Regulating inflation.

I would advocate that we simply don't create a problem in the first place. Back your currency with a commodity and increase the supply relative to the supply of said commodity.

Then the impact should be limited to that good or service.

Thats if you believe there is a free market in Oil. The existence of OPEC tends to shoot that theory down though.

Going out of business isn't bad at all. The conditions that led to that matter however.

Yes - I am fully aware of the relationship between the US and China when it comes to their respective currencies. Everything you said is correct - however there are other scenarios to consider. China is already beginning to conduct trade with other countries in other currencies...namely Russia. There is a movement away from the dollar starting. We are just as dependent on China as they are on us in this regard as well. We don't have the capacity to simply make up for a decrease in imports from China and I am unaware of any other country with the manufacturing capacity to do so either. I am not so sure exports would simply decrease, at least not for some time. The net result would be a significant price increase in the United States in the short term and that would cause an entirely new set of problems.

I feel like I have a pretty good understanding of our banking system.

The negative effects of carrying debt are entirely relative to the situation. So long as you can service your debt obligations everything is fine enough. Debt itself isn't inherently bad in that regard - when I say to much debt I mean relative to our production. We take on debt to service existing debt. The world is leveraged to the hilt like nothing before seen in history...derivatives that nobody understands....CDS's....all sorts of risky intertwined investments.

You mean when the productive capacity of the rest of the developed world was devastated and we had to produce the goods that helped them rebuild? Not exactly a data point I would be using.

Any number of "black swan" events.

OR....The Fed blew another bubble with cheap money in an attempt to bring the economy back from the abyss of the tech bubble popping. Not caring about risky loans was just a reaction to the economy being flush with cash and needing somewhere to put it.

That 6% gets a lot bigger the more money The Fed makes.

Not sure they are related.

As I said...deflation is only bad if you owe money. Otherwise its just an increase in purchasing power for the most part....hard to call that a disaster. In the system that has been created I am sure it can viewed negatively....but deflation is generally good. The price of computers and electronics in general is a lesson in why deflation is good.

It matters because the end game of the system you are suggesting is nothing but a completely leveraged economy that needs to continually walk a tight rope to not collapse in on itself. If any link in the chain of an over leveraged economy fails the entire thing collapses....ala 2008. Thats the issue.

In a system where the currency is created by debt like ours you are absolutely correct. In a commodity backed system that simply wouldn't happen.

The banking system creates money from debt. Thats it...the whole thing is based upon debt...you get rid of all the debt and the money supply ceases to exist.

Its a sham.

 

You're defining inflation as a rise in the general price level. So let's say that in a barter economy one apple costs two oranges (or an orange costs 1/2 an apple). How would their prices go up in general? What would the exchange rate be then?

 

It's not backed by electricity consumption, but I'm aware that in order to produce it, it consumes electricity which creates the production.

Either way, fiat is still superior, would you rather spend that much energy (enough to power a major industrial nation like Germany (according to you) and money making something entirely digital, or take money used to produce it and, oh, I dunno, spend it on healthcare, infrastructure, education , defense, etc?

Seems like an enormous waste of real resources.

Once I have a bitcoin, where can I spend it? What if no one decides to accept it as payment?

 

First, I didn't define it as such.... That is the definition.

Second, I'm happy to answer all of your questions, but I asked you a question and you ignored it.....Quid pro quo....As Hannibal Lechter would say...

What difference does it make how you determine inflation in a barter economy, what difference does it make? We're talking about inflation in a fiat economy.

Lastly, I answered your question in my last response anyway. Prices would rise as supply decreases relative to demand.

 

In answer to your question, I'm trying to understand the root cause of inflation.

In a barter economy, prices are relative. One apple costs two oranges, which means that one orange costs half an apple. How could the price of both goods rise? The only thing that's possible is for the exchange rate between them to change. So in a barter economy, it would seem impossible for all prices to rise.

