A Conversation About “What Is Money”

From here

Richard
June 20, 2012 at 09:44 #
The Euro has massive potential for Greece. It places limits of the inflation of the currency which can only be good for Greeks.

Unfortunately, as you say, the Greek political elite and possibly the public sector trade unions are pouring petrol on the fire.

Ultimately the government and the unions are the problem not the currency. Even if Greece were to leave the EZ, the same problems would remain. Changing the currency solves nothing.

REPLY

Guest (xenos)
June 20, 2012 at 10:33 #
You are economically illiterate. What you have written denies that there are consequences of belonging to a monetary union; falsely asserts that membership of the eurozone is inevitably good for weak economies, because they cannot devalue; and blames the current disaster in Greece not on its originators — the Troika — but on recent Greek governments and trade unions,

This sort of rubbish — which has no foundation at all — is what the idiot Germans and French were spouting at the inception of the euro. It is what Simitis and presumably Papademos were saying in 2000, Yet, even after the empirical evidence showing that these ideas are crap, people continue to spew them out. In particular, Germans show a complete lack of ability to construct rational analyses and instead insist on moralising and childish arguments.

Europe’s future is hopeless, with idiots at the helm.
Pedro
June 20, 2012 at 10:58 #
It does not limit the inflation anymore. The Euro has been turned into a new Drachme by the ClubMEd countries.
Crossover
June 20, 2012 at 14:56 #
Τhe only reason Greece faced higher inflation in the 90s than after entering the eurozone was that the BoG was after a gradual currency slippage strategy in order to keep up with the competitiveness.It had nothing to do with demand-pull inflation as most believe,especially the ones afraid of the printing press.

This more highlights the fact that politcians were too bored or incompetent to take steps forward rather than indicating how bad it is to have your own currency.

And you still keep ignoring several problems the euro is causing.
Richard
June 20, 2012 at 21:55 #
Crossover hi, The Euro is not “causing” any problems, it is highlighting problems that need to be fixed. It is exposing how citizens are enslaved by their governments.

You can not make a country more “competitive” by constantly attacking and reducing the value of peoples property and labour, ie currency printing. You just screw the citizens for no other reason than to make money for the central bank and to keep an inefficient/corrupt government in business. There I said it, I gave you the definition of money.
Richard
June 20, 2012 at 21:57 #
“Guest”, you called me economically illiterate. Okay lets have a test. Are you able to define money? And if so can you please educate me
Guest (xenos)
June 21, 2012 at 09:32 #
Richard: no, I am not going to answer your test. I taught economic theory and comparative economics in a UK uni as long ago as 1991, and I also gave students various definitions of money within such courses. It is not my job to give you free tuition.
Richard
June 21, 2012 at 10:43 #
You sound qualified. Okay, instead of free tuition can you be so kind as to share some sources so I can do some research myself. Websites, books etc, any help appreciated
Demetri
June 21, 2012 at 09:56 #
Crossover

I think is high time you post this text again about MV=PY to answer Richard’s question.
Richard
June 21, 2012 at 10:48 #
Morning Demetri. We can’t even agree of fundamentals like “what is money”. We cant discuss money if we disagree as to what it actually is. Wouldn’t you agree?
Crossover
June 21, 2012 at 12:34 #
Given that there are several types of money,your question is nonesense.Its not one thing that you are asking the definition of.Well here it goes:

Uses of money
• medium of exchange. Money is fungible, i.e., one unit can be substituted for another unit (as in making change), and it is also exchangeable for other items in buying and selling. Money is used for final settlement of accounts when transactions do not take place through direct exchange of goods.
• unit of account. Money is the unit of account used to price other items in relation to each other.
• store of value. Money is used to store wealth financially for future use. What distinguishes money from other stores of value such as real property is superior liquidity.
• standard for deferred payment. Money is used in extending credit. Here money is used for final settlement of debt, which extinguishes the loan obligation.

Types of money
State money: is a liability of the state that is accepted by the state in discharge of liabilities to the state (primarily taxes). In this sense, state money is a tax credit as an asset of nongovernment. Since no concomittant liability for this asset is created in nongovernment, state money is a net financial asset of nongovernment.

