultous for the economy.
Yes, they're gold bugs. I'm failing to see why a return to a gold standard would be beneficial in any way... They are not very convincing. And they have given no hard evidence to back up points like "there isn't enough money in circulation to pay back all loans".
There isn't any evidence. Sure, if you said one day to pay everything back immediately, there wouldn't be though. But that would be a violation of the loan terms (which are normally pay x back a month for 15 years, right)...so there's no issue there.
Gold bugs do not understand economics. They're also quite shortsighted.
@DNK (and to Jericho...I'm interested in the question as well)
When you borrow money, you use it to make more money yourself, otherwise you wouldn't be able to pay back the interest. You pay back the interest but you have new capital yourself that can make money. The banks are making money but isn't everyone else too?
When you borrow money, you use it to make more money yourself, otherwise you wouldn't be able to pay back the interest. You pay back the interest but you have new capital yourself that can make money. The banks are making money but isn't everyone else too?
JerichoHill
Bedrock of Knowledge
Unless you default. Then only the bank semi-wins because it can write off the loss
But simply speaking there's money being made on both your side and the bank's side because the economy is growing and the money supply is increasing, right? So the compound interest paradox is only for a hypothetical model in which everything is fixed, but then you wouldn't have the incentive to borrow money anyway because you wouldn't be able to make any more money with it and would just have to pay it back with interest. What do you think?
JerichoHill
Bedrock of Knowledge
The MS is already created, so to speak. There's a fractional reserve system, so if its 10%, then the MS will be deposits * 10, right? You can set MS by changing the fraction.
The folks who talk about the CIP and are gold bugs believe that you shouldnt loan out things on a fractional reserve system. That that is bad economics. History would suggest that either too much of a fraction, say 50, is bad (too safe). And that too little, say 1, is bad (too risky).
The FRS is too simple (imho), and the CIP ignores the fact that economies are not stagnant being, that real wealth is created right out of thin air (hey, Facebook!, hey I-pod!). The economy is going to need to grow to account for this new wealth, thus money supply needs to increase.
I imagine one would be hard pressed to find an economist who believes in CIP. In fact, CIP seems to be the product of one blog author, FSK, who's a bit of a kook, honestly. He thinks that voting and the fed res, international banking cartel are conspiring to take over the world, or already have. He also thinks the US is completely communist.
There is not one mention of the CIP in any scholarly research. Nada. I feel very comfortable in discounting him. He offers no outlet to comment or criticize his work.
Yeah, that's pretty much what I thought too. Thanks for the analysis.
For the record, here's an article about the critics' viewpoint:
http://en.wikipedia.org/wiki/Debt-based_monetary_system
RP's:
http://www.house.gov/paul/congrec/congrec2003/cr090503.htm
A ~50min video:
http://video.google.com/videoplay?docid=-9050474362583451279
To JerichoHill, did you hear about this:
http://www.rgemonitor.com/blog/roubini/228924/
What are your thoughts? I came across it looking for more info on the anti-Fed argument.
Is it true we're taking large sums out of the Social Security trust fund that aren't being reported as part of the budget deficit? If so, what chance is there that SS will remain viable in ten to fifteen years?
As to the Fed debate, my biggest problem with the cons is that they don't offer a single piece of evidence generally. I have yet to see real data.
http://en.wikipedia.org/wiki/Debt-based_monetary_system
RP's:
http://www.house.gov/paul/congrec/congrec2003/cr090503.htm
A ~50min video:
http://video.google.com/videoplay?docid=-9050474362583451279
To JerichoHill, did you hear about this:
http://www.rgemonitor.com/blog/roubini/228924/
What are your thoughts? I came across it looking for more info on the anti-Fed argument.
Is it true we're taking large sums out of the Social Security trust fund that aren't being reported as part of the budget deficit? If so, what chance is there that SS will remain viable in ten to fifteen years?
As to the Fed debate, my biggest problem with the cons is that they don't offer a single piece of evidence generally. I have yet to see real data.
Homie
Anti-Lefty
How can you say that when it does not fit the definition of a public good. To me, it sounds more like an opinion, like a normative statement, rather than a positive statement.Jericho said:
JerichoHill
Bedrock of Knowledge
I'm sorry but I won't have time to watch a 50 minute video, and I'm family with RP's views. You're right that the cons really don't have much evidence to support their position. In fact, the economic evidence of the smoothing of the business cycle from boom-bust to boom-recession is a really amazing feat, and much credit lies with the cenralization of monetary policy.
As for SS, it's my understanding that if its coffers were not raided by previous and current administrations, it would have paid for itself. It's actually a very efficient government bureaucracy(gasp!). SS's real problem is that for many years coming up, the number of drawers will be greater than the number of earners, and that's going to tax the system.
Will it survive? Probably. We can't get rid of legitimately bad programs, or programs that were supposed to be temporary. It probably won't survive in its current form, unless Americans roll over for a large tax increase. I don't see that happening.
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