Topic: Any reason why today's system will fail ? (Read 2708 times)

the big player makes too much debts, while other competitions, at most 300,000 M USD debt may be made. the big player makes roughly 1,000 times higher than others with little gold with.

Agree.

These reasoning comes from an assumption that there is only one type of currency in circulation

If we use a system that have several different currency, added supply in one currency/credit will just devalue its exchange rate against other currencies, it will not affect the price of products expressed by other currencies

On the other hand, increase/decrease of production will lower/raise the price of those products expressed by any currency

So if there are several competing currency in circulation, the value of inflated one will drop quickly against other currency and goods at the same time

Many variables without any constant fixed relationship, it all becomes best effort guess and betting

There is one reason that is possible to cause the system collapse: When majority of people finally understand the scam nature of the current system, they might abandon fiat money all at once, and that started from many government officials and employees. But currently one out of one million people really understand how it works, just toss FRB, loan and IOU to them and most of them will get lost quickly

It is complicated, but the way to reason about these things is to decompose the different forces and analyze each one. Here are some components:

Printing Federal Reserve Notes and dispersing them applies an upward force on prices, with some time lag.

Expanding credit and distributing the credit to individuals, businesses and the government is also price driving. The credit is really created out of nothing, you see the result as the Fed having a positive balance, meaning somebody owes the Fed money. It is multiplied in the fractional reserve banking system. The difference between base money and credit is that the credit can disappear as a result of reduced confidence both in the future value of the monetary unit and the debtors' ability to pay back.

If the credit volume is reduced, this is the same as the broad money supply is reduced, and there is a downward pressure of prices.

Technological advances can increase productivity and pressure prices down.
Increased investments increases productivity and can lower prices.

Reduction of production compared to what otherwise could be possible, due to people leaving the workforce, drives the prices up.

The value of the dollar is inverse to other prices over the whole world, not only in USA. It is possible that prices will rise higher or lower in the USA than other places, thus the value of the dollar will seem different within USA and outside.

Then there is the speculators who try to predict future prices. If they are wrong, prices could at least for a while go in the opposite direction of what they otherwise would do. Speculation is rampant in oil, metals, corn.

The statistics used is also debatable. It is not really possible to measure consumer prices in an index, because all individuals are different and the products available constantly changes. The joblessness indicators is not absolute, you can not know how many people would be working if the market were free and if everybody had to cover their own expenses. The GDP is suspect, because a large part of it is possibly cost only, rather than valueable goods and services produced. The savings rate is suspect, because people use houses as money these days. And the velocity of money parameter is absurd, a general flexible constant, invented only to make the other numbers sum up.

Still there is no doubt that expansion of the money supply is price driving.

tl; dr Sorry about the ranting.

I did have some idea crossed my mind just now: Inflation is caused by lack of desire to work. If people don't want to work, just want to spend, then price will rise due to less and less goods/services available. Same, deflation is caused by lack of motivation to spend, if people are tired of consumption, they will consume less and less, and the price will fall due to more and more goods/services available.

And those psychological sentiment changes depends on people's outlook of the future

Anyway, I think looking from the money supply angle is useless, there are so many human factors and variables in the process, any kind of theory is just some kind of best effort guess. I'm glad that I found some article about price stickiness and money illusion, maybe I can get some inspiration there...

When prices rise due to shortages of materials, labour or capacity, that is a real problem in that governments can't do a damn thing about it.  That can't happen for a long long time.  It may never happen in our lifetimes as there has been a huge expansion of capacity caused by 25% of the global population being added to the manufacturing supply chain.  Right now, governments all over the world are printing money and prices of manufactured goods aren't rising.  If you have cash and want to buy consumer good, there has never been a better time because prices are low and will stay that way.

The world will stop investing in US bonds the day a better investment comes along.  For now, bonds in countries that can print their own currencies are considered the safest investment out there.  There is no sign of anything better out there so that won't change for a long time. 

