Austrians would allow different monies to compete, so anyone can try to create their own money if they so wish.
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The advocating of interest simply can never have a positive competitiveness because interest is deflationary,if they endorse the very banks that obfuscate currency before expansion then further endorse usury at any rate it can only be deflationary on any currency 3RD GRADE MATHS,to defeat circulatory inflation via national debt one has to eradicate the circulatory deflation first.
You seriously can't see the absurdity in a world without interest? It would be a world where present goods are NOT valued more highly than future goods.
The link you provide contains economic ignorance and little else(seriously, it's like the author has never even touched a book on economics). Especially hilarious are the parts where Austrians are mentioned, because the author clearly has absolutely no idea what he's talking about.
If you or your purported "Austrian economists" *ever* understood interest, they could have at least explained *at least once* how it is even possible to maintain a vital circulation without engendering the present failure. The reason they haven't is they are dead wrong. See even that Griffin has turned 180 degrees recently. As to your assertion, you are aware then that bom Baewerk claims only "religious sentimentality" opposes interest. Wheres the math?
What is "vital circulation?" It certainly isn't a term used in economics.
I don't need math to point out that all debts aren't paid off at the same time. If they were then interest would indeed be a problem.
Obviously the biggest problem is that denying interest is like denying time preference, which on the other hand is like denying the existence of human action. Good luck with that.
@Xasew The first phrase concludes on the contrary to understand interest is to know its terminal and to further advocate interest is to not understand the ramifications of interest as all Austrian economists do is ,,,,flogging a dead horse.
Exactly Creation is the beginning ? Answer MONEY (money creation) interest is never created from the very conception of money only principal is,again your logic shows no rudimentary sense rather it reiterates blind ignorance on how money is actually created.
So you're telling me that Austrians, who criticize fractional-reserve banking more than any other school of thought, don't understand how money is created? Is this a sick joke? First of all most Austrians do NOT support the current system where banks create more money through loans. Robert Murphy himself wrote articles on this very subject not too long ago: Google "Is Our Money Based on Debt?" & "What Does “Debt-Based” Money Imply for Interest Payments?"
@Xasew First of all most Austrians do NOT support the current system where banks create more money through loans.
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Then the Austrians propose to deny you TRUE representation of wealth by removing the just right of the people in creating there own money via there promissory obligations. Your ignorance is still quite evident simply because Banks don't create money, Creation is NOT preformed by any bank, expansion is secondary to the obfuscation of the borrowers promissory obligation.
Yes they do. Or do you not count demand deposits as money
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Sorry demand deposits is bank money this is not money creation .I'm afraid if you actually think banks really create money your ignorance will be your own demise.Banks offer NO value consideration of there own, they risk nothing ,banks DON'T create money they change money & and until you understand money creation NOT EXPANSION you will be forever dancing around the symptoms of a false economy .
So you came up with some new definition for money? Well that's really helpful, because it completely hampers your ability to communicate with people who don't already know where you're coming from.
@Xasew Did I come up with a new definition of money? of course not all I'm saying you haven't a clue how money is really created by the borrowers promissory note (pre expansion) which is evident just by the absurd article you quoted , banks don't spend ALL interest they charge back into circulation , what they do spend doesn't even come close to what is charged on purported bank loans NO WHERE NEAR IT, how can interest be justified even if just one penny less is not spent back into circulation.
Banks create demand deposits. You say banks don't create money. The only conclusion I can draw is that you don't think demand deposits are money. JFYI everyone else thinks they are.
"...banks don't spend ALL interest they charge back into circulation..."
Maybe they don't spent it, but one way or another it goes to non-bankers. Unless the banks actually hoard the money.
@Xasew Demand deposits consists entirely of bank money,a secondary process to creation ,factional multiplication multiplies DOWN to ZERO,UNLESS a borrower signs a promissory note that allows the process of multiplication to continue.I SAY YOU fail to see WHO creates the money rather your looking at the a secondary process of EXPANSION a symptom, overlooking the underlying obfuscation money creation on its very conception.
YES THE BANKS HOARD THE LOAN RE REPAYMENTS ,THEY KEEP IT TO ENSLAVE YOU.
@Xasew I say banks don't create money but fraudulatly change money then expand & issue bank money that has no consideration of value,banks don't loan there own money,they offer no lawful consideration of there own,banks risk nothing other that the cost to print the digits on paper.I say banks pay the TRUE creditor the owner or builder of property out of the onset of circulation thats created by a borrowers promissory obligation denying the true creditor the TERMINAL interest they charge. GOT IT.
@Xasew The secondary process of EXPANSION by factional multiplication on deposits (BANK MONEY) multiplies DOWN to ZERO eventually ,UNLESS a new loan is created by WHO?
Furthermore I ask ANOTHER very simple question ,If every nation is in debt then WHO could possibly be the TRUE creditor?
To save time If you proceed to claim its off shore banks,Rothschild's,Rockefeller's or a bank in general you would be totally INCORRECT &indoctrinated with misinformation or out right disinformation & LIES .
@Xasew Hilarious article especially the conclusion claiming bankers spend interest back into circulation on real goods & services etc which is simply FALSE it also claims banks create money when they dont,banks spending the interest back into circulation is a preposterous assumption when it was never created in the beginning,Banks keep all interest charged & all the principal falsely claiming to be the true creditors essentially deflating circulation which is done via your labor/loan repayments.
The Constitution doesn't define the value of the dollar.
Are you talking about the proposals of Mises, Rothbard, Salerno or the free bankers? Not to mention the actual economists in the Austrian tradition rarely deal with whether money should be constitutional or not. And please do offer an example of how any of the Austrian proposals resemble the Fed.
The Austrian economists are flogging a dead horse just by this title.
They pretend to understand Interest which indeed interest its self at any rate IS one if not the biggest inherent systemic terminal manipulations of currencies by banks across the world which of course is evidential already today in a falsified LIE we call economy. A Austrian economist will never come to terms interest is never created in the beginning which can only conclude they know little or nothing of money creation.
@Xasew I stand by my words and I reiterate Austrian economists will never come to terms interest is never created in the beginning which can only conclude they know little or nothing of money creation.actually they have no maths to prove interest is beneficial rather preposterous rhetoric that doesn't even make rudimentary sense.
I disagree with usury at any rate ,one that advocates banks that charge INTEREST is one living in blind ignorance of the reality of money creation. PERIOD.
First of all we understand perfectly how money is created and do NOT support the current system.
Second of all interest is justified by the fact that time preference exists. We value current satisfaction higher than the same amount of satisfaction later. If we did not then we'd never act. All action is performed to alleviate some felt uneasiness. If we did not have a positive time preference, we'd never act on anything; we'd endlessly postpone our actions.
There ought to be 40,000,000 viewers instead of only 4,700; Sadly, most people's eyes "glaze over" when the subject of economics comes up. Yet, from the material perspective (as opposed to the spiritual), economics is the most important subjects people need to understand if they wish to be good citizens.
IF Keynes had ever truly understood interest, he would have projected the present failure and its singular solution. He's a hero to "Wall Street Pros" because HE DIDN'T understand "interest" IN ANY WAY WHICH COULD SERVE A DUPED PUBLIC.
they could rebuild their equity. now, once you've got "zombie" but highly successful +ve cashflow companies, they are deleveraging. This contracts the money supply, just as the great depression, which prevents them from being able to delever, forcing economic breakdown. Koo has charts and comparatives with the US great depression demonstrating that the market under these bizarre conditions would have led to a likely economic contraction of circa 75%...
