Regulating inflation.

I said free market without state intervention. So commodity.

 

Just curious has there ever been a time when the wealthy got tax breaks and all other taxpayers did not?

 

I see the ivory tower theories have led to the usual cycle of semantics and circular reasoning, and why people like Buffet will say 'any company that has an economist on the staff has one employee too many' ... but be that as it may, it should immediately obvious that when all, or almost all, of the money is sucked up into a massive pile at the top, and almost none is circulating around in the lower class hands, there is a real problem, and the stupidity of 'cutting taxes' isn't remotely a solution, and neither is a 100% tax rate. Bitcoins??? lol seriously???

 

Yes.

 

Except for the fact that it does in the countries that allow it to, like Norway and Singapore.... Or does that just go in your drawer of "facts that will magically disappear if I ignore them" drawer?

And even if the free market didn't, that wouldn't automatically invalidate every other point I made. You are acting like a child. Why are you even on a forum if you don't want your ideas to be challenged?

 

I am curious as to what you would suggest the solution is.

 

Stop out-sourcing and stop mass immigration, and stop technology transfers to police states like Red China. The first two are what finally created a middle class worthy of the name in the U.S. in the first place, and the third is largely financed by U.S. taxpayers footed the bill for the basic research and educating the scientists and engineers to apply it, and its benefits rightly remain here as well. Those would be a good start, and something that can be built on.

 

In bold above, please explain what is preventing any American from achieving whatever it is they wish to achieve?

 

When and what did your wealthy get?

 

In bold above...can you possibly fathom how the USA would look today if we didn't have out-sourcing and immigration?

 

So economic protectionism?

Tariff's and the like?

 

No matter what party they vote for, they always seem to think "more taxes" is the answer in one way or another, don't they?

 

While I'm not defending the post you are responding to, I want to point out that your response is riddled with problems.

No, the Fed doesn't owe you gold nor is the US dollar (from here on, just "dollar") backed by gold or exchangeable for it. Today there is no link between gold and the dollar. The link was severed in 1934 and in 1967 for silver. From 1935-1974 the dollars in the economy were "backed" by gold (not exchangeable for it) and in 1974 Fiat economy officially began and gold became a commodity just like silver, copper, wood or grain.

No...It does not.

[Read this] (Or read below)

Excerpt:

The Fed holds collateral equal to the number of dollars that are in circulation most of which are held in US Treasuries.

Here is a list of what the Fed holds as assets:



Source, Page 5 of the document: https://www.federalreserve.gov/mone..._balance_sheet_developments_report_201703.pdf

No, no and no...

The explanation here is difficult for most people to comprehend because they don't understand "borrowing" from the government's point-of-veiw.

Imagine have no money and taking out a checkbook and writing a check for $1 and then writing in your ledger that you are minus -$1. Now, remember that you started with nothing, zero, and when it was done someone got $1 and you were -$1, the sum of which is zero.

This is exactly how the government creates dollars. The account of creation (the "checkbook", the Leger") is the negative and the money spent is earned by those in the private sector as positive.

The government creates money in the form of US Treasuries which are sold to the private market. The Fed purchases those treasuries from the private market and in doing so creates dollars and holds the treasuries it purchases as collateral (see image above). Without the US government's treasury, the Fed could not create dollars in adequate supply.

So....

The Fed prints no dollar bills. Currency is printed by the Treasury (actually the Bureau of Engraving), who "loans" it to the Board of governors (those profits turned over to Treasury are nominal interest on all Federal Reserve Notes on circulation). The BoG then sells the notes to the regional banks, who sell them to your bank - for one dollar each.

No, as I said, gold has nothing to do with it.

Go back to 1974 (when fiat was made law), gold traded for $183 an oz. Today it's around $1200. That means gold is worth approx 6 times more today than it was in 1974, but we've created 22 times as much money (and that's just government money or M1, that doesn't include bank credit) over the same period. So given your logic, gold should be worth a LOT more if there was a link between money creation and gold.

Not necessarily. Let's say the process of making rollerblades is suddenly automated reducing the manufacturing costs, then the producer of rollerblades might be willing to trade more rollerblades for a bike because he can create more the same amount of effort. If you are familar with econonomies of scale, you'll know the more that are made the lower the costs are to make them.

In a barter economy, the only "currency" is time and effort. As the time and effort to create something decrease the amount produced increases. Assuming a constant demand, rollerblades will decrease in value relative to other things, all other things stating the same.