I think you've read one too many Paul Krugman Articles.  Sure monetizing the debt will lighten the US taxpayer burden, but you can't possibly believe that the foreign consequences of this will be a minor road bump.  The value of the dollar may only be preserved in comparison to other nations that are undertaking similar extreme inflationary-targeting measures.  Do you realize how hard it would be too keep bond market yields low if we printed 1 trillion? Printing any of the debt away does more harm than good.  If it were this easy why not just give everyone a million dollars??  If more money does not equal a decrease in dollar value we could use this solution and be much better off right?  Or do you have a magic number in your head, say 3 trillion, at which we will start seeing inflation if we print that much...  Here's a heads up, if its not causing inflation, it is at least preventing prices from moving down as far as they should be. 

More money does equal a decrease in dollar value, only the effect is not immediate.  You are not realizing something here... you probably think that by printing 1 trillion and not circulating it that it will not cause inflation.  However, if you print this 1 trillion and use it to offset some national debt, the money is already in circulation!  It was spent as debt,  and would have been repaid (hopefully), had the 1 trillion not been printed.  However, since it no longer has to be repaid, that amount of 1 trillion will stay in circulation indefinitely, adding 1 trillion to the total currency in circulation. 

I suggest you rather try to find a flaw in your own reasoning, according to which the money supply has nothing to do with inflation. You could begin by trying to find a convincing explanation for inflation that does not involve the money supply.
 
Another suggestion would be trying to come up with an argument capable of convincing the world to keep holding USA dollars and treasuries, but I guess by the time you are done with my first suggestion it will no longer be necessary.

I would like to add: There are of course winners too. If you are a house-owner with a maxed out credit, you might swallow the inconvenience of higher prices, because your wage increases mostly as much, but most of all because you know that your house increases in value. Many think that, but that means that homes obtain exhange value, in effect becoming money. Since homes are not good money, the situation can not last indefinitely, and they are screwed too when the house market (or whatever is the inflation safe asset of the day) crashes. The winners ultimately are the ones that get the new money first, the government, the banks and the cronies.

Excactly, and the uninformed are uninformed. For instance old people tend to keep large amounts on bank-accounts, and the fatherless minors, where some government type is appointed as advisor, keep their funds in banks and in sovereign bonds. It even includes home sellers, someone might brag about a million dollar profit on a house he sold, that he inherited 50 years ago.

Was it supposed to be a counterargument to my own proposition that the current situation is not good?

The situation today is: Most of the people have been informed that a slight inflation is good for economy and their tolerance level is ok for any inflation below 3%, just like credit card fee  

Here is one line of thought, not mentioned above.

We have a situation with low but sure price inflation and low interest rate. According to the leaders, this seems to work well. Now all informed people know that, they make sure that they max out their credit and exhanges that for some inflation safe assets.

So when everybody knows this, it is like the unit of account is changed to some formula including time. Envision an accounting system where every post is linked to a date, and there is a formula to convert every number to another price. For instance, 10 dollar at beginning of 2013 is 10 quarks (the epoch in this system), an expense paid mid-year is marked as 5 dollars, but is converted to 4.95 quarks, and an end of year income of 20 dollars is registered as 19.8 quarks. Just like the universal time is displayed as local time on a computer. Now you can compute your profit in quarks (beginning-2013-dollars). Anytime you see an offer for goods or a job reference in dollars, you ask: but what is it in quarks?

So, valued in quarks, the economy clockwork ticks on and on, prices, investments, interest and wages are referenced in quarks. But wait, those have no price inflation. We have to to something, because the economy is in crisis, there is a war, a flood, a storm or some artist sang a sour tone. All this according to Krugmann. So what will be his suggestion to fix the problem?

tl;dr Inflation "works" only as long as some actors are uninformed and thus being screwed.

What you explained is not a flaw, it is just unfairness in the current system. But usually there are lots of unfairness in life (like most of the people are not born into a banker's family), and you just can't do anything about it. In current system, they can give you a good work to satisfy your living expense, but at the same time they will accumulate 100x more money in the process without working

Even in a hyperinflation country like Zimbabwe, from time to time they issue new notes to re-denominate the old almost worthless notes (now it is forth edition and 25 zeros have been removed since first edition), that still keep the system running

A flaw however could eventually cause the system to collapse and fail

johnyj was hoping for some sign the existing system will collapse under the weight of its own inconsistent logic.