...By government deficit spending, the japanese stabilized the money supply, allowing everyone to save money from their incomes in order to get out of debt. This is the only way to pay down debt everyone at once since fiat money *is* debt. (taking out loans increases MSupply, paying off loans decreases it). For this reason, if the private sector wants to delever, public must deficit, but public deficit must be only just enough to fill the gap to 0% growth, and no more...
I had not spoken on this because I would hope it would basically be spent sensibly. The money has to be spent if a depression is to be avoided. Spending on social programs that would benefit society, such as repairing damaged roads, upgrading railway infrastructure, building new hospital and school facilities would create jobs and add value. This is fine since as soon as the deleveraging ceases, private demand will pick up and the market will ...
...destroy these social programs (the demand gap will vanish), the economy turns up, and the government should reign in spending and run a budget surplus. Demand for money from the private sector will remain high (lack of price inflation) whether it is printed or not since they need cash, not assets, to pay down their debts, until the end of their deleveraging process.
other spending:
-I disagree with bailouts, unless the business can pay it back at a market rate of interest (a viable firm)...
The US private sector is much healthier than the japanese was, roughly 4.5x lower debt level. However the government finances are in far worse condition! The government is running deficits on not just a temporary, but a permanent basis just to meet its ordinary bills. This is no good and will cause a future crisis. The government must be able to deficit spend now, but run a surplus when the economy recovers. It is currently unable to do this...
because the excess spending is not temporary one-off projects, but a fundamental deficit on paying its bills. The US has a debt spiral on its hands unless it can reorganize its spending so that revenues cover its core liabilities, and deficits are only used for one-off social programs to be terminated when the economy turns back up. If the US government doesn't get its house in order, then you can be sure that the economy will not redress itself, since
rather than stabilizing the money supply as I suggest, and as Japan did, the US will find itself in a position of permanently ballooning money supply expansion, which is highly inflationary on top of exacerbating the debt problem we are trying to solve. We should understand that the intervention is aiming to allow debt reduction, not to sustain ever-growing levels of debt - this would be a road to ruin, exactly the road that would lead to either US default or hyperinflation possibilities.
That's all very good. Unfortunately your quantitativism ignores the fact that 'stabilising' the money supply requires fiat money, the expansion of whose supply delays the recovery for the same reason that the 2002-20?? underproduction bust started.
@Nintendomanwill lol, true. I suppose our under-production probably really began around 1970's, where financialism began to dominate economic activity, which is why in a very direct sense the enormous boom has created the bust. I think basically stabilising the money supply would allow the bust to drag out over a longer timeperiod. I'm not sure the West is willing to compete with the Chinese on industrial production, their pay is too low for staff in the west to accept until our wealth
has leaked away to them some more. Hence over time we ought to see commodity prices in a long-term bull market in $ prices, since the US will be able to consume less and less as proportion of total world output. Having said that, if we allowed the money supply to cave-in, the bust would happen all at once, and our workers would very quickly be competing with the Chinese workers for employment, so living standards in the West would collapse heavily, pretty controversial. U wanna earn $200/month?
perhaps if the US keeps inflating the money supply to cancel out value of chinese bond purchases, then eventually perhaps the chinese will be earning -ve return and dissuaded from buying $'s in order to protect the Yuan, so if yuan appreciates, this will reduce the yuan trade deficit; another option is to better regulate finance in order to force contraction there, lowering income levels, and making production income more desireable. All options reduce western wage earning power
Seems to me that the financialism of US & UK coincides with the period of privatisation of state industry if the state ran water, gas and electric for instance, then these entities could be set up decentralized from main government with objective of providing lowest cost possible, then, in absence of a profit motive, they would be able to distribute services at or near their v low cost. As Enron demostrated, private have incentive to holdback supply in order to meet profit objectives.
perhaps this is one way we can avoid a long-lasting decline in purchasing power of wage levels whilst still increasing productivity - by having decentralised nationalised public services/ utilities with a competitive ethos. Imagine - you can have a company act as if private, but profits return to the public, us, via lower price of use, and they would be more democratic than private firms by virtue of being publicly held and decentralised. If they get uncompetitive, they can still lay ppl off.
ps since 1970's, real profits have risen, but median wage-levels have stayed flat. I wouldn't regard this as a balanced economic growth of the kind that has benefitted the general population, so the problem goes all the way back 40yrs, and furthermore, our marketplace places profit as its nmber 1 target, but a democracy should represent its population, and the majority of the population happen to be wageearners - therefore rising real wages should be a major obective too, not just profit levels.
Median household wage levels may have stayed the same, but thats just a statistical trick used by the left, since households have declined in actual number of wage earners per household. Inflation adjusted personal real wages have risen substantially since the seventies, which makes all the rest of your posts make very little sense.
@jjrglobal "households have declined in actual number of wage earners per household." -
1. When I stated median income I was refering to the median income of a person, not of a household.
2. If employment levels are lower, that is a problem not a solution - we need jobs and income.
3. "Inflation adjusted personal real wages have risen substantially since the seventies" - the actual situation is that mean income has risen, but median and mode income have not.
@jjrglobal I'm not sure what you could possibly be referring to when you state "just a statistical trick used by the left" - surely a statistic gives information, if it is inappropriate information to the question then it may mislead, but other than that I don't see how you can play tricks with the statistic. In this situation, since the income distribution curve is negatively skewed, median income happens to be a more appropriate measure of the average person than does the mean.
@dfjpr The expansion of finance that your talking about started around the time the US severed all our ties to the gold standard. Since then the dollar has lost a lot of value; with the Fed pumping money into banks, the financial service sector grows in order to figure out where to put all this new money.
@underdg22 "started around the time the US severed all our ties to the gold standard." this is true, it is now a one-way expansion process which subsidizes the financial sector. Altho artificial boom & bust as per austrian credit cycle theory wud still initiate artificial stimulus and crunch even under a gold standard if banks are allowed to lend multiples of deposits, as under fractional reserve. So inflation & deflation wud still be occuring and distorting business signals.
@dfjpr Right but there hasn't been any deflation, its been a one way street of expansionary police with minor exceptions. Someone's needed to figure out what to do with all the new dollars being pumped into the system and that's whats been behind the massive growth in the financial services sector. Inflation expands that sector of the economy.
@dfjpr What determines real wages is capital accumulation which leads to higher productivity. America's productivity is still the highest in the world and we still produce more than China does. The point being that its not a zero-sum game; trade between the US and China is mutually beneficial and if its not its because Americans PREFER to consume rather than save, which doesn't make them the bad guys. Murphy has a Mises Daily article on this called "Trade Deficits and Collectivism."
@underdg22 "What determines real wages is capital accumulation which leads to higher productivity."
Higher productivity determines the pool available for wages and profit, but wages are determined by supply & demand for labour, not productivity, so productivity generally adds to profit.
Although whoever is receiving the new money first clearly benefits the most, including banks, receivers of bank bonuses, and receivers of bailouts from toxic assets, equity and home owners, since these are all having their losses removed from them, but also owners of real assets, because dollar holders will have a net greater purchase power due to lower debt burden, even though this may not lead to more than reasonable price rises due to unwillingness to carry such huge debt anymore.
...value of the stocks do fall, but their dollar price doesn't have to if we get sufficient inflation.
Also, spending would decline, but only in real terms, not in dollar terms. Therefore things could stay roughly the same, but that on balance, the economy would be carrying a lower debt burden due to the printing, and so our debt levels would have fallen and equity levels risen. In essence this does mean that the homeowners and stock owners are getting somewhat bailed out...