Commodity money: is the use of a commodity as a medium of exchange, usually a commodity high in demand. Metallism designates commodity-based money that has a given quantity of a precious metal which when stamped circulates as a means of payment and medium of exchange. Often its supply is monopolized in some manner by government. Commodity money consists of coins whose value is determined by the quantity of precious metal they contain.

Fiat money: is a liability of the state with no promise to convert it into anything other than itself (as in making change).

Bank money: is liabilities of a private bank that are accepted as means of payment or media of exchange; this is primarily deposits on which cheques can be drawn, although in the past it consisted primarily of bank notes. Some bank money is convertible without much delay and with little loss of value to fiat money and/or commodity money. Today, conversion is always done at par with fiat money. In the past bank money often circulated without convertibility. Just as the state agrees to accept fiat money at its pay offices, banks accept bank money in payment to retire liabilities to the banking system. Since loans creates deposits, bank money nets to zero.

Credit money: is money that is created by extending a creditary relationship between creditor and debtor, usually involving the debtor paying interest to the creditor who assumes risk of default. Bank money is one form of credit money, but all credit extension creates “money” in a broad sense. Since all credit money is created with corresponding assets and liabilities in nongovernment, credit money created in nongovernment nets to zero.
Richard
June 22, 2012 at 01:03 #
Thanks for that. Interesting stuff. Bits of what was written/quoted are consistent with Adam Smith and those are the bits I agree with. Yeah the currency if fiat, sure it can be printed, its not backed by a commodity as such etc etc. I agree.

But money is still backed by 2 things. Labour and property. The issue with a fiat currency system is that the value of labour and property is now flexible/elastic and it is manipulated by central banks. Gold/silver limited the manipulation that was possible which was good.

Greece kind of has a gold standard currency as the central bank no longer has the power to print cash, which is good. The problem is it highlights all the systemic problems that were being covered by inflation. Which is also a good thing.

It comes back to something we talked about a while ago, I do not believe you can create wealth/prosperity/human development through the printing of money, I think this is where we disagree massively.
Guest (xenos)
June 21, 2012 at 12:35 #
@Richard
I apologise for my abrupt tone. I had not understood that you were serious about understanding things. Perhaps Yanis would consider a section of his blog for links to external sources, reading material. etc. He could also advertise his own texts
Richard
June 22, 2012 at 01:11 #
I think I am in the same ball park as Yiannis on most things, where we differ is on the pro and cons of centralised control, I’m against, Yiannis is for (An absolutely huge difference of opinion I know) but yeah, a recommended reading list would be great, here is mine if anyone is interested http://independence4wales.com/i4w-store-powered-by-amazon-uk
Crossover
June 21, 2012 at 12:42 #
And probably you are the only one that cant discuss based on MV=PY.You know, this is not a formula.Its an identity.If you cant explain how money printing is inflationary based on this identity,then you are the one who has something misunerstood….
Richard
June 22, 2012 at 02:06 #
Take this article. http://www.oswego.edu/~edunne/340chapter21.html for example.

Ignoring this sentence which says its an equation where you said it was an identity “The equation of exchange is an identity because it must be true that the quantity of money, times how many times it is used to buy goods equals the amount of goods times their price.” Lets ignore that because it would be petty of me to bring it up.

It goes on. Its utter garbage but lets look at it.

“To move towards the quantity theory of money, Fisher makes two key assumptions:

Fisher viewed velocity as constant in the short run. This is because he felt that velocity is affected by institutions and technology that change slowly over time.

“Key” assumptions
Velocity of money is constant. Utter garbage any Greek could tell you that. The institutions in Greece are roughly the same size as they were before, and from my understanding of the country they still have access to the same technology now as they did in 2008 and yet the velocity of money is what? Minimum 20% less than it was before. Anecdotal evidence from Yanni’s writings and my contact with Greeks. Like I said utter garbage from the identity (not a formula)

the rubbish continues

“Fisher, like all classical economists, believed that flexible wages and prices guaranteed output, Y, to be at its full-employment level, so it was also constant in the short run.” Sorry what, full employment level? More complete garbage and we have finished the first part yet. One more “aggregate out put is also constant” again garbage to any Greek.

I’m not going to waste my time commenting on anymore so ill just paste the highlights. If your intent was to bait me, mission accomplished.