 

Ok, I understand, thank you for the clarification. Basically, in a barter economy, the price of anything measured relative to everything else, so unless the only two items in the economy are oranges and apples, then if they both become increasingly scarce at the same rate and still have the same relative demand, then the rate between them will stay the same and everything else will decrease in value relative to apples and oranges.

As far as all prices rising, I'd say if you could trade 1hr of labor for a fixed amount across an entire array of goods and the price increases for everything as the supply for everything falls, then the one thing they will all trade higher against is your labor. So from that standpoint, prices can rise, even the ratio of trade between them stays the same.

In other words, take the amount of labor it takes, today, to pay for any good in the economy and write it down. Now if you woke up tomorrow and the prices had risen on everything, it would now take more labor to earn them all even if they all uniformly increased in value (decreased in supply) at the same time.

Make sense?

 

But would that be inflation, or would that just be a decrease in the price of labor vs other goods? Isn't that just a case of the price for one good in the market decreasing relative to other goods? Isn't inflation supposed to be when all prices go up? This wouldn't be a change in the general price level, as all other prices remained consistent vs each other. This is the drop in price of one single thing.

 

I don't get worked up over monopolies, etc. because I will control my own life no matter what others try to force on me. If my phone bill suddenly increases by 100%...goodbye phone! Same with TV or Internet or certain drinks or food, etc. etc. I also firmly believe in supply and demand and although we Americans are GREATLY flawed, our consumer habits will determine what enterprise can ultimately get away with in our economy...

 

I see where you're going, but the answer is no. We rely on the price of our labor to remain constant and the price of goods and services to change. Especially in cultures where borrowing occurs. If you have an obligation to repay a certain amount of labor (or money) each month and the value of your labor drops, then you have to do more labor in order to make repayment. Can you see how confusing that might be? Plus, how often does everything decrease proportionally exactly at the same time? Never.

I think you're looking at things from both sides, and that's good, few people take the time, but then, you could say that about anything. Prices aren't really going up, it's just that our salaries are going down.

Since you tend to look at things from your own point-of-view, you would tend to see your salary or the cost of your labor as "frozen" relative to the things you can purchase. So it is prices that change, not the amount you earn in salary or labor.

Hopefully, that makes sense.

 

Well, it takes an entire government and an army to back a fiat currency, as opposed to electricity and computers anyone can buy and run anywhere in the world, which is unstoppable by an army..

I myself think that a tool of value storage and transfer devoid of any authority is quite worthy of some resources, which also creates value for the operators and the network as a whole in the form of payments and unbeatable security..

These days you can spend it anywhere you can swipe a credit card, anywhere..

Anyone can decide at any time to refuse to take any fat currency as payment, see the history of every fiat currency ever created..

 

I see you doing a lot of beating around the bush to deflect from the fact that inflation is the decrease in the value of a currency..
Inflation is NOT prices going up, that is a result of inflation..

Inflation is your $$ falling in value..

It's the law of supply and demand, you increase the supply of $$ faster than demand increases then the value goes down and it is done intentionally to encourage you to spend..

 

Alright there are multiple things wrong in your line of reasoning here so I am going to number my thoughts on this.

1. Even if what you were saying were true, that the government needs the money, you'd still have to prove your claim that the economy would be booming if we increased taxes in the service sector. Please give use and exact cause/reaction explanation on how the economy would be booming if we increased taxes in the service sector. Talking about what is "fair" and about why we should give more free stuff to poor people is not an argument for your claim that the economy would be booming if we implemented a tax on certain services, those are merely emotional appeals.

2. Wasting billions of tax payers' dollars on useless degrees and ventures that could've been created cheaper and better by the free market(like roads) is NOT good for the economy. The only reason education in the US is so expensive is BECAUSE the government keeps financing it with student loans. It artificially increases the demand for college education which enables colleges to raise their admission fees to such absurd heights. This is basic supply/demand economics.

3. You are trying to delegitimise my concern here by implying that I'm just being a paranoid fool for caring so much about things that hurt the economy. I do not think you understand what the economy is. Let me put it like this: if you increase taxes people can buy less with their income, the rich can afford that but the poor you claim to be defending definitely cannot. A 5% increase in all legal and medical expenses will be the final nail in the coffin for a lot of lower class American families. I suggest you think about the actual consequences of the things you support instead of just talking about what is "fair".