There's not necessarily reason for price inflation near term since the total money supply would stay the same if the Fed prints money whilst everyone reduces debt level. In this situation (which i believe to be the case) debt money falls, but base money rises to compensate.
Therefore, stocks, instead of falling because they are overvalued, could stay at the same price but the true value of the dollar fall instead; therefore the real ...
I love these lectures! Nothing illustrates the subtle beauty of the market process better than financial markets. I can't wait to see the rest of these lectures!
Conspiracy theorists...a meaningless epithet used to discredit anyone who has discovered a special interest driving allegedly altruistic movements within the ecosystem of the State.
@Nintendomanwill Altruism and egalitarianism are the codewords that allow the state to do anything it desires with no constraint or even examination. This has been distilled into an artform, a false narrative that 90% of the populace is not even aware of.
The best example of this 'altruism' was under (Red) Ken Livingstone's mayoral stint in London-a H. Chavez fan. Not only was so much money wasted that the buses didn't run on time-unlike under Boris Johnson now who is a wicked Right Winger-but it was like 1984 with the mayor hiring teams of mobile CCTV camera operators to drive around and record we peasants. Obviously it would have been cheaper to cut those public jobs, to install static cameras instead but net-loss jobs from tax are 'altruistic'
@chifylube Amen to that. I am an economics and finance student at a fairly high-ranking university in the states and I have come to conclude that Keynes is pretty much right. Austrian economics in the sense that economic liberals (mostly political conservatives) don't really work once a society has surpassed its initial growth spurt.
@Eisen89 I think Keynes had a good understanding on how to control interest rates. As for the effects of controlling interest rates, he was wrong in many ways.
I am an engineering major at a higher ranked university and I hereby declare that you are a moron who completely fails to understand the basics of economics.
@OntologicalQuandary Well if you are an engineering major, I seriously doubt you have much knowledge concerning economics. You advising me on economics would be like me telling you how to create a complex computer program or how to build a bridge. However, if your engineering classes have taught you anything about economics, please let me know. Maybe I will take up one or two of those classes too.
I don't mean to offend you, but blunt honesty is the best way. I was insulted and indignant too when I was first told that I was all wrong about economics. And I have taken two college classes in economics and realized they were bullshit and over the past two years have spent a great deal of time reading real econ books (HA, MES, Econ in 1 lesson etc...) and spending way too many hours talking with other people on the Mises.org website. Go there, you will learn much
'Most Austrians do not.' And with what did he validate that assertion!? You can find lots of people here who have been indoctrinated to hold ludicrous views on economics, mystically Statolatrist views even, but very few of them argue on issues of macroeconomics without assuming that low spending causes business cycles and that high spending is necessary for employment. This is a Mercantilist fallacy! Should someone have shot Keynes? No, following ontological NAP we couldn't even HAVE Keynesiansm
@Eisen89 if Keynes is right, and spending is all that matters, where's the recovery? Are you aware that Keynes (and Krugman) actually stated that burying jars of cash in abandoned mines and letting people dig them up would be a worthwhile, productive boost to a slumping economy? Surely you don't agree that burying and digging up green pieces of paper could bring prosperity to society - the idea is nonsense on its face.
@gergenheimer First, the recovery is coming along slowly. The problem was that we didn't spend enough and much of the money we did spend was done in the wrong way. If we would have used stimulus measures like China, Germany, and Australia did then we would likely be out of this by now. Concerning the digging up pieces of paper, what other alternative would you suggest? Tax cuts?
Ah yes, the time-honored Keynesian refrain - if a stimulus effort fails, it can't be because the thinking behind it was flawed, it's just that we didn't spend enough. Let me ask you this - if digging cash out of the ground so that it can be spent into the economy is beneficial, why even bother burying it? If the volume of spending is what matters, why not just print-up $1 million per citizen and hand it out? According to Keynesian thinking, this would bring prosperity, right?
@gergenheimer What you are talking about is the equivalent of a tax cut. Those work too but people usually save some of it whereas government spending results in no saved money so the growth rate in the tax base from artificial demand creation would have to be greater if you use tax breaks than if you used government spending. It's quite simple. Besides that, many economists said Bush's bailout was too small to begin with, not after the fact.
You, like most Keynesians, have fallen for an age-old fallacy - you see the superficial phenomena of an economy and conclude that the spending of money is the engine of economic growth and prosperity, as if spending was nothing but a mechanical process. Money isn't a magic wand, it is merely a technology that facilitates indirect exchange - the creation of new money out of thin air may incite a flurry of activity, but does not increase the wealth of society in any real sense.
@gergenheimer The flow of money is a key determinant in prosperity and growth. When it flows more freely, it results in a healthier and more productive economy. When it slows greatly the economy goes into a recession and if it completely stops the economy will die. It is like the flow of information; when more information is available the innovation in that economy thrives. In a sense, money can almost be considered to be a physical manifestation of information.
Incorrect. Return to my "$1 million per citizen" scenario. In that example, money would flow like water. Most products would see huge increases in demand, but increased production still would be limited by finite resources, as well as by millionaire employees demanding $1,000 per hour to stay on the job. Prices would skyrocket. The supposed benefits of an increase in nominal spending would be quickly cut short by physical reality. Money facilitates exchange, but does not eliminate scarcity.
@gergenheimer You are missing something. Gov. spending can create artificial demand which can create jobs. This only works because prices are sticky. If the market recognized inflation immediately, then gov. spending would not work. You are correct though in that it does not eliminate scarcity. That though is not the issue. The increased artificial demand does improve the flow of money and hence can create prosperity if done accurately.
The concept of "artificial demand" is an oxymoron. Demand, by definition, is a conceptual aggregation of consumer wants, as observed by their actions in the marketplace. A reduction in consumer spending isn't a failure of demand, but rather a different, equally valid expression of their preferences. Deferred consumption, while it may require tough choices of producers in the short term, builds capital and releases resources so that the structure of production can be realigned for the future.
'Demand, by definition, is a conceptual aggregation of consumer wants, as observed by their actions in the marketplace.'
Not trying to start an argument. But is artificial demand an oxymoron in that context? As I understand it, artificial is used in the sense that any increase in demand that is not a consequence of of market actors, but government intervention, does not reflect market conditions and is merely an arbitrary stimulus (artificial: "not existing naturally").
@Goodatconnect4 I would still say, 'yes', - at least to an Austrian - "artificial demand" is an oxymoron. Again, demand is a semantic construct to describe an aggregation of demonstrated consumer preferences. In its crudest form, Keynesianism concludes that demand is manifested in the act of spending. Since they see spending as merely a mechanical process - they believe that demand can be emulated by arbitrary spending - forgetting that the source of demand is in the mind of the consumer.
I think I'm starting to get it. So you're saying that in Keynesianism, there's no such thing as artificial demand since all spending is evidence of demand? And that, therefore, to put artificial in front of demand is nonsensical?
@Goodatconnect4 not exactly - Keynesians don't typically have a problem with the idea of "artificial demand" - in theory, they acknowledge that demand originates in consumer preferences, but in practice, they treat demand as if the only component that matters is the mechanical process of spending. Austrians, in contrast, believe that if you spend on arbitrary projects for the sake of spending, you cause distortions in the price system and structure of production. That is, demand can't be faked.