It won't - the present system works just fine.  theonewhowaskazu makes a good point but its not the purpose of the system to help the under-classes.  

I've already explained the flaw. It doesn't help the under-classes, it hurts them and forces them to work forever without saving any real money. What else do you want me to do.

I wouldnt even bother explaining to the OP. He doesnt even understand fork chain.... despite being a hero member or calling himself bitcoiner.

The world need suckers like him, thats what this system is banking on

I'm trying to find the flaw of today's system, but I have not found one so far. So far I have to say it is working, even this debt ceiling fight could be a drama, everything is in fact under control

Although people are scared by looking at forever rising national debt, but unlike many doomsayers, I'm not just satisfied by fear or wishful thinking without any objective proof or reasoning

Even if you know that today's system unfairly benefit the banker class, you might not be able to do something about it, because of human nature and history

Ok, then those homeless people have jobs now, paid by money out of thin air. You think homeless people are going to save it? OFC not, they have way too many expenses already. Thats why they're homeless. You think that isn't going to cause inflation?
I'm not even sure what you're going on about any more.

IT stayed the same because the supply stayed roughly the same and the demand stayed roughly the same. The quality of that supply may have gone up, but that is not due to increased labour to produce this supply, its because  of increased technology. Neither supply nor demand changed. Demand decreased on old technology, forcing companies to new technology, is all.

I really don't know what you're getting at.

Not in this case, since the debt can be write off by the central bank


More money not equal to a decrease in dollar value, I have explained in detail in above post


Create me one trillion dollar, I can guarantee you the inflation will be in check, because only me is getting those money, I will only spend one million dollar and send rest of them to oversea tax heaven account 

$10 trillion in printed money
$10 trillion in goods (wood, paper, clothing)

The fallacy is a printed dollar is the same as a worked dollar.
The a printed dollar only steals value from a worked dollar, since there is no work or goods behind a printed dollar.

X of $ = total goods
(Y of p$ + X of $) = total goods
since $p and $ are indistingushable, the are both $
(Y of $ + X of $) = total goods
(Y+X) of $ = total goods

This is a counterfeit policy.  If someone counterfeits a $100 and spends it in the economy what harm did it do?  According to you nothing as all the dollars remain the same price.  The reality is that value of the total supply of goods was weakened by $100.

Maybe each state (Alaska, California) should have their own currency?

The states with the gold currency will be most prosperous!!!  Although in the proper hands and slight inflation might be a good way to collect a tax without paperwork or without paying for irs agents


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Now according to you you say what if people worked at the same wage for the printed dollars adding to the value of money?   The problem is

value of printed dollars > value of work for those dollars.

I'll sum some things up for those that don't like to read long posts:

There are 3 primary classes of "losers": 

1) Taxpayers - ultimately relied upon to generate the tax income to pay down debt.

2) Bond Holders - A decrease in dollar value hurts the value of US treasury bonds.

3) Consumers - Inflation is very slow and unsuspecting in nature, bond holders will be panicking long before we see significant inflation.  However the eventual price rising drains wealth indiscriminately from everyone.


We are currently on a miserable path that doesn't bode well for any of these groups, there will be a lot of losers.

1. Those money won't went into everybody's bank account over night, added money will enter the society through hiring jobless people to do government projects, those who already have the job are not affected

Suppose that the real jobless rate is 20%, even all of those people find a job, the real consumption won't increase immediately either, because they will first save a lot for security before they start to consume normally

2. Even the income of everybody doubled, they most likely won't spend much more on those items in CPI. They might buy a new car, a new house, a new boat, stocks or some bitcoins, but those are all not counted in CPI

3. Just like Kluge mentioned in the above post, added money supply also compete with added products/services. Maybe your income doubled, but if your output is also doubled, that will still keep everything at the same price, due to added products

IT product is a good example, although the productivity and quality of IT products increased magnitudes, the average price always stay the same over a decade


Maybe the only concern about such a system is fairness: People paid lots of effort to increase the wealth production, while Central bank just created equal amount of money without any effort and buy those added wealth from people. But that is because people want to sell their products for fiat money, it is their desire to get fiat money gave central banks chance to profit from the process