“Is Velocity Constant?
A constant V is key to the quantity theory of money. For Fisher, the assumption was a leap of faith since data on GDP and the money supply did not exist in 1911. However, looking at that data in Figure 1, page 542, we see very clearly that velocity is not constant, even in the short run. In particular, velocity drops significantly during recessions.

With the problems of the Great Depression, economists began to look for factors other than income that influence money demand.”

“IV. Empirical Evidence on Money Demand

So who is right? Well, the chief differences between Keynes and Friedman lie in the sensitivity of money demand to interest rates and the stability of the money demand function over time. Looking at the data on these two features will yield some answers about the best theory of money demand.

Tobin did some of the earliest research on the relationship between interest rates and money demand and concluded that money demand IS sensitive to interest rates. Later research in the 1950s and 1960s backed up his findings. Furthermore, the sensitivity did not change over time. Many researchers looked at this question and their findings are remarkably consistent (which in economics is somewhat miraculous ).

Now for the stability of the money demand function. Up until the mid-1970s, researchers found the money demand function to be remarkably stable. In other words, money demand functions estimated in the 1930s, worked just as well predicting money demand in the 1950s or 1960s. The relationship between money demand, income and interest rates did not change over time.

However, starting in 1974, the stability of the money demand function (M1) began to breakdown. Existing money demand functions were overpredicting money demand (i.e. actual money demand was lower than what old money demand functions were predicting). This case of the “missing money” was a problem for policy makers that relied on these functions to predict the effects of monetary policy. What caused this breakdown? It is likely that financial innovations in the 1970s (money market accounts, NOW accounts, electronic funds transfers) changed the working definitions of money even though our official definitions did not change. This problem grew worse in the 1980s.

With the problems in the M1 money demand functions, policy makers turned to M2 money demand. However, the stability of M2 money demand functions also broke down in the 1990s. This cause the Federal Reserve to stop setting targets for M2 in 1992 after abandoning M1 targets in 1987.”
Demetri
June 21, 2012 at 13:49 #
Richard ,guest (xenos)

Let me give it a try.

What is most important than the static definition of money is the identity of the flow of money.

There is a transfer of energy from point A to point B and vice versa.
There is a purpose for this transfer. It does not happen just like that.

Identify it.

You can call point A spinach pie and point B lillies of the field with ouzo aroma.
Between point A and point B ,the energy changes form and is manipulated on purpose for many “goals”.

Or the relation of the points and transfer of energy can be more immediate.

Know the real identity of this transfer ,no matter how it is called.
And no matter how the “physical mean” ,the carrier if you like of this energy is defined.

So the definition of money can be ,seducing a woman by means of economical exchange to be very exact or the most general definition of exchanging goods.

But in reality ,the above are just subjective identities.
Debt is also a function of money ,a way of use of money.

We decide.
Well ,today ,”they” decide.

What is most important is:
1. the amount of money
2. who controls the transfer
3. the identity of the transfer (with what form the money is transfered – this by itself changes the definition of money. Is it transfered as debt?)
4. the results of this energy transfer and its way of use at the points (if it is transfered as debt ,for what purpose is to be used at the receiving end? What are the results?)

In other words what is important is the flow of energy ,how it flows and its intensity.

Richard what you need to understand is that if at the receiving end the form of energy is unusable then it has no meaning of being transfered in the first place.

That is what is going on today. We have an energy flow disturbance with the controlling party transfering energy in an unusable form for the receiving party while at the same time forcing the receiving party to not use other forms of energy.

The end result is NO ENERGY for all parties.

If the receiving party is to become more efficient in its processing of energy ,it needs that energy in the first place.

The controlling party has excess energy and instead of using that energy in an efficient way itself ,it transfers that energy in an inefficient way ,so that at the end everybody loses.

But the controlling party has excess energy ,because the receiving party used that energy too. Otherwise it wouldn’t have energy at all.
It is this metamorphosis of energy that matters.
We are all connected.

If energy is being lost not because of energy being more than the potential of the receiving party to use it ,but because the controlling party changes this energy in an unusable form two things must happen.

1. The controlling party must start transfering the energy in a usable form.

2. If it is not enough and more energy is needed ,then more energy should be created. As long as this energy is put in an efficient use not surpassing the potential of the receiving party to use that energy ,then that energy is not lost.
If the energy is not lost then it adds value in its tranformation instead of decreasing it. (NO INFLATION)

What Germany is doing is asking the receiving party to accept inefficient form of energy ,to transform this inefficient energy to a usable form by itself without being the responsible party for ALL of it ,to change its functions without having the energy and to add value to that newly tranformed energy.