@Goodatconnect4 No, as an Austrian, I don't recognize it as demand (by definition) BECAUSE it didn't come from consumer preferences. To be sure, the spending causes things to happen - and this is what leads Keynesians to say "See - we told you we could create demand through government spending!" - but because the "artificial demand" spending is driven by guesswork or worse, political favoritism, it leads to jobs being supported and goods being produced that may not have been requested by anyone.
So you wouldn't call it demand at all then? The spending shifts the market settings (demand, supply, etc.) in certain sectors and it is then impossible to tell what demand is "natural" and what demand is "artificial"? I think I get it now. So you're saying by the fact that it is the government doing the spending, it can't be called demand (because by definition it is not).
@Goodatconnect4 You've got it. So, in some cases government policies and programs create things where there was little or no organic demand at all (i.e. Alaska's "bridge to nowhere"), but more often, they cause a distortion in the level of demand by altering the structure of prices, disguising the risk factors, imposing mandates etc. The housing bubble is an excellent example of this phenomenon. The excess of homes we built are the legacy of artificially-boosted demand, due to govt. policies.
Right. The reason why entrepreneurs can't tell the difference between low interest rates by saving from that of inflation of the money supply. So you'd call it artificially-boosted demand then?
@Goodatconnect4 Rather than saying "artificially-boosted demand" I would perhaps restate it to say "artificially-lowered costs". The reason I would rephrase it that way is that that by nature, demand is infinite - it is only the scarcity of time and resources that force us to prioritize. So, when we speak of artificially-boosting demand, what we are really talking about is lowering nominal costs to the consumer, but without the increase in supply that would normally signal that price drop.
Having thought about it some more, the use of the term "artificial demand" does seem to focus on the symptoms rather than the initial cause of the illness: artificially reduced costs. It does seem odd to me now to say artificial demand. My thanks for you being so persistent and patient!
@gergenheimer I agree that the government cannot run a permanent deficit since this is a misuse of resources. However, anyone who has worked for a business must surely realise that "production" does in fact increase when spending rises, that many goods are not particularly scarce. Unemployment detroys effective demand and causes unemployment, even though business have spare capacity and the unemployed have needs. This is why govt should save in booms and spend in bust. But they dont...
@gergenheimer ... they only spend, and on top of that we have a process of unlimited money creation going on which is distorting market signals and causing recurring bubbles to occur, not to mention diversion of savings from productive into ponzi-style speculative activities which do not add to society as inflation continues to punish work and savings. I cannot believe the US/UK think we're in a problem of too little spending right when our problem is not enough savings & their productive use!!
@Eisen89 "First, the recovery is coming along slowly." I don't believe that. I believe that the public is cutting back and govt spending is replacing it. We're playing a game of poker where the loser ends up in excess debt. To recover, the govt would have to step up and get into enough debt for everyone to get out of debt. Trouble is, that would leave us back were we started, in excess debt. Unless they print money, which is a default since we had expected the debts to be repaid, not printed.
@Eisen89 note that China, Germany, and Australia all ran budget surpluses, which is what keynes recommended, government savings which are now available to spend. US did not. My view as to events is eventually some price deflation from an austerity budget, accompanied by some continued deficit spending monetized by the Fed (base (equity) money supply inflation). Otherwise debt levels would have to stay ridiculously high, not to mention the coming unfunded US liabilities.
@Eisen89 I appreciate your comments, In my view the main issue with this recession is that it is not a business cycle downturn, but a balance sheet recession. Or in other words, not an issue of profitability, but of solvency due to excessive debt. Japan had the same issue but much worse in 1989. My concern is that if we reinflate using debt, the problem remains indefinately, so printing may be better, but that perpetuates moral hazard and punishes savers by transferring wealth to speculators.
@dfjpr You are pretty much separating the problems. Question is: Is the US profitable enough to pay off their debts? What is the US using their freshly printed money on? More socialism programs? Bailouts? You mentioned Japan. Heard of the term: Zombie banks?
@crossxlui thanks for the response. I read a book by Richard Koo, Chief economist of Nomura, about the japanese recession vs todays in the West. My understanding is that both are "balance sheet recessions", where it is no longer an issue of profitability, but of solvency due to a rapid plunge in asset values. In both cases there was an asset price bubble, the values were unjustified on a Discounted cashflow basis. This means that otherwise profitable businesses were temporarily (up to 10 years)
... were dropped into -ve equity. Therefore the "zombie" banks were perfectly viable businesses, but were technically insolvent. In fact so many businesses were technically insolvent that their closure would have largely disintegrated their economy, and goodbye 2nd largest economy in the world. we could close them, but why bother closing otherwise extremely competitive and profitable businesses such as Sony, mitsubishi, honda, nissan, nomura, they all had +ve cash flow, and so given enough time
Douches.
amartin7889 11 months ago
Austrians would allow different monies to compete, so anyone can try to create their own money if they so wish.
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The advocating of interest simply can never have a positive competitiveness because interest is deflationary,if they endorse the very banks that obfuscate currency before expansion then further endorse usury at any rate it can only be deflationary on any currency 3RD GRADE MATHS,to defeat circulatory inflation via national debt one has to eradicate the circulatory deflation first.
chotaboy66 11 months ago
@chelonia1663
You seriously can't see the absurdity in a world without interest? It would be a world where present goods are NOT valued more highly than future goods.
The link you provide contains economic ignorance and little else(seriously, it's like the author has never even touched a book on economics). Especially hilarious are the parts where Austrians are mentioned, because the author clearly has absolutely no idea what he's talking about.
Xasew 11 months ago
@Xasew
If you or your purported "Austrian economists" *ever* understood interest, they could have at least explained *at least once* how it is even possible to maintain a vital circulation without engendering the present failure. The reason they haven't is they are dead wrong. See even that Griffin has turned 180 degrees recently. As to your assertion, you are aware then that bom Baewerk claims only "religious sentimentality" opposes interest. Wheres the math?
mikemontagne 11 months ago
@mikemontagne
What is "vital circulation?" It certainly isn't a term used in economics.
I don't need math to point out that all debts aren't paid off at the same time. If they were then interest would indeed be a problem.
Obviously the biggest problem is that denying interest is like denying time preference, which on the other hand is like denying the existence of human action. Good luck with that.
Xasew 11 months ago
@chelonia1663
Ok, decipher that post and I'll respond.
The first phrase is an especially good example of clarity, don't you think? What about the last one? Created in the beginning of what?
Xasew 11 months ago
@Xasew The first phrase concludes on the contrary to understand interest is to know its terminal and to further advocate interest is to not understand the ramifications of interest as all Austrian economists do is ,,,,flogging a dead horse.
Exactly Creation is the beginning ? Answer MONEY (money creation) interest is never created from the very conception of money only principal is,again your logic shows no rudimentary sense rather it reiterates blind ignorance on how money is actually created.
chotaboy66 11 months ago
@chotaboy66
So you're telling me that Austrians, who criticize fractional-reserve banking more than any other school of thought, don't understand how money is created? Is this a sick joke? First of all most Austrians do NOT support the current system where banks create more money through loans. Robert Murphy himself wrote articles on this very subject not too long ago: Google "Is Our Money Based on Debt?" & "What Does “Debt-Based” Money Imply for Interest Payments?"
Xasew 11 months ago
@Xasew First of all most Austrians do NOT support the current system where banks create more money through loans.
---
Then the Austrians propose to deny you TRUE representation of wealth by removing the just right of the people in creating there own money via there promissory obligations. Your ignorance is still quite evident simply because Banks don't create money, Creation is NOT preformed by any bank, expansion is secondary to the obfuscation of the borrowers promissory obligation.
chotaboy66 11 months ago
@chotaboy66
Austrians would allow different monies to compete, so anyone can try to create their own money if they so wish.
