Topic: What is special for a currency - page 2. (Read 2638 times)

If you want oil, you can use whatever currency you have to buy dollars on FOREX, use them to buy oil a millisecond later, and the seller can then dump them for whatever currency they want (again on FOREX) a millisecond later.

Perhaps some tiny sliver of value comes from those two milliseconds where people are holding them against their will, but the bulk of the value of any currency comes from people wanting to hold it.  No force in the universe, not guns, not oil, not drugs, can compel people to hold a currency they don't want to hold.

If you want oil, you have to have Dollars first. If you have Euros, you have to buy Dollars with your Euros in order to buy oil.

You can't buy oil on FOREX.

Sorry, but this is bullshit.  The dollar has value because people want to hold it.  The existence of FOREX nullifies transactional demand as a source of value.  Despite the many problems with the dollar and the US economy, all of the others seem to be worse.

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How do you think Germany got started down that road?  You think they all got together one day and said, "Fuck it, let's print a quadrillion marks"?  Or do you think maybe the started smaller but it grew out of control?

Money is subject to market forces, just like everything else.  We tend to think of things as having a price in terms of money because it is convenient to have a universal unit of accounting, but the reverse is also true, money has a price in things.  If there are too many things, no one will want to part with much money to get them.  If there is too much money, no one will want to part with many things to get some.

This connects with what I said to myrkul above.  Comparing one currency to another shows the market forces directly and plainly.

The USD is supported by GOD:
Guns, Oil, and Drugs.

The US military (Guns) blows the shit out of any country that looks to be shifting away from the dollar for sale of Oil, and it's the currency of choice for black markets (Drugs) the world around. That creates, and maintains, an additional demand for the Dollar that keeps it's price from reflecting the supply.

Notice the magnitude difference, not 4x like FED is doing now, it was 100 times to 1 million times more money printed in one or two years. And combined together with large government spending in millitary at war time, people didn't have enough time to produce so much goods to chase those money

It is the same in simcity, modify the money to be infinite does not make it possible to purchase the technology that has not been invented, most of the money are just sitting in the mayor's account doing nothing until later some more expensive technology appeared

Let's say that due to people's ignorance, if you counterfeiting money less than 2x per year, the price will be stable and there will not be significant inflation, but that won't change the fact that FED is conterfeiting money and people are accepting counterfeited money happily

Due to the special character of currency, the supply and demand curve for currency is very different than any other goods/services

History would disagree:
http://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic



And Germany is not alone:
http://www.businessinsider.com/10-hyperinflation-stories-of-the-20th-century-2011-3?op=1

Another special character of currency discovered: Those who make the currency do not pay tax

Making everything else as an income should pay tax, but if you are making currency, you do not pay income tax. Since FED is a private organization, they should also run like any other business, pay income tax. The currency worth minus the cost (which is almost 0) is the income that they should pay tax to government, but they never paid  

This is only valid in mathematic calculation, the real world does not function this way

Because of limited vision, majority of people seldom question the real source of money. The money did get counterfeited from FED at amazing speed: 400% since 2008, and still 85 billion a month. But due to that people only care about work more and make more money, if there comes new money paying their salary, they will work. After their work, the corresponding wealth will be created, so they are willing to create new wealth to exchange for counterfeited currency, as long as many other people are running low on money too. If everyone is running low on money, the demand for money will be high

This gives central bankers a very good opportunity to counterfeit money when there is a recession. Since the currency never get consumed, people will never question the quality of paper/digital money like inspecting a gold bar

People are ignorant, everyone know that there are 4X more money entering the financial system, but as long as the price of everything do not change, they don't care, they think financial is a complex system and only very rich bankers understand how it works

And more money not necessarily cause higher CPI: Suppose you suddenly get 4x more salary, you will not buy 4x amount of the milk to drink, you will not consume 4x more gas for your car, your money might go to some luxury spending which is not included in the CPI, or you just hoard the rest of excessive money, as long as they are counterfeited by FED, it is legal, accepted by everyone

Money is not, itself, wealth. It only represents wealth. If you counterfeited (or arranged to have legally printed) a large sum of money for your startup, without creating a similar amount of real wealth, your new money represents nothing, which is the cause of inflation: The money that represents nothing is mixed in with the money that represents real wealth, like mixing in tungsten to gold, lowering the average real value of each currency unit.

A little bit off topic now, I will focus on analyzing special characters of currency

As said, currency is very different from real goods/services, because its universal equivalent property, it is widely regarded as wealth, and the most liquid asset. Although all the economy books are denying currency is wealth, but you still can observe the economy effect created by currency

For majority of people, a job with $5000 salary each month is enough to make them happy and work, they don't care if this currency is created out of nothing, that's a simple fact you can observe everywhere

Currently many people complain FED's money printing because they still could not find a job and finance their housing, those printed money just went into banker's pocket. If they all can find a job with a good pay, they seldom question what FED is doing

So, if I start a project with lots of printed money, I could hire many people and pay them salary, the their increased income will bring increased spending in the society, and increased spending won't cause inflation, but only cause increased production from other society member (they want to make more money), resulted a boom

You mean, in Sim City? 