Only problem is that the receiving party can change forms of energy if it is a controlling party. Otherwise it can not create by itself or change forms of energy. (NO MONETARY SOVEREIGNTY).

The receiving party depends on the controlling party for the right energy.

Even the transformation of energy is an act that needs energy to occur.

So the receiving party if it is to transform the inefficient forms of energy transfered to it ,also needs usable forms of energy for the transformation to occur.
Then it needs more usable energy to become more efficient.

So in other words ,

FIRST COMES THE ENERGY AND THEN THE REFORMS.
THERE IS NO OTHER WAY ,EXCEPT IF GERMANY CHANGES THE PHYSICAL LAWS.
GO HAVE A CONFERENCE WITH GOD.

Germany must spend in an efficient way and as long as the spending is not lost ,the bad energy is tranformed to good.
Also ECB can print money without inflation as long as it is used for the transformation of bad energy to good and for further processing of adding value.

Today Germany asks from the periphery to receive its own banks bad debt and add to the peripheries bad debt. It then asks the periphery to receive more bad debt to service the older bad debt. In this way we have an unusable form of energy that only adds to the problem.
The usable form of energy is kept by Germany and Germany also asks from the periphery to transfer real wealth to Germany if the periphery does not transform the unusable form of energy to usable.

But the periphery does not receive usable form of energy in the first place to make the transformation of not only its own bad debt but also Germany’s bad debt.
So the periphery can only reform to a point to be efficient since the energy received is unusable in any way. (ONLY FOR THE INTEREST OF THE BAD DEBT).

So with mathematical accuracy ,the periphery will transfer real wealth to Germany.
Maybe then ,if it is not too late ,Germany will start to transfer usable form of energy.

So ,either Germany is stupid or it very well knows what she is doing to have the periphery both transfer real wealth to her and save her bad banks.

Maybe she keeps a balance between usable and unusable forms of energy so that her banks’ bad debt is transfered systematically and slowly to the periphery ,the periphery is burdened with the bad debt of the banks and the bad debt is increasing faster than the usable energy can be put to use in the periphery.
There is a limit. When this limit is reached ,we have collapse.

So again if they know what they are doing ,they simply want to steal assets.

The reforms are besides the point when the fundamental transfer of energy is being manipulated in the worst possible way.

If you didn’t understand this ,then………..(you fill the gap).
Richard
June 22, 2012 at 02:12 #
Demetri, we are going round and round with this issue.
You keep coming back to your opinion that Greece needs Germany’s help/energy, I believe it does not. I think Greeks can be richer than Germans, no problem. I think we’ll just have to agree to differ.
Demetri
June 21, 2012 at 14:15 #
Richard

In nature energy can not be created.
It only changes form.

But ECB ,now Germany plays God.
It can create energy and manipulate it as it likes.
Money is the energy ,the blood of the body of economy.

In this economy ,since we are imperfect human beings ,and we have decided to use a debt – based system ,certain parts of the body use more energy and produce more ,while other parts less.
To a point it is acceptable. There can be no other way.

In order not to have unused excess energy that leads to inflation ,energy is destroyed. Then at the right time energy is being created again and through channels is directed everywhere in the body.

But Nature is much more efficient than human economy.
So ,because of many kinds of manipulation of the transfer of energy (corruption) ,an extreme “natural” (my ass) imbalance is created.

Those that control the flow ,control everybody.
THOSE THAT CONTROL THE FLOW ,CONTROL EVERYBODY.

Can you understand now that it has nothing to do with the specific debt of the periphery?

The German taxpayers lose their energy for nothing. And they certainly do not lose their energy for the sake of the Greeks or anyone else.

As long as the energy is being transfered in an unusable form ,everybody will be losing.

It is a human created crisis. On purpose or not.
If on purpose for what end?

If not on purpose then the EU leaders are EXTREMELY STUPID.
Certainly more stupid than us.
Demetri
June 21, 2012 at 14:39 #
Richard

There is an expression:
“shit or get off the pot”

The problem is that Germany shits too much. Then she takes her crap ,she mingles it with the crap of the periphery and then she asks the periphery to eat the crap and sit fruit.

