Gmak
Posts: 10179
Registered: 2007-07-27
Re-inventing the future at the speed of time.
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I'm feeling rested, and I have some time on my hands today, so you are about to be subjected to some analysis. By "you", I mean everyone will have to put up with my interpretation and support / rebuttal of the quotes in the first post.
I'm not sure why you posted what you did Agi. Are you saying that deflation is not possible? Are you saying that those quotes are your view. Or are you just trolling.
If this is the case, then I say:
Shame on you Agi, for merely copying a bunch of out of context quotes, providing links and then saying refute these. You are an intellectual coward in having done this. Where is the value added? Where is your contribution to this. Your whole post smacks of "trollism" by its very nature. Nonetheless, I will try to answer some of the flaws and questions that seem to be in these randomn quotes.
(If you had some other intent, I apologize and suggest that you explain what you are trying to accomplish when you post all of these inconsistent comments.)
"Agi's post" wrote..
Commodity theory of gold
Quote:
we think the commodity theory of gold is as wrong as the State Theory of Money. We turn once more to Professor Jastram, and while we get no joy from his view that gold is not money, we take comfort from his empirical evidence that gold acts like money. We turn also to common sense, and note the fundamental economic difference between other commodities and gold: all other commodities are produced for consumption, whereas gold, precisely as a function of its money-like qualities, is produced for accumulation. [10] Virtually all the gold ever produced still exists somewhere, albeit not necessarily where governments claim it does. Set aside for the moment the massive empirical evidence marshaled by Professor Jastram that demonstrates how differently gold and other commodities have behaved over time. How is it even reasonable to expect such fundamentally different things to act alike? ...
Let me start by defining "money" as a temporary store of value that can be used as exchange for production by others. In the old cliche, it is a convenience. If there is no gold around, or a few individuals have all the gold, I find it difficult to believe that those who have water, food, clothes, medicine, shelter, and other useful items for survival would ascribe a high value to the gold and turn over all their production to those who have it.
Beyond this, the point isn't worth arguing about whether or not gold is money. Gold is not ubiquitous in Western society and so, would have no velocity. If gold does become money, it may be deflationary initially.
Now let me go off on a tangent and rant a bit about the specious logic used to present Gold as a commodity. I find the logic suspect in that gold doesn't behave like other commodities. Zimbabwe doesn't behave like other stock markets, many different types of fixed income instruments are not behaving like others. A difference does not "money" make. I would be more convinced if the argument for gold as money were based on some cogent thesis that defines the conditions under which it would be accepted in a regional universality as a medium of exchange for goods and services (money).
I will simply say that ANYTHING can act like money if enough producers want it to. Hell, we accept printed pieces of paper as money. End of story - gold can act as money.
Now, let me beat the horse to death.
If I live in a town where individuals will accept gold in exchange for their individual production as a convenitent means of exchanging production (I grow herbs and vegetables, but I need bread and butter. I can either swap some herbs and vegetables for butter and bread produced by an individual who wants what I have, or I can "sell" my herbs and vegetables to anyone for some gold and then use the gold to get my bread and butter from the producer of these.)
However, if no one wants the gold but is more comfortable with barter, then it is not money. Maybe, due to a scarcity, salt is preferred. In this case, salt can be money as well. If there is to be any exchange of production among individuals, there will be either direct barter, or some intermediate means of exchange = "money". It can be gold, salt, cans of tuna, whatever the majority prefer and implicitly agree to. However, I can imagine many circumstances where gold is just a pretty and shiny metal that you cannot eat, wear, load your weapons with, or use in any fashion.
Gold can be money and it can be a commodity. I daresay that if someone shows up at Genesis' or LCruisers' door saying here is gold give me some food (under certain circumstances), they would be met with hearty laughter and the front end of one weapon or another. Please refer to Patmcgroin's catchphrase on this. Gold is only money if those who have the goods and services want it to be. It doesn't matter what those who have the gold want, unless they also have needed goods and services.
"Agi's post"
[quote wrote..
As I understand that view being propounded by its advocates, the idea is that during a period of intense deflation, American citizens who have managed to amass significant amounts of indebtedness will attempt to reduce their debt by selling their goods or possessions in an attempt to raise cash with which to pay off their debts. This will result in increased demand for dollars as people will tend to hoard cash as the deflationary spiral worsens. In a deflationary environment of falling prices, the purchasing power of the U.S. Dollar will actually increase since falling prices will allow holders of cash to actually obtain more goods for the same amount of money. The claim is that this increased demand for dollars will result in the dollar actually strengthening much to the consternation and surprise of many who are expecting a severe decline in the dollar.
Let me first deal with this assertion. There are two obvious flaws as I see it. The first is that while this may have been true at one time in American history, it is no longer true today...
The second and most obvious flaw in this reasoning piggybacks upon what was just stated. The synthetic short dollar theory's failure to deal with the influence of the fundamental factors detailed above, most notably trade flows and capital flows from abroad, is a serious omission of two of the most critical factors that go into determining the value of a currency and cannot be overlooked. Let me explain...