"Banks don't create money..."
Yes they do. Or do you not count demand deposits as money?
Xasew 11 months ago
@Xasew "Banks don't create money..."
Yes they do. Or do you not count demand deposits as money
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Sorry demand deposits is bank money this is not money creation .I'm afraid if you actually think banks really create money your ignorance will be your own demise.Banks offer NO value consideration of there own, they risk nothing ,banks DON'T create money they change money & and until you understand money creation NOT EXPANSION you will be forever dancing around the symptoms of a false economy .
chotaboy66 11 months ago
@chotaboy66
So you came up with some new definition for money? Well that's really helpful, because it completely hampers your ability to communicate with people who don't already know where you're coming from.
"Hilarious article..."
Yes, facts can be funny.
Xasew 11 months ago
@Xasew Did I come up with a new definition of money? of course not all I'm saying you haven't a clue how money is really created by the borrowers promissory note (pre expansion) which is evident just by the absurd article you quoted , banks don't spend ALL interest they charge back into circulation , what they do spend doesn't even come close to what is charged on purported bank loans NO WHERE NEAR IT, how can interest be justified even if just one penny less is not spent back into circulation.
chotaboy66 11 months ago
@chotaboy66
Banks create demand deposits. You say banks don't create money. The only conclusion I can draw is that you don't think demand deposits are money. JFYI everyone else thinks they are.
"...banks don't spend ALL interest they charge back into circulation..."
Maybe they don't spent it, but one way or another it goes to non-bankers. Unless the banks actually hoard the money.
Xasew 11 months ago
@Xasew Demand deposits consists entirely of bank money,a secondary process to creation ,factional multiplication multiplies DOWN to ZERO,UNLESS a borrower signs a promissory note that allows the process of multiplication to continue.I SAY YOU fail to see WHO creates the money rather your looking at the a secondary process of EXPANSION a symptom, overlooking the underlying obfuscation money creation on its very conception.
YES THE BANKS HOARD THE LOAN RE REPAYMENTS ,THEY KEEP IT TO ENSLAVE YOU.
chotaboy66 11 months ago
@Xasew I say banks don't create money but fraudulatly change money then expand & issue bank money that has no consideration of value,banks don't loan there own money,they offer no lawful consideration of there own,banks risk nothing other that the cost to print the digits on paper.I say banks pay the TRUE creditor the owner or builder of property out of the onset of circulation thats created by a borrowers promissory obligation denying the true creditor the TERMINAL interest they charge. GOT IT.
chotaboy66 11 months ago
@Xasew The secondary process of EXPANSION by factional multiplication on deposits (BANK MONEY) multiplies DOWN to ZERO eventually ,UNLESS a new loan is created by WHO?
Furthermore I ask ANOTHER very simple question ,If every nation is in debt then WHO could possibly be the TRUE creditor?
To save time If you proceed to claim its off shore banks,Rothschild's,Rockefeller's or a bank in general you would be totally INCORRECT &indoctrinated with misinformation or out right disinformation & LIES .
chotaboy66 11 months ago
@Xasew Hilarious article especially the conclusion claiming bankers spend interest back into circulation on real goods & services etc which is simply FALSE it also claims banks create money when they dont,banks spending the interest back into circulation is a preposterous assumption when it was never created in the beginning,Banks keep all interest charged & all the principal falsely claiming to be the true creditors essentially deflating circulation which is done via your labor/loan repayments.
chotaboy66 11 months ago
@chelonia1663
The Constitution doesn't define the value of the dollar.
Are you talking about the proposals of Mises, Rothbard, Salerno or the free bankers? Not to mention the actual economists in the Austrian tradition rarely deal with whether money should be constitutional or not. And please do offer an example of how any of the Austrian proposals resemble the Fed.
Xasew 11 months ago
The Austrian economists are flogging a dead horse just by this title.
They pretend to understand Interest which indeed interest its self at any rate IS one if not the biggest inherent systemic terminal manipulations of currencies by banks across the world which of course is evidential already today in a falsified LIE we call economy. A Austrian economist will never come to terms interest is never created in the beginning which can only conclude they know little or nothing of money creation.
chotaboy66 1 year ago
@chotaboy66
Rarely does one get to read such an incoherent post. Seriously all that can be understood here is that you disagree with the Austrians.
Xasew 11 months ago
@Xasew I stand by my words and I reiterate Austrian economists will never come to terms interest is never created in the beginning which can only conclude they know little or nothing of money creation.actually they have no maths to prove interest is beneficial rather preposterous rhetoric that doesn't even make rudimentary sense.
I disagree with usury at any rate ,one that advocates banks that charge INTEREST is one living in blind ignorance of the reality of money creation. PERIOD.
chotaboy66 11 months ago
@chotaboy66
First of all we understand perfectly how money is created and do NOT support the current system.
Second of all interest is justified by the fact that time preference exists. We value current satisfaction higher than the same amount of satisfaction later. If we did not then we'd never act. All action is performed to alleviate some felt uneasiness. If we did not have a positive time preference, we'd never act on anything; we'd endlessly postpone our actions.
Xasew 11 months ago
There ought to be 40,000,000 viewers instead of only 4,700; Sadly, most people's eyes "glaze over" when the subject of economics comes up. Yet, from the material perspective (as opposed to the spiritual), economics is the most important subjects people need to understand if they wish to be good citizens.
vince33x 1 year ago
...but his voice......torture for my ears.....I'd ask him to stfu if he weren't talking sense....
manoman0 1 year ago
I want to see the clip of Barney Frank asking Bernanke if he has $85bn. I want to see that so fucking bad.
AndyMH182 1 year ago
@AndyMH182 me too!! lol
olemunati 1 year ago
Whaaaat? You don't trust the house of Morgan? ;-)
alexdgonc 1 year ago
Keynesian also understand interest rate.
wallstreetpro 1 year ago
@wallstreetpro
IF Keynes had ever truly understood interest, he would have projected the present failure and its singular solution. He's a hero to "Wall Street Pros" because HE DIDN'T understand "interest" IN ANY WAY WHICH COULD SERVE A DUPED PUBLIC.
mikemontagne 11 months ago
Within 10 years time Benanke will be out in the middle of a square 1500's style
harrybath 1 year ago
bob murphy is awesome
TheObjectiveReality 1 year ago
they could rebuild their equity. now, once you've got "zombie" but highly successful +ve cashflow companies, they are deleveraging. This contracts the money supply, just as the great depression, which prevents them from being able to delever, forcing economic breakdown. Koo has charts and comparatives with the US great depression demonstrating that the market under these bizarre conditions would have led to a likely economic contraction of circa 75%...
dfjpr 1 year ago
...By government deficit spending, the japanese stabilized the money supply, allowing everyone to save money from their incomes in order to get out of debt. This is the only way to pay down debt everyone at once since fiat money *is* debt. (taking out loans increases MSupply, paying off loans decreases it). For this reason, if the private sector wants to delever, public must deficit, but public deficit must be only just enough to fill the gap to 0% growth, and no more...
dfjpr 1 year ago
... As to what the money should be spent on...