Sorry ,NO CAN DO.
Demetri
June 21, 2012 at 15:00 #
Richard

Having excess energy and not use it creates problems.

It is like a right handed person that has more strength in his right hand.
So far so good.
Then suddenly all the energy received is being put at the right hand’s bisept.
The rest of the body weakens. The muscles start to create too much of galactic acid.
Then the body asks from the left elbow to absorb the galactic acid immediately and transformed it to energy for the rest of the body.
The elbow is hurt by an accident (personal debt).
Now the elbow has to play filter for the rest of the body.

Why? Because there is a stupid mind and an arrogant muscle.

It can not be done.
Demetri
June 21, 2012 at 15:28 #
Richard

The deal in EU is that the ECB can not create money now.
What does that lead if the “good form of energy” has ,through flow manipulation ,been gathered in one place of the body?

Germany is that place and the rest of the surplus countries.
Germany is the real parasite here.
The official Germany ,not to be misunderstood.
As is the official Greece too ,since ,the elite has no nationality.

Now Germany will either leave the body or allow the mind to use the energy effectively or the ECB to create energy (eat food) ,so that the crap of the elite can be transformed.

The rest of the cells will have to work together for this purpose.

But the cells (people) of the muscle (Germany) that parasitically keeps the energy ,are being led to believe that other cells of the body are responsible for the problems caused. But the other cells haven’t created the bad unusable energy in the first place because they have not this ability.

The energy is being transfered through channels. Somewhere between the controlling party and the receiving party are other points (institutions) that have found the opportunity to manipulate and overleverage the energy ,so that the receiving parties get forms of energy only partially usable and in excess. (Debt ,derivatives ,inflation ,bubbles etc..)

These institutions are the banks (commercial and investment) and other institutions of the financial world.

Then they have also placed their own viruses (corrupted politicians ,corporations) at the receiving end so that the receiving party uses even less effectively the usable part of the energy.

The cells of the receiving party get hurt.
Now they are asked to filter all the unusable form of energy created by the parasites and they are called parasites themselves.

Ofcourse a good virus (Germany) makes other parts of the body to think that the parasite is another part.

Today’s economy is a parasitic body.

The viruses are everywhere ,at every part (country) of the body (world).

We need to get rid of the parasites and transform the unusable form of energy into usable.

All the cells of the body must wake up to the fact that individually they are not to blame and they are not to blame eachother (Greeks ,Germans ,Italians etc.)

Otherwise the parasitic muscle (Germany) and its cells (Germans) will get hurt as well. In time the body will die.

The virus will die too then or it will simply be transported to another body (BRICS).

Germans ,the virus resides in your country. WAKE UP.

Well ,i am done.
Demetri
June 21, 2012 at 17:39 #
Richard

No ,i am not done yet.
You overproduced and you overleveraged to the point that the rest of the globe and you can not process the bad debt.
Unused and inefficient form of energy.

The problem is not a competitive problem of the southern countries.
It is the exact opposite.
You overproduced and you overleveraged.
You transfered efficient forms of energy to your country ,you overleveraged it as inefficient form of energy and passed it everywhere ,you keep the efficient forms of energy and instead of redistributing the efficient form of energy as well as transforming the inefficient form of energy to efficient ,you ask others to become competitive in a world where energy is no more.

Let us say that it is possible.
Since the ECB does not create more money then ,the time will come that the efficient forms of energy will be transfered to those thet produced efficiently and the same will be relived.

In other words ,Germany is asking for the energy of the rest of the globe.

The other way this scheme can continue is if magically ,the Earth doubles in size ,the population of people too and ofcourse the debt is restructured and extended a bit. So the scheme can continue with more competition by everyone ,again to a point.

The only way the bad energy can be transmuted to good again is by:

1. Respecting the rhythm of natural production. Germany slowing down ,not other countries speeding up.
2. Increasing internal transmutation of energy. Germany increasing domestic demand.
3. Extending the date of transmutation of the bad overleveraged energy to good so that again the natural rhythm of production and change is respected. (Extend the debt).
4. Lowering the activities of parasites that overleverage the good energy and transmute it to bad and inefficient over the abilities of the receiving parts processing.
5. Redirecting newly created and old but excess energy immediately and without intervening manipulative parts to the receiving end that is of need of that energy.
6. Using that energy at the receiving part controllably and systematically that the receiving part becomes more efficient but not over the rhythm of this part’s natural production and evolution because then ,either overleveraging is needed or inflation is occuring.