No, you are still missing something important.  Printing money does not create purchasing power, it merely redistributes it.

Germany and Japan were rebuilt quickly after the war because the US poured capital into them.  To the locals, it may have looked like someone hacked the game and created a bunch of wealth out of thin air, but that's not what really happened.  The new Europe was built in America, shipped across the ocean, and assembled by people fed by American farms.

Notice that in a simulation, you have all the technology available, the only thing needed is money and time. I think that's also the reason Germany and Japan were re-constructed very quickly after being heavily destroyed in world war II, since the technology are all kept intact

Although the money do not create an airport, but the money will finance big projects that build the airport, and that project will hire lots of workers and purchase lots of raw materials, which in turn create lots of employment. This is what I try to discuss at the beginning of this thread: Currency will create a chain of economy activities

And all this is based on the fact that people think currency is a store of value and universal equivalent exchange medium, they don't have easy means to access it unless by paying their labour, so when currency arrives, they work

IMO, the talk about inflation does not have a sound theory backing. Inflations are all temporary, since the increase in one product's price will increase the supply and bring down the price of this product later, pure supply and demand. Some one may argue that excessive supply of money will push up the price of everything in the society, but in my simulation, I do not spend those money on daily consumption goods, so it's clear that my spending of newly created money will not cause inflation, but boom

There were very serious inflation incidents in history, but I think in those cases the amount of new money was created by several magnitudes larger speed, so the real economy could not keep up with the dramatically increased purchasing power. Fed has proved that a 4x increase in money supply will not change people's consensus of currency value

But in Sim City, you can print wealth, because the game treats all Simoleans as being equal, even if you've just waved a magic wand and created them out of thin air.

The biggest problem is that in a simulation, no real work has to be done.  In simcity, the game can turn an area into an airport or a nuclear plant just by flipping a few bits.  In reality, people have to build those things (and the things they are made from, etc, etc).  You can print money, but you can't print wealth.

If congress had a magic wand that could create wealth, they wouldn't bother printing money.  They don't have that wand, so they print money, which steals a little bit of value from all of the other money, and puts it where they want it to go.

First off, the model is flawed. The real economy doesn't work from a top-down, planned method. People are not Sims.

Secondly: https://en.wikipedia.org/wiki/Austrian_economics

Of course it's a game, but at a higher abstraction level, everything is a game, the solar system is also a game played under certain physical rules. Can you point out why printing money does not work by some real facts? I think basically the printing of money works, the economy developement after 1971 has proved this, but the big question is why only a selected few can print money, and how we can make sure their printed money are used on something that people really need

See, there's your problem: you're basing your economic theories on a flawed (by necessity, top-down) simulation.

It's a game, not an accurate model.

I remember that I played a game called SimCity many years ago, in that game you are the mayor start with 50,000 dollar, you have to build the road, build the water pipes, provide electricity and plan different district as residential district/business district etc... And there will be people moving into the city and work there, and give you some tax income

Due to limited budget, I have to start with building small and functional blocks and slowly accumulate more income through tax and upgrade the size and capacity of the city little by little

But the first thing I did, is to use a tool to modify the start budget to be 1 billion dollar, so that I can build whatever I want. In fact, after removing the limit on the currency, I can drive very large government projects quickly like highway, tunnels, airport, nuclear power plant and modern minicity, all with fiat money I created by typing 0s, and many people moved into this modern city and build many other things they like, every thing looks great, the only limitation is time when a new technology is available, and the amount of police I have to set at each block to reduce the criminal rate

That's my experience, the more currency you have, the more economy activities you can drive, this is just a common sense, do not need any second thought. Just like when a big customer arrived, everyone will be able to make big money. They never thought that the money itself will lose value unless they all get access to that newly created money at the same time

There is no functional difference. A currency is simply the good that is accepted by everyone in exchange for their goods or services.

That actually depends on the currency. Gold, for instance, slowly gets rubbed/abraded away. The US Dollar, being made mostly of paper, is subject to some pretty serious wear, such that the average lifespan of an individual bill is less than two years. Gold, therefore needs to be re-minted, and dollars shredded and re-printed.

An oxidized silver coin is still silver, and still holds value. Additionally, a currency does need to be a good store of value, but that's only one necessary feature.

And this is just plain wrong. Economic activity is not driven by money. It's made easier by money, but it's driven by demand. What you have to realize is that even if you're buying something with money, you're still using barter. Money is just a universally accepted barter good.