4. I do not know if you realised this but America already has plenty of police officers, firemen and other social services. Those tax increases you so desperately want will not go to those things. When government has more money than it actually needs it will only waste it on useless subsidies and pointless social projects some bureaucrat cooked up.

5. We are not talking about tax cuts, we are talking about tax increase. Stop putting up a smoke screen.

6. What do you mean with "targeted investment credits" and what is your evidence it is more effective at helping the economy? I'm getting the idea you look at the results of government projects without taking into account how much the government had to hurt the populous first by taxing them to pay for it. If the government builds a bridge nobody uses you only see the jobs it provided, you don't see how many jobs the government destroyed because the people who now had to finance that useless bridge through taxes would have spent that money on products and services which would have actually helped them otherwise. If I have to pay 50 dollars more in taxes then that is one 50 dollar raincoat I won't be able to afford any longer. And it goes without saying that a lot of lower class citizens have expenses a lot more urgent than a mere raincoat.

 

I'm not sure what you're saying. If the price of my labor goes down relative to other good/services, how is that a general increase in prices? The only price that has changed is the price of my labor which has gone down. This isn't a general increase in the price level, as all prices have remained the same except for the price of my labor.

 

People in this thread seem to think that inflation and prices going up are always the same thing, that inflation is just caused by magic or something, that increasing taxes somehow DOESN'T hurt the consumers' purchasing power, that useless government projects that would've never come to existence in a free market because nobody wants/needs them somehow helps the economy, and that the economy would magically be "booming" if we increase taxes in the service sector.

The economic illiteracy in the west is even worse than I thought....

 

LOL the free market doesn't build roads. I stopped reading right there.

 

I heard some republicans want to tax us on the part if the insurance bill corps pay

 

sad but true, same is true of war, most of the money goes overseas, America has outsourced so much, it's starting to hurt us

 

Quite right, but think about it, why?

Do you know of a country that can power enough computers to make a significant amount of bitcoin without a government and a military?

Perhaps I've made some assumptions I should not have. I should ask for clarification. I assumed that you see bitcoin as a replacement to fiat currency and my responses have been to question that assumption.

Does bitcoin have usefulness alongside the nation's fiat currency? Obviously, for some of the reasons you've stated. It's also an excellent way of transferring currency across national borders without the normal costs that are involved.

However, it's ironic, because I have little doubt that governments can also use bitcoin to avoid accountability.

So I do not claim to be an expert in the workings of bitcoin, though I'm not a complete novice, I understand it, because I've looked into mining them myself.

I've been in IT since the late 1980's and at one point I had a pretty good stable of machines that could be used to mine bitcoins. I'm aware that unscrupulous users have used unallocated government IT resources to mine for bitcoins without having to pay the cost. I suspect, with virtualization, it still goes on.

Now I assume when you make the claim that you can use them anywhere you use a credit card that there is a payment made in dollars and an exchange that goes on afterward.

It is true that you can refuse to take US dollars as payment and simply refuse to sell your goods and services. However, if there were a legal dispute that resulted, unless there was a contractual agreement created beforehand to deal in something other than dollars, the seller cannot demand anything other than dollars and the buyer can't force the seller to take anything other than dollars.

Looking back at "history" and making the claim that every fiat currency ever created has failed is really meaningless. With the exception of the governments that exist today, that haven't ended yet, every form of government that has ever existed has failed, does that offer evidence to the idea that every form of government that has tried and failed is proof of the failure of the form of government or the people that made it up? There is nothing inherently wrong with fiat, the problem is people.

 

how else will the right be able to give huge tax cuts to the rich if the working class doesn't pick up the tab?

 

They are of course the same thing, but as I've said we don't conceptualize well when we think of prices remaining the same and the value of our dollar decreasing.

There are lots of examples in the real world where this is true. When we go faster, we don't think of moving at the same speed and instead time slowing down relative to other things. When we boil water we think of an increase in temperature and energy, not a loss of entropy.