What does Germany asks?
Germany asks for the rest of the countries to burden “bad money” (hers too) that are created beyond and above the natural abilities of these countries to process and to use no energy at all to become more efficient.

In other words to change the natural laws so that the bad debt of theor banks is repaid in no time. Or just give up whole countries.

No mon chéri. It ain’t happenin.

Conclusion

Create money
Redirect surpluses
Control investment
Write off illegal debt
Extend previous debt or pause previous debt until production picks up and then also extend.
Create investment specifically for the transmutation of bad debt to productive vehicle.
Throw to jail the parasites. (But the parasites control the economy now)
Make the individual parts of the economy more efficient.
st3roids
June 21, 2012 at 17:43 #
Xenos is right , to be blunt , you have no clue of the mechanics behind euro.

dont believe any of us if you like , but the architects of euro said so themselves

For instance jacques delors spoke in bbc claiming euro was flawed from the beginning, you should read that for starters

http://www.bbc.co.uk/news/world-europe-16016131
Richard
June 22, 2012 at 01:36 #
Thank you for the link. I read the article. And I am speachless.

Everything in the article reinforces what I have been saying. You reply gives me the impression that what is said in the article is in some way contradictory to my understanding.

My disagreement with Delors does not come from his diagnosis of the problem. I think he has pretty much hit the nail on the head. I think you would agree right?

Where his argument falls down is his solution. He wants centralised control of the Euro economies and if you buy into Yiannis’s proposal, you think that control should be with private institutions like the ECB.

Yiannis is serving up a fascist state on a platter to all the socialists and right wingers (I think you will be chomping at the bit with that comment but its the left right paradigm which is a different subject).

/p>

Anyway, what is fascism? It is when the state is working with private institutions and we are talking about banking so we are talking about massive institutions here.

Why is that bad? The government has the power to force you to work on its behalf against your will and given that in a fascist state the government and large institutions are connected if not essentially the same, people who are not voted for by the people, ie businesses now have the ability to force you to work for them against your will.

That is my position. That is my problem with the whole drive by the media for centralised control. This is why you have an artificially bad recession in Greece to add fuel to the engine of centralisation.

If you want to shoot me down feel free, I am ready to listen, but be specific.
Crossover
June 21, 2012 at 17:50 #
the important thing when talking about fiat money,is not to confuse it with REAL wealth.Meaning,it has no value itself,which is nor good or bad (although im of the opinion that a fiat currency is far more useful).Its sad that it’s been 40 years after we abandoned commodity-backed money but havent yet changed the way we think and treat this different form of money.
Demetri
June 21, 2012 at 18:54 #
Crossover

It becomes bad when it is overleveraged while not overextended.
The more debt you have ,the more the creditor has to project it into the future.

It doesn’t actually matter if we are to decide to have infinite debt. As long as usable forms of money are being transfered and used effectively everywhere.

In other words creating money for new projects and delaying paying old debts more and more.

This by itself is a problem since it is computed in the money supply.
Then it will lead to inflation ,bla ,bla ,bla.
Otherwise who cares.

Only that this definition of debt should change to something like “the counterweight of production”.

If we want balanced books just to look at them as balanced (aesthetics) ,then the debt should not overtake the ability of a source of production to produce x units of x value in x time.

Natural production is a must anyway for the Earth itself.

So fiat money doesn’t have to be perceived as better than metal.
Only when needed and for some forms of production that can be faster without overburdening the system.
Demetri
June 21, 2012 at 19:03 #
Crossover

We should all have at the same time fiat and commodity – based money for different products based on the rhythn of production and use.
Clonal Antibody
June 21, 2012 at 22:50 #
Crossover,

You said Fiat Money has no value in and of itself”

But neither does gold! Gold, until recently had no purpose other than “being monetary” It had few uses other than as jewellery – probably that use also originating from gold’s “monetariness”

The tale of Midas attests to gold’s uselessness for anything other than its “moneyness”
Richard
June 22, 2012 at 10:12 #
If I can chime in antibody. You are right in a way, gold has no value, you can not use it to create food and it does not physically construct or design things.