Except if, when you made your sales at $60 the average salary in the economy might have been, sayyy... $10,000, later when you sold them for $80 the average salary had risen to $1250. If that were the case, then price increased 25% but so did the average salary, thus the effort to acquire them remained equal. So what you had was inflation in the price but not the effort to obtain.

So we really need to look at the time it takes to obtain the same items between two points in time. However, with increasing productivity due to automation and efficiency, it's difficult to isolate for changes in order to compare apples to apples.

Why wouldn't you increase your price in order to maintain your profit?

Perhaps instead of raising your price, you could look for efficiency gains in your business, maybe you turn out some lights and use less energy, maybe you stop spending money on certain discretionary items or advertising that's not producing a return on investment in order to reduce costs.

Maybe, compared to your competition you just aren't efficient enough and your factory going out of business is just the free market culling those who cannot be competitive?

You announce in your example that there is "inflation", but don't give us any idea what's caused it.

Let's just say that the inflation was caused by an increase in demand. Let's say the government has stated that everyone that makes less than $50,000 will be receiving a check from the government each month from now on (Switzerland toyed with the idea of a basic minimum income (cutting checks to everyone).

Anyway, let's just imagine that anyone making $50k or less would get a check, which would increase the less you made.....So if inflation was driven by the new dollars created and IF demand increases to the point that suppliers can no longer meet demand with current productive capacity, a rise in prices would be expected followed by spending by producers to increase capacity in order to meet the new level of demand as suppliers and producers race to fill the gap between demand and supply and increase market share. Once the gap has closed price will decrease and employment and salaries (ideally) will have increased. Oil and gas have gone through this very cycle between 2006. Prices rose because of an induced shortage. This lead to suppliers scrambling to bring new equipment online as the increase in prices increases profits and helped reduce startup costs.

Here we see it in a graph:



Notice that as price increased production increased which resulted in a lower price. These prices do not account for inflation. If they did, you'd see that prices, when accounting for inflation are lower than 2006.

The result was increased production, increased employment, and lower cost. The issue is the time it takes to get new productivity online (2012 is when production took off) vs the increase in prices which began somewhere in the mid-2000's.

Now, in your example, I have no idea why you wouldn't raise your prices at your sunglass factory. Of course, as a seller of glasses, you have to look at your local market (and increasingly the national market thanks to online suppliers). You can't really raise your prices higher than your competition or people will shop elsewhere, however, if you have to raise your prices higher than the competition in order to make a profit, that's just the market telling you that you aren't efficient enough and if that drives you out of business then, again that's just the free market culling those who have made poor business decisions and deserve to go out of business.

While I don't agree with price fixing as it rarely if ever achieves its goals without tradeoffs, I don't necessarily agree with your summation as I think you oversimplify it. You wouldn't just throw your hands up in the air and retire to a warm beach somewhere. You would look at costs of materials, labor, processes, rent, taxes etc, etc and consider your options and you would make the changes necessary to bring down costs. You may switch to inferior materials, you might risk breaking environmental regulations in order to reduce cost (this is an example of skewed incentives and the unintended consequences of price fixing).

Now, this is a hypothetical, so we really don't know if it would be possible to make sunglasses profitable below the "ceiling" price created by legislation, however, I totally agree that price fixing is often dumb and leads to as many problems as it attempts to solve.

"Free Market" is just a euphemism for "Lawless Market". True free markets aren't the self-regulating systems they are advertised to be. People with wealth and power have every incentive to skew the system in their favor and in the absence of a governing authority they will.[/QUOTE][/QUOTE]

 

To add to this - the majority of money created is actually done by the fractional reserve system itself. Most of it happens in the Wells Fargo's and such of the world.

"If one rejects lassiez-faire on account of man's fallibility and moral weakness, one must for the very same reason reject every form of government action." - Ludwig Von Mises.

 

I'm curious when you say prices increasing and inflation aren't the same thing, can you give and example? I'm not necessarily saying your wrong, I would just like you to continue your thought.

Moving on...

Since I took the time to dissect your last post, let me also take the time to agree. Increasing taxes is bad for an economy with productive capacity and labor. In the US our productive capacity is at about 76%;



You can see that since the late 1980's we peaked at about 85% around 1989, thus we are almost 10% lower than our 20 years high.

Thus decreasing taxes will increase the money people have to spend, inflation will be minimal as there is plenty of capacity to absorb increased demand.