You're not going faster! Your time is just slowing down relative to mine...lol

While true, we just don't think of things like this.

So, I concede that you are correct (as am I), but as I've said, it's easier to conceive of a change in prices, especially when, at any given time our salaries are fixed and we generally demand more when they become inadequate to pay for the things we need and want.

That might be true if only increasing dollars created inflation. But you can have inflation without increasing the money supply.

I've claimed that inflation is the result of demand exceeding supply.

So let's say there is a short war between two nations, nation one (the aggressor) and nation 2 (the victim) that lasts only a week, but in that time nation, 1 destroys 50% of the factories the economy of nation 2.

Assuming very few casualties, what would happen to inflation when the war is over?

With productivity decreased by 50% but the amount of money in the economy stayed the same, there would be rampant shortages and inflation would result (because demand would exceed supply). Now you can call that a decrease in the value of the currency or an increase in prices, as I said they are the same, however, when we look at our bank accounts, we don't have less money, there is no indicator or a loss of value because, in fact, the only way the loss of value is realized is if money is spent on things that cost more, but prices quantifiably change.

Really this is just an argument in semantics because what we are really arguing here is what causes inflation.

Money creation does not automatically cause inflation anymore that stopping your bathtub and adding water to it will automatically cause it to overflow. The tub has a capacity for water and the economy has a capacity for additional dollar creation based on the rate at which dollars are leaving the economy (via spending on imports) and it's total capacity to meet demand based on the supply of labor and real resources before producers begin to raise prices. Basically, it's increased demand relative to supply that causes inflation. You could create trillions of dollars and put them in a bank account if they aren't spent prices will not go up because people don't set pricesbased on the amount of money in circulation, period.

 

Ok, so let's try this.....

In a barter economy, if you are a farmer who spends his labor creating perishable goods, things that have a very short life, how might you store value?

You make more than you need and trade into something that is a better long-term store of value, right? But if everyone makes more than they need in order to store the value in the same good, the value of that good will inflate if the supply falls relative to demand, will it not?

Having said that, I think you're overthinking this problem and I'm still not sure where you are going with it.

Everything is relative to everything else, be it the amount of labor it takes to acquire a set basket of goods or the number of dollars it takes to acquire that same basket.

In a barter economy, we do labor to create things of real value. Then we trade those things of real value for other things of real value which were created via someone else's labor.

We could remove the things we are trading and just think about the cost in terms of the amount of labor it takes to make/acquire the things we're trading to acquire the things we need/ want in trade. If the supply of something we need declines, then it will take more labor to acquire it. So in this case, the value of my labor diminishes relative to the thing in short supply.

Has the value of my labor decreased? Has the price, measured in my labor, inflated?

The parallels that can be drawn between a barter economy and a fiat economy are limited because they are inherently different. Money is a token used to store the value of our labor. The problem is that the value of the token can change after it's been created, whereas, in barter, there is no temporal displacement between the value of labor when it's created and when it is spent. The thing that changes is the value of the goods relative to other goods.

I think it can be said that inflation exists, the difference is that it's not caused via the creation of money, rather the increased demand relative to supply.

 

You quoted my post but didn't write anything.

 

Fiat or commodity money?

 

Yes, I double clicked and had to go back and edit it .Look again

 

Yes, per the law of demand, the price for that particular good would rise. I'm not sure why you use the word inflate. Inflation is the rise in prices of all goods generally, not the rise in price of one specific good.

Yes, in a barter economy the prices of all goods are relative. Keeping it simple, let's say we have three goods in the economy: apples, oranges, and labor. Let's further say that an apple costs 2 oranges (which makes an orange cost 1/2 an apple). Let's say that 1 hour of labor costs 10 apples (or 5 oranges).

So how would prices, in general rise, in such a scenario? The rise in price of any one of these three would result in a decline in the other two. Every combination would have to be a rise in one or more of the goods with a corresponding decrease in one or more of the others. There can be no general rise.