If you ask someone on the street: Why do you want fiat money as a payment medium? They will tell you that fiat money is accepted everywhere in the country and backed by government

So it seems today's system ultimately is supported by everybody himself, they are unconsciously but willingly contribute to this system

TANSTAAFL, obviously. Someone's always gotta pay. With government spending, money printing etc it's our future generations. And the next and the next and the next. Gladly, we don't run out of future so easily, right? :·>

This is Krugman propaganda, government spending creating jobs is mostly a misallocation of resources. Some time, all infrastructure needed (or not) will have been built, all job-creation measures exhausted, and then? Guess what this Nobel prize winner proposes then? Right, an Alien invasion.

Ok, listen.

If the common person is getting more money into his bank account (higher paying job) then the expenses will get out of control immediately (you said so yourself). If the common person isn't getting more money into his bank account, then how was the economy stimulated?

Not that day, but depending on how desperate the situation is, you may get another job for a while. Inflation is slow and somewhat predictable. It's safe to assume you're going to lose a compounding 2-6% of your wealth per year if all your savings are USD stuffed under the mattress. You have strong incentive to fight that, because you could easily be losing more per year than you earn when close to retirement - so you invest (in a scenario where there is no inflation, maybe you would think it better to take the "sure thing" and just ignore investing altogether). There's also strong incentive to take out larger loans than usually considered reasonable, which means you'll have to work more hours to pay on.

US real GDP per capita per hour worked - the metric I think is pretty darn good at indicating fundamental ability to achieve a high quality of living - has been steadily increasing, even in and beyond 2008 - it's been like this for decades. The US is ultimately becoming increasingly economically efficient, even when our common sense is telling us stimulus funding subsidizes "bad" work. Maybe it is - maybe it's just the technological revolution and globalization which is pushing us forward. By this metric, the US is comparable to the "quality of living" increase in most European countries (even those with some form of crisis). We're way, way behind growth rates in places like Turkey (which I don't believe received or contributed to any type of bank bailout) and China, but our actual rates compared to Eastern countries are ~3x-5x higher, still.

One other metric worth looking at in relation to this question - in the US, mean hourly wage is right around $22. Meanwhile, by RealGDP/hoursworked/population, our "real" wage (after investments and everything else reported) is right around $40/hr, so the US is very reliant on investing (whether due to inflation or something else) to achieve a high standard of living, but it does seem to work (at least, so far). This is all gross oversimplification, though, and lots of assumptions. I don't think it can be confidently said one way or the other whether inflation is "good," though morality arguments are easy.

Banks don't care about the slaves, they care about the credibility of their money, so they will just provide enough dollar so that there will be no inflation

From individual person's point of view, it is very difficult to observe a relationship between money supply and inflation. For example, FED increased money supply by 400% since 2008, but there is no 4X increase in daily expenses for household. Because most of these money went into banks' pocket and then saved back at FED as a reserve, banks receive trillions of dollar in the process, but they will spend it very carefully to ensure there will be no inflation

If millions of people receive extra cash in their account, the inflation will be immediate. But if only selected a few receive huge amount of cash, they can just have a meeting and decide the appropriate action to not trigger inflation

Again, it is human nature. If majority of people won't notice the inflation, they don't care. Ironically, since banks become super rich during the printing money business, it just strengthened people's trust for banks

That just puts a tangible number to inflation. Inflation still exists, no matter what, when there's money printing, only its just not as quantifiable.

They also care about their own expenses, which is also counted in dollar.

At the very least, it explains who "loses."

"Because people will work to create more wealth when they see more dollar, added dollar will create added wealth."
So if someone robs you on your way to work that'll make you work more productively that day? This system will fail when people can no longer survive because the leech of government and banks sucks them dry... Which depends on how long the elite are smart enough to live within their means and keep their slaves alive.

Great idea!  Let's call it the New Deal. 