[/quote]
C'mon agi. If you are going to post the contention that something is no longer true today, along with a ton of garbage and verbiage posing as logic, at least post why it isn't true. The first reason is ludicrous. There is no argument. It is the "We Say So" school of debate.
From the second link provided by Agi:
"Dan Norcini" wrote..
It is important to keep in mind that in a sense, a currency is like any other given commodity. As such its value is determined by the laws of supply and demand. This is a CRITICAL factor to grasp and cannot be lost sight of when dealing with currency valuations. As a matter of fact, it is the simplest and most basic of things that sometimes tend to become overlooked, which are the most essential if we are to keep a proper perspective.
Apparently, gold is a commodity by this argument.  But on to the basic discussion.
This individual argues from the point of view of supply and demand for the USD, and the unique fact that individuals would see assets to pay down debt. He overlooks the fact that deflation begins when the expansion of debt is no longer sufficient to meet additional interest payments (it's more than this but I am simplifying). Worse, the author doesn't even mention the fact that credit and debt is used today as money, and their destruction is deflation as well. Default on debt, drop in value on traded bonds, repayment of debt without new loans being made: all of these are deflationary.
The author probably argues logically but he is addressing an inconsequential side of deflation.
This next section has many statements that I won't reproduce (well just one). Like the other sections, I believe that Agi has failed to copy the heart of any of the arguments of the various authors.
"Agi's post" wrote..
Deflation
....
Deflationists argue from this, that debt deflation will always trump inflation. The problem with this argument is that it proves too much. If this were universally true, then how could there ever be a hyperinflation? Debt would choke it off before it got started. And yet there have been many historical instances of hyperinflation...
I would suggest that deflationists do not say that debt deflation will ALWAYS trump inflation. Nor do they suggest that deflation would choke off hyperinflation once it started. If the author had taken the time to read any of the many works on the subject, or even thought briefly about it, they would realize that the whole school of thought originates in the events of the Weimar Republic, followed by the Great Depression. If one reads any of the books, theses, or articles at Mises.org, one very quickly realizes that the heart of the argument is that there are two ends for the inflationary fractional reserve financial system: 1. Is the creation of a new currency. (Brazil, Venezuela, Zimbabwe) whereupon the whole process can begin anew; 2. Is a credit contraction following the crack-up boom. This means that prices of goods and assets rise rapidly as individuals reject holding the paper currency. At the limit, and ultimately, the credit contraction begins and accelerates, undoing all that has gone before.
The elegance of the Misean thesis is that it does not depend on limited logic, mathematical formulae, or faulty assumptions. It is based on common sense and simple logic.
This is from the third link:
"Blumen" wrote..
There cannot be a short squeeze for something of which the supply is not limited. These analysts ignore the other money creation channel that a central bank can apply: monetizing debt directly The Fed currently is allowed to purchase Treasury debt (either newly issued or on the Treasury debt market) in its so-called “open market operations.” To do so, the Fed writes a check to the Treasury, creating out of nothing the money to purchase the bond. The seller could be the US Treasury or a bond holder who had purchased the bond some time before.
The monetization of any asset is similar to the purchase of Treasuries: the Fed buys something and pays the money into existence with a check. Asset monetization has the potential to arrest or head off the debt-default process. As new money is created and deposited in banks, it increases the equity of the banking system, alleviating the deflationary pressures that otherwise would force banks to contract their loan portfolios.
I guess a better question might be that If the FED tries to monetize debt in order to hyperinflate, would this overcome deflation. I would suggest that initially it could and we would probably have a Zimbabwe on our hands -with the stock market going up 1000's of percent in short periods of time: the crack up boom.
But what happens next?
The demand for the USD becomes zero. The US is unable to import anything. Shortages abound. Americans hoard goods and reject the currency. It becomes useless because you cannot use it for food, shelter, clothing, or medicine. Maybe a new more stable currency is created, but their is a lack of trust and it has lost the "reserve currency" aura.
The economy contracts in many areas dependent on foreign labor, materials, or ideas. Many refuse to sell to the USA except for prices denominated in some other more stable currency (maybe even gold - who knows?).
Unemployment rises geometrically as part of the vicious cycle. Food, water, shelter become the most sought after and rare items. Perhaps weather conditions exacerbate shortages. Oh wait. That's like the Great Depression - wasn't that an era of deflation?
C'mon Agi. You can add more value than you did. Debate is healthy, but not when it is a serious of pithy quotes (that don't even reflect the main points of the authors) flung out as a challenge. You are better than this. Next time, at least state what you are trying to accomplish with the post and there might be less hostility towards you. I feel like I have been tossed a box of puzzle pieces from different puzzles, no pictures to look at, and told that my position has no merit unless I can put all the puzzles together again.
tsk tsk.
Last modified: 2007-12-02 13:37:59 by gmak
2007-12-02 12:34:48
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