I had not spoken on this because I would hope it would basically be spent sensibly. The money has to be spent if a depression is to be avoided. Spending on social programs that would benefit society, such as repairing damaged roads, upgrading railway infrastructure, building new hospital and school facilities would create jobs and add value. This is fine since as soon as the deleveraging ceases, private demand will pick up and the market will ...
dfjpr 1 year ago
...destroy these social programs (the demand gap will vanish), the economy turns up, and the government should reign in spending and run a budget surplus. Demand for money from the private sector will remain high (lack of price inflation) whether it is printed or not since they need cash, not assets, to pay down their debts, until the end of their deleveraging process.
other spending:
-I disagree with bailouts, unless the business can pay it back at a market rate of interest (a viable firm)...
dfjpr 1 year ago
-Firms in trouble should rebuild their equity out of +ve cashflow, not bailout money.
dfjpr 1 year ago
As for the US - ability to pay-back its debts...
The US private sector is much healthier than the japanese was, roughly 4.5x lower debt level. However the government finances are in far worse condition! The government is running deficits on not just a temporary, but a permanent basis just to meet its ordinary bills. This is no good and will cause a future crisis. The government must be able to deficit spend now, but run a surplus when the economy recovers. It is currently unable to do this...
dfjpr 1 year ago
because the excess spending is not temporary one-off projects, but a fundamental deficit on paying its bills. The US has a debt spiral on its hands unless it can reorganize its spending so that revenues cover its core liabilities, and deficits are only used for one-off social programs to be terminated when the economy turns back up. If the US government doesn't get its house in order, then you can be sure that the economy will not redress itself, since
dfjpr 1 year ago
rather than stabilizing the money supply as I suggest, and as Japan did, the US will find itself in a position of permanently ballooning money supply expansion, which is highly inflationary on top of exacerbating the debt problem we are trying to solve. We should understand that the intervention is aiming to allow debt reduction, not to sustain ever-growing levels of debt - this would be a road to ruin, exactly the road that would lead to either US default or hyperinflation possibilities.
dfjpr 1 year ago
@dfjpr
That's all very good. Unfortunately your quantitativism ignores the fact that 'stabilising' the money supply requires fiat money, the expansion of whose supply delays the recovery for the same reason that the 2002-20?? underproduction bust started.
Nintendomanwill 1 year ago
@Nintendomanwill lol, true. I suppose our under-production probably really began around 1970's, where financialism began to dominate economic activity, which is why in a very direct sense the enormous boom has created the bust. I think basically stabilising the money supply would allow the bust to drag out over a longer timeperiod. I'm not sure the West is willing to compete with the Chinese on industrial production, their pay is too low for staff in the west to accept until our wealth
dfjpr 1 year ago
has leaked away to them some more. Hence over time we ought to see commodity prices in a long-term bull market in $ prices, since the US will be able to consume less and less as proportion of total world output. Having said that, if we allowed the money supply to cave-in, the bust would happen all at once, and our workers would very quickly be competing with the Chinese workers for employment, so living standards in the West would collapse heavily, pretty controversial. U wanna earn $200/month?
dfjpr 1 year ago
perhaps if the US keeps inflating the money supply to cancel out value of chinese bond purchases, then eventually perhaps the chinese will be earning -ve return and dissuaded from buying $'s in order to protect the Yuan, so if yuan appreciates, this will reduce the yuan trade deficit; another option is to better regulate finance in order to force contraction there, lowering income levels, and making production income more desireable. All options reduce western wage earning power
dfjpr 1 year ago
Seems to me that the financialism of US & UK coincides with the period of privatisation of state industry if the state ran water, gas and electric for instance, then these entities could be set up decentralized from main government with objective of providing lowest cost possible, then, in absence of a profit motive, they would be able to distribute services at or near their v low cost. As Enron demostrated, private have incentive to holdback supply in order to meet profit objectives.
dfjpr 1 year ago
perhaps this is one way we can avoid a long-lasting decline in purchasing power of wage levels whilst still increasing productivity - by having decentralised nationalised public services/ utilities with a competitive ethos. Imagine - you can have a company act as if private, but profits return to the public, us, via lower price of use, and they would be more democratic than private firms by virtue of being publicly held and decentralised. If they get uncompetitive, they can still lay ppl off.
dfjpr 1 year ago
ps since 1970's, real profits have risen, but median wage-levels have stayed flat. I wouldn't regard this as a balanced economic growth of the kind that has benefitted the general population, so the problem goes all the way back 40yrs, and furthermore, our marketplace places profit as its nmber 1 target, but a democracy should represent its population, and the majority of the population happen to be wageearners - therefore rising real wages should be a major obective too, not just profit levels.
dfjpr 1 year ago
@dfjpr
Median household wage levels may have stayed the same, but thats just a statistical trick used by the left, since households have declined in actual number of wage earners per household. Inflation adjusted personal real wages have risen substantially since the seventies, which makes all the rest of your posts make very little sense.
jjrglobal 1 year ago
@jjrglobal "households have declined in actual number of wage earners per household." -
1. When I stated median income I was refering to the median income of a person, not of a household.
2. If employment levels are lower, that is a problem not a solution - we need jobs and income.
3. "Inflation adjusted personal real wages have risen substantially since the seventies" - the actual situation is that mean income has risen, but median and mode income have not.
dfjpr 1 year ago
@jjrglobal I'm not sure what you could possibly be referring to when you state "just a statistical trick used by the left" - surely a statistic gives information, if it is inappropriate information to the question then it may mislead, but other than that I don't see how you can play tricks with the statistic. In this situation, since the income distribution curve is negatively skewed, median income happens to be a more appropriate measure of the average person than does the mean.
dfjpr 1 year ago
@dfjpr The expansion of finance that your talking about started around the time the US severed all our ties to the gold standard. Since then the dollar has lost a lot of value; with the Fed pumping money into banks, the financial service sector grows in order to figure out where to put all this new money.
underdg22 1 year ago
@underdg22 "started around the time the US severed all our ties to the gold standard." this is true, it is now a one-way expansion process which subsidizes the financial sector. Altho artificial boom & bust as per austrian credit cycle theory wud still initiate artificial stimulus and crunch even under a gold standard if banks are allowed to lend multiples of deposits, as under fractional reserve. So inflation & deflation wud still be occuring and distorting business signals.
dfjpr 1 year ago
@dfjpr Right but there hasn't been any deflation, its been a one way street of expansionary police with minor exceptions. Someone's needed to figure out what to do with all the new dollars being pumped into the system and that's whats been behind the massive growth in the financial services sector. Inflation expands that sector of the economy.
underdg22 1 year ago
@dfjpr What determines real wages is capital accumulation which leads to higher productivity. America's productivity is still the highest in the world and we still produce more than China does. The point being that its not a zero-sum game; trade between the US and China is mutually beneficial and if its not its because Americans PREFER to consume rather than save, which doesn't make them the bad guys. Murphy has a Mises Daily article on this called "Trade Deficits and Collectivism."
underdg22 1 year ago
@underdg22 "What determines real wages is capital accumulation which leads to higher productivity."
Higher productivity determines the pool available for wages and profit, but wages are determined by supply & demand for labour, not productivity, so productivity generally adds to profit.
dfjpr 1 year ago
Although whoever is receiving the new money first clearly benefits the most, including banks, receivers of bank bonuses, and receivers of bailouts from toxic assets, equity and home owners, since these are all having their losses removed from them, but also owners of real assets, because dollar holders will have a net greater purchase power due to lower debt burden, even though this may not lead to more than reasonable price rises due to unwillingness to carry such huge debt anymore.
dfjpr 1 year ago
...value of the stocks do fall, but their dollar price doesn't have to if we get sufficient inflation.