People usually list the example of hyperinflation in Weimar Republic or Zimbabwe, but that was at a speed of magnitudes increase in money supply every month

If you study these cases carefully, another important reason that those money lose value quickly is because the government use those printed money to buy foreign currency on the forex exchange to pay back their foreign debt, thus created a direct impact of money's exchange value against all other foreign currencies


What you stated is a true fact, but to change that fact is not easy. There are so many human factors involved, for example http://en.wikipedia.org/wiki/Money_illusion There is a reason that the money printing trick works, since majority of social members only care about their own business, which is counted in dollar

Because people will work to create more wealth when they see more dollar, added dollar will create added wealth. And if they want to save, they can save in some other medium like gold/bitcoin, the purpose of dollar is to work as an income and need to be spent as quick as possible

First off,  there will be inflation. IF companies are paying out more money (since people got 'better' jobs) they must be taking in more money as well. You yourself said that price is based on profitability. Now, you may say, a little inflation isn't a big deal, after all, people have higher paying jobs anyway, and thats a small price to pay for a better society.

The next thing you have to understand is that inflation feeds off of itself. Once it gets going, it is the same thing as debt, it just keeps on growing. The only way in which it can stop is deflation, i.e, people losing their jobs, which, you'd agree, is a negative outcome. Inflation rewards the spending of currency, which drives up demand for products, which drives up demand for labour, which begets higher prices for that demand and labour, creating more inflation (this is compounded since the government will be paying higher prices as well, thus borrowing more, thus the FED is printing more, thus even more inflation).

Finally, let me let you in on a little secret. Despite all the talk of the evil government, bankers, etc... let me tell you. The government wants you employed. Even the bankers want you employed. No, it isn't out of the generosity of their hearts, its because the world needs work to be done, and they don't want to do it. They want you to do it. So, naturally, they'd be more than happy to give you a 'better' job so long as they don't have to give up anything, since they aren't, because the money is coming out of thin air. But, what happens, say, when you want to not work any more? When you wan't to retire? I'll tell you what happens: You can't. Because your savings are worthless, because of all of the inflation.

Perhaps now you are finally getting it. Money is just a number. These bankers have seen trillions, they don't particularly care if that number goes up or down. What they care about, is having access to resources, and not having to work for it, and having access to power. They want to enslave you. That is  exactly what inflation will do for them. You will get a 'better' job, only just so much 'better' as to barely cover the increased cost of food next week. You have to continually spend more and more money, or even, hopefully, go into debt and pay them even more money, just to live, so your 'better' jobs don't yield a 'better' life. And its just a hamster wheel, you can never invest, you can never become financially independent, because you never have any extra money, and if you did, that money would be devalued in a week. You just have to continue working, forever, never actually being able to save a 1942-dime, while the bankers silently take all the excess products out of all the rest of society, and easily and conveniently live off of that in comfort & leisure.

There are 2 ways for individuals to get power. Education & investment. Just as the Taliban take education away from the lower classes to keep themselves at the top, so does inflation take away your potential for investment. Don't let them do it.

"Second, FED did not lose anything, anyway their money is printed out of nothing"
Everyone who owns dollars loses.... The FED doesn't print dollars "out of nothing", there is the same amount of wealth in the world but more dollars representing it. Thus all dollars lose value.

Let's say that government want to stimulate the economy, they borrow 10 trillion dollar from the FED and spent them all, created lots of projects and hired many people and even reached 99% employment

All those money spent becomes the income of various person in the society, and in turn the government collected some tax back. But they will never be able to pay back the original 10 trillion dollar

And the government requested to write off those debt from FED's balance sheet, they are gone
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So, who was the loser in this process? I see none 

First, government did not lose anything, they created many jobs and stimulated the economy

Second, FED did not lose anything, anyway their money is printed out of nothing

Third, average people in the society did not lose anything, they got a better job, made some money and improved their life

The only counter-argument might be inflation. But price level normally is decided by profitability, if the demand rose (more money to make), the supply will increase to make more product and services (due to higher profitability), thus keep the price low. If the government is the largest customer for many enterprises, there will be a tough competition to get the order from government, the price level will be low due to competition

I still don't see how come such a simple system could fail??? Is it just a wishful thinking or pure psychological feeling