The same can be said in the labor markets. The U1 measurement of inflation has the US at 4.4%, but the U6 measurement is over 10% and while not everyone that's included in the US can or should work, I think there is a good deal of potential to lure people back to the labor markets if good jobs were available.

 

While we are on the topic of inflation - this is a good read for anyone interested.

http://www.zerohedge.com/news/2017-...lation-three-times-higher-officially-reported

 

With respect, the Fractional Reserve System or FRS as you appear to understand it, ended in 1974. Banks are no longer constrained in any meaningful way by the quantity of reserves they hold. Banks have access to an infinite supply of reserves, it's the cost that changes, not the supply. It is creditworthy borrowers and their desire to borrow at a given cost that creates bank credit, not the availability of reserves.

The FRS is used only as a system for the Fed to manipulate the cost of reserves and ultimately the costs that banks pay to borrow from each other. Of course, that system was suspended in 2008 when the Fed flooded the system with so many reserves, they drove the price to borrow to zero. Now the Fed pays interest on reserves as a way to create a price floor, something I suspect they will abandon once they unwind $1.7 trillion in excess reserves.

That's just dumb. Why must that be true?

 

I'll be happy to read it, but ZeroHedge? No credibility in my mind.

 

As much credibility as about anything else. Sounds to me like you need to re-read the quote in your signature and reflect a bit.

 

That is just absolutely false. I suggest you read Modern Money Mechanics if you have not already. Banks very much impact the supply of money. They are able to create money with the stroke of a key in very much the same way The Federal Reserve/Treasury do.

Don't be naive - there will be no unwinding.

Really? Does being a government employ come with magic powers of virtue that mere mortals in the business world do not possess? If members of the business world are morally corrupt and fallible due to their humanity...are members of government not subject to those same things? Surprised you needed that explained.

 

Like I said, I'm happy to read i with an open mind, but generally speaking I find ZH to be a poor source with respect to economic reality.

 

Not exactly. "The free market is a summary description of all voluntary exchanges that take place in a given economic environment."

 

You must have misunderstood what I said.

I said banks aren't constrained from creating credit by the amount of reserves they hold.

One of the problems in talking about this subject is on creating a distinction between the dollars created by the government dollars created via bank credit. While banks create credit denominated in the governments unit of account, the effect of bank credit on the economy nets to zero. This is because, as I'm sure you know, banks don't lend customer deposits. They create money, like you said, by typing numbers into. A keyboard. They create dollars and hold a liability of an equal amount.

That's not to say bank credit can't drive economic growth, but too much credit in the private sector can cause a situation where, if wages fail to keep pace with credit expansion, can result in decreasing demand as borrowers spend increasing amounts servicing debt.

Well, I admit I can't say, nor did I intend to make the claim that they necessarily would, but they have sold off about $500 billion worth so far. Why do you think the Fed won't unwind their position?

I think the transparency between government a different the private sector creates the environment where people, regardless of their interests will tent to act in a way that is expected.

Now, I'm not stupid, the influence of the private industry has created the incentive in government to decrease transparency and this has increasingly resulted in unethical decisions. Of course, the other half of that is that people have to care. All the transparency in the world won't matter of the people of a nation dont care. As I write this the director of the FBI has been fired. Will people care? Will they demand more from their government?

The failure falls on the people as much as the government they elect to rule them.

 

You may have missed my reponse, so I'm reposting it.

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.

 

Perhaps

Theoretically they are - unless of course the reserve requirement has been lifted and I missed it?

That is exactly what The Fed and Treasury do though. No distinction can be made. When a 30 year treasury is purchased and that amount of money created it is the exact same fundamental process that is used with bank credit. Money is created out of thin air simply because there is a debt or liability to justify it. Once that debt is repaid(30 years is up and the debt repaid at interest) the money created by that liability is removed from the money supply as there is no longer anything to justify its existence...unless of course as often happens someone else takes on that debt for another 30 years. Theoretically if all the debt in the United States (including government debt) was repaid tomorrow there would be no money supply.

Same concept applies to government debt.

I don't think The Fed can unwind their position for a multitude of reasons, most of which stem from the fact that I don't think the economy can handle the shock. I can go more into the weeds if you wish.

A politician like anyone else is going to act in their own self interest the majority of the time. Transparency? There is none.

Do you really still believe that "the people" control their government? "Meet the new boss, same as the old boss.".

The failure is people....the only solution in my mind is to remove the one thing people buy...the one thing that tends to corrupt. Power. The less power the government has the less opportunity for man's fallibility and moral weakness to be used for evil.