Also, spending would decline, but only in real terms, not in dollar terms. Therefore things could stay roughly the same, but that on balance, the economy would be carrying a lower debt burden due to the printing, and so our debt levels would have fallen and equity levels risen. In essence this does mean that the homeowners and stock owners are getting somewhat bailed out...
dfjpr 1 year ago
There's not necessarily reason for price inflation near term since the total money supply would stay the same if the Fed prints money whilst everyone reduces debt level. In this situation (which i believe to be the case) debt money falls, but base money rises to compensate.
Therefore, stocks, instead of falling because they are overvalued, could stay at the same price but the true value of the dollar fall instead; therefore the real ...
dfjpr 1 year ago
I love these lectures! Nothing illustrates the subtle beauty of the market process better than financial markets. I can't wait to see the rest of these lectures!
truevoice08 1 year ago
Brilliant!
utubercoolosis 1 year ago
It's refreshing to see an American using an heavy-weight irony. Murphy rules. A very good speech.
SvrchovaneCechy 1 year ago
I really like Robert P. Murphy, he cracks me up, but in a good way.
MRSketch09 1 year ago
But at the same time the money they create to buy that oil to sell at $10 a gallon devalues your money thus you're not really saving any money.
eurohim 1 year ago
Awesome series.
pinegrove33 1 year ago 2
Conspiracy theorists...a meaningless epithet used to discredit anyone who has discovered a special interest driving allegedly altruistic movements within the ecosystem of the State.
Nintendomanwill 1 year ago 25
@Nintendomanwill
I could only give you one thumbs up, but know I would of given you at least ten.
MRSketch09 1 year ago
@Nintendomanwill Altruism and egalitarianism are the codewords that allow the state to do anything it desires with no constraint or even examination. This has been distilled into an artform, a false narrative that 90% of the populace is not even aware of.
pretorious700 1 year ago
The best example of this 'altruism' was under (Red) Ken Livingstone's mayoral stint in London-a H. Chavez fan. Not only was so much money wasted that the buses didn't run on time-unlike under Boris Johnson now who is a wicked Right Winger-but it was like 1984 with the mayor hiring teams of mobile CCTV camera operators to drive around and record we peasants. Obviously it would have been cheaper to cut those public jobs, to install static cameras instead but net-loss jobs from tax are 'altruistic'
Nintendomanwill 1 year ago
fantastic video!
you explain things well
617stork 1 year ago 4
This comment has received too many negative votes show
I love Jim Cramer!
arcanekrusader 1 year ago
not only do Austrians understand interest rates, we have economic common sense.
grandmasterqz 1 year ago 38
@grandmasterqz No, most Austrians do not. Sorry to break the news to you.
Eisen89 1 year ago
@Eisen89 Most humans do not understand the way interest rates work today. Try reading about Keynes. A real book, not wikipedia.
chifylube 1 year ago
@chifylube Amen to that. I am an economics and finance student at a fairly high-ranking university in the states and I have come to conclude that Keynes is pretty much right. Austrian economics in the sense that economic liberals (mostly political conservatives) don't really work once a society has surpassed its initial growth spurt.
Eisen89 1 year ago
@Eisen89 I think Keynes had a good understanding on how to control interest rates. As for the effects of controlling interest rates, he was wrong in many ways.
chifylube 1 year ago
@Eisen89
I am an engineering major at a higher ranked university and I hereby declare that you are a moron who completely fails to understand the basics of economics.
OntologicalQuandary 1 year ago
@OntologicalQuandary Well if you are an engineering major, I seriously doubt you have much knowledge concerning economics. You advising me on economics would be like me telling you how to create a complex computer program or how to build a bridge. However, if your engineering classes have taught you anything about economics, please let me know. Maybe I will take up one or two of those classes too.
Eisen89 1 year ago
@Eisen89
I don't mean to offend you, but blunt honesty is the best way. I was insulted and indignant too when I was first told that I was all wrong about economics. And I have taken two college classes in economics and realized they were bullshit and over the past two years have spent a great deal of time reading real econ books (HA, MES, Econ in 1 lesson etc...) and spending way too many hours talking with other people on the Mises.org website. Go there, you will learn much
OntologicalQuandary 1 year ago 2
'Most Austrians do not.' And with what did he validate that assertion!? You can find lots of people here who have been indoctrinated to hold ludicrous views on economics, mystically Statolatrist views even, but very few of them argue on issues of macroeconomics without assuming that low spending causes business cycles and that high spending is necessary for employment. This is a Mercantilist fallacy! Should someone have shot Keynes? No, following ontological NAP we couldn't even HAVE Keynesiansm
Nintendomanwill 1 year ago
@Eisen89 if Keynes is right, and spending is all that matters, where's the recovery? Are you aware that Keynes (and Krugman) actually stated that burying jars of cash in abandoned mines and letting people dig them up would be a worthwhile, productive boost to a slumping economy? Surely you don't agree that burying and digging up green pieces of paper could bring prosperity to society - the idea is nonsense on its face.
gergenheimer 1 year ago
@gergenheimer First, the recovery is coming along slowly. The problem was that we didn't spend enough and much of the money we did spend was done in the wrong way. If we would have used stimulus measures like China, Germany, and Australia did then we would likely be out of this by now. Concerning the digging up pieces of paper, what other alternative would you suggest? Tax cuts?
Eisen89 1 year ago
Ah yes, the time-honored Keynesian refrain - if a stimulus effort fails, it can't be because the thinking behind it was flawed, it's just that we didn't spend enough. Let me ask you this - if digging cash out of the ground so that it can be spent into the economy is beneficial, why even bother burying it? If the volume of spending is what matters, why not just print-up $1 million per citizen and hand it out? According to Keynesian thinking, this would bring prosperity, right?
gergenheimer 1 year ago
@gergenheimer What you are talking about is the equivalent of a tax cut. Those work too but people usually save some of it whereas government spending results in no saved money so the growth rate in the tax base from artificial demand creation would have to be greater if you use tax breaks than if you used government spending. It's quite simple. Besides that, many economists said Bush's bailout was too small to begin with, not after the fact.
Eisen89 1 year ago
You, like most Keynesians, have fallen for an age-old fallacy - you see the superficial phenomena of an economy and conclude that the spending of money is the engine of economic growth and prosperity, as if spending was nothing but a mechanical process. Money isn't a magic wand, it is merely a technology that facilitates indirect exchange - the creation of new money out of thin air may incite a flurry of activity, but does not increase the wealth of society in any real sense.
gergenheimer 1 year ago
@gergenheimer The flow of money is a key determinant in prosperity and growth. When it flows more freely, it results in a healthier and more productive economy. When it slows greatly the economy goes into a recession and if it completely stops the economy will die. It is like the flow of information; when more information is available the innovation in that economy thrives. In a sense, money can almost be considered to be a physical manifestation of information.
Eisen89 1 year ago
Incorrect. Return to my "$1 million per citizen" scenario. In that example, money would flow like water. Most products would see huge increases in demand, but increased production still would be limited by finite resources, as well as by millionaire employees demanding $1,000 per hour to stay on the job. Prices would skyrocket. The supposed benefits of an increase in nominal spending would be quickly cut short by physical reality. Money facilitates exchange, but does not eliminate scarcity.
gergenheimer 1 year ago 3
@gergenheimer You are missing something. Gov. spending can create artificial demand which can create jobs. This only works because prices are sticky. If the market recognized inflation immediately, then gov. spending would not work. You are correct though in that it does not eliminate scarcity. That though is not the issue. The increased artificial demand does improve the flow of money and hence can create prosperity if done accurately.
Eisen89 1 year ago
The concept of "artificial demand" is an oxymoron. Demand, by definition, is a conceptual aggregation of consumer wants, as observed by their actions in the marketplace. A reduction in consumer spending isn't a failure of demand, but rather a different, equally valid expression of their preferences. Deferred consumption, while it may require tough choices of producers in the short term, builds capital and releases resources so that the structure of production can be realigned for the future.
gergenheimer 1 year ago 5
'Demand, by definition, is a conceptual aggregation of consumer wants, as observed by their actions in the marketplace.'
Not trying to start an argument. But is artificial demand an oxymoron in that context? As I understand it, artificial is used in the sense that any increase in demand that is not a consequence of of market actors, but government intervention, does not reflect market conditions and is merely an arbitrary stimulus (artificial: "not existing naturally").
Goodatconnect4 7 months ago
@Goodatconnect4 I would still say, 'yes', - at least to an Austrian - "artificial demand" is an oxymoron. Again, demand is a semantic construct to describe an aggregation of demonstrated consumer preferences. In its crudest form, Keynesianism concludes that demand is manifested in the act of spending. Since they see spending as merely a mechanical process - they believe that demand can be emulated by arbitrary spending - forgetting that the source of demand is in the mind of the consumer.
gergenheimer 7 months ago
I think I'm starting to get it. So you're saying that in Keynesianism, there's no such thing as artificial demand since all spending is evidence of demand? And that, therefore, to put artificial in front of demand is nonsensical?
Goodatconnect4 7 months ago
@Goodatconnect4 not exactly - Keynesians don't typically have a problem with the idea of "artificial demand" - in theory, they acknowledge that demand originates in consumer preferences, but in practice, they treat demand as if the only component that matters is the mechanical process of spending. Austrians, in contrast, believe that if you spend on arbitrary projects for the sake of spending, you cause distortions in the price system and structure of production. That is, demand can't be faked.
gergenheimer 7 months ago
Yeah, true. So you'd recognize it as demand, just that it is not demand from the consumers?
Goodatconnect4 7 months ago
@Goodatconnect4 No, as an Austrian, I don't recognize it as demand (by definition) BECAUSE it didn't come from consumer preferences. To be sure, the spending causes things to happen - and this is what leads Keynesians to say "See - we told you we could create demand through government spending!" - but because the "artificial demand" spending is driven by guesswork or worse, political favoritism, it leads to jobs being supported and goods being produced that may not have been requested by anyone.
gergenheimer 7 months ago
So you wouldn't call it demand at all then? The spending shifts the market settings (demand, supply, etc.) in certain sectors and it is then impossible to tell what demand is "natural" and what demand is "artificial"? I think I get it now. So you're saying by the fact that it is the government doing the spending, it can't be called demand (because by definition it is not).
Goodatconnect4 7 months ago
@Goodatconnect4 You've got it. So, in some cases government policies and programs create things where there was little or no organic demand at all (i.e. Alaska's "bridge to nowhere"), but more often, they cause a distortion in the level of demand by altering the structure of prices, disguising the risk factors, imposing mandates etc. The housing bubble is an excellent example of this phenomenon. The excess of homes we built are the legacy of artificially-boosted demand, due to govt. policies.
gergenheimer 7 months ago
Right. The reason why entrepreneurs can't tell the difference between low interest rates by saving from that of inflation of the money supply. So you'd call it artificially-boosted demand then?
Goodatconnect4 7 months ago
@Goodatconnect4 Rather than saying "artificially-boosted demand" I would perhaps restate it to say "artificially-lowered costs". The reason I would rephrase it that way is that that by nature, demand is infinite - it is only the scarcity of time and resources that force us to prioritize. So, when we speak of artificially-boosting demand, what we are really talking about is lowering nominal costs to the consumer, but without the increase in supply that would normally signal that price drop.
gergenheimer 7 months ago
Makes sense to me!
Goodatconnect4 7 months ago
Having thought about it some more, the use of the term "artificial demand" does seem to focus on the symptoms rather than the initial cause of the illness: artificially reduced costs. It does seem odd to me now to say artificial demand. My thanks for you being so persistent and patient!
Goodatconnect4 6 months ago
@gergenheimer I agree that the government cannot run a permanent deficit since this is a misuse of resources. However, anyone who has worked for a business must surely realise that "production" does in fact increase when spending rises, that many goods are not particularly scarce. Unemployment detroys effective demand and causes unemployment, even though business have spare capacity and the unemployed have needs. This is why govt should save in booms and spend in bust. But they dont...
dfjpr 1 year ago
@gergenheimer ... they only spend, and on top of that we have a process of unlimited money creation going on which is distorting market signals and causing recurring bubbles to occur, not to mention diversion of savings from productive into ponzi-style speculative activities which do not add to society as inflation continues to punish work and savings. I cannot believe the US/UK think we're in a problem of too little spending right when our problem is not enough savings & their productive use!!
dfjpr 1 year ago
@Eisen89 "First, the recovery is coming along slowly." I don't believe that. I believe that the public is cutting back and govt spending is replacing it. We're playing a game of poker where the loser ends up in excess debt. To recover, the govt would have to step up and get into enough debt for everyone to get out of debt. Trouble is, that would leave us back were we started, in excess debt. Unless they print money, which is a default since we had expected the debts to be repaid, not printed.
dfjpr 1 year ago
@Eisen89 note that China, Germany, and Australia all ran budget surpluses, which is what keynes recommended, government savings which are now available to spend. US did not. My view as to events is eventually some price deflation from an austerity budget, accompanied by some continued deficit spending monetized by the Fed (base (equity) money supply inflation). Otherwise debt levels would have to stay ridiculously high, not to mention the coming unfunded US liabilities.
dfjpr 1 year ago
@Eisen89 I appreciate your comments, In my view the main issue with this recession is that it is not a business cycle downturn, but a balance sheet recession. Or in other words, not an issue of profitability, but of solvency due to excessive debt. Japan had the same issue but much worse in 1989. My concern is that if we reinflate using debt, the problem remains indefinately, so printing may be better, but that perpetuates moral hazard and punishes savers by transferring wealth to speculators.
dfjpr 1 year ago
@dfjpr You are pretty much separating the problems. Question is: Is the US profitable enough to pay off their debts? What is the US using their freshly printed money on? More socialism programs? Bailouts? You mentioned Japan. Heard of the term: Zombie banks?
crossxlui 1 year ago
@crossxlui thanks for the response. I read a book by Richard Koo, Chief economist of Nomura, about the japanese recession vs todays in the West. My understanding is that both are "balance sheet recessions", where it is no longer an issue of profitability, but of solvency due to a rapid plunge in asset values. In both cases there was an asset price bubble, the values were unjustified on a Discounted cashflow basis. This means that otherwise profitable businesses were temporarily (up to 10 years)
dfjpr 1 year ago
... were dropped into -ve equity. Therefore the "zombie" banks were perfectly viable businesses, but were technically insolvent. In fact so many businesses were technically insolvent that their closure would have largely disintegrated their economy, and goodbye 2nd largest economy in the world. we could close them, but why bother closing otherwise extremely competitive and profitable businesses such as Sony, mitsubishi, honda, nissan, nomura, they all had +ve cash flow, and so given enough time
dfjpr 1 year ago
@grandmasterqz
its a tailor made fairytale for simpletons like yourself, who are oblivious to real world economic and financial market realities.
TheRedCapitalist 1 year ago