What Gold does have is its finiteness. ie it can not be created out of thin air, in the same way new technology, extra labour, new land cannot be created out of thin air.

And this is why it is a store of value. Its has the same fundamental properties as labour and property (it is finite) but is much easier to exchange. Money is an extension of gold in that is it is even easier to exchange.

Money tied to gold cannot be debased and if someone tries they will be found out. Which is why central banks don’t use the gold standard anymore. They were found out or they simply decided their future strategy would be to debase the currency
Guest (xenos)
June 22, 2012 at 09:39 #
@Richard (and others)

You cannot use the identity for the circulation of money in relation to Greece within the eurozone. The identity relates to a (largely) closed economy; the leakages into and out of the Greek system invalidate the identity in the sense that we cannot measure the things in question.

As far as the inertia of the velocity of circulation of money is concerned, this was posited as a short-run matter. Greece has gone through 5 years of crap: this is way beyond the short run, in my book.

Moreover, Fisher and others assumed small changes in policy; very large changes tend to invalidate most models and known aspects of any economy. (The identity is still valid, but not useful: I refer here to macro computer models etc). The Troika made very big changes in the Greek variables, and broke the rule known since 1976 that you cannot use existing models to predict the impact of large shifts in variables. The IMF should know this, and presumably for political reasons this was never made clear to the public. That is why all the stupid predictions the Troika made were clearly wrong, and any competent economist knew this from Day 1.
Richard
June 22, 2012 at 17:43 #
Now I think we are getting somewhere. Yes I agree with everything in your comment. So to quote Sherlock Holmes, if you eliminate all reasonable explanations whatever is left, however unlikely must be the truth.

I like what Yiannis has to say, but unfortunately he is falling into the trap laid by the IMF, EU, ECB, France etc etc. They want centralised control, so they are helping politicians sabotage their economies in order to justify the centralised control.

What Yiannis is proposing is exactly what they want but cant say at the moment because it is socially unacceptable. They need to make things bad through inefficient government and then blame the free market for causing the problem.

Please Yiannis, please at least acknowledge that your answer to the stupidity of the Troika is actually what they are planning for all along. In short, they are not as stupid and ignorant as you think they are.
Crossover
June 22, 2012 at 12:25 #
@Richard

The “equation” of exchange is always true.Its the quantity theory of money that is based on certain assumptions in order to hold true.

“It comes back to something we talked about a while ago, I do not believe you can create wealth/prosperity/human development through the printing of money, I think this is where we disagree massively.”

You certainly dont make an entity richer by definition,once you print more money and hand it to it.But what about “wealth/prosperity/human development” ?Why not?Whats the proof that money printing is inflationary?(Apart from Weimar and Zimbabwe that are special cases and i could elaborate on) Why do you assume that increased spending power would not cause increased demand which would not cause increased production and so on?

In “Germany’s Consitutional Conundrum” post i explained why money printing cant be inflationary in an underutilized economy (look it up if you missed it,its the part where we discussed about the ECB issuing money to cover its losses).I dont say that its always possible to stimulate the economy.Im only saying that an underutilised economy can increase output up to full capacity before increasing prices.If they responded to increased demand with increased prices the economy would never grow anyway.Printing more than needed is a bad thing.But printing less than needed is an equally bad thing if not worse,especially when such a decision is based on non-existant fears.

@Clonal Antibody

“But neither does gold! Gold, until recently had no purpose other than “being monetary” It had few uses other than as jewellery – probably that use also originating from gold’s “monetariness”

The tale of Midas attests to gold’s uselessness for anything other than its “moneyness” ”

Why was gold used as money anyway?Wasnt it because it was considered precious and scarce?Fiat money is nor precious neither scarce.Unlike any other commodity-currency, fiat money has unlimited quantity and its made of paper (and electronic digits),you cant even make jewlery with it.It has no value and nobody would hold it for any other reason,wasnt it used as money.

But what is common for both is that in the end,its us that make either gold or fiat money valuable.You could have all the gold of planet earth,yet if nobody cared about gold you wouldnt be rich because you couldnt exchange it for anything.All things derive their value from our own colletive demand towards them.But this doesnt make gold the same with fiat money.
Richard
June 22, 2012 at 18:19 #
Crossover, forgive me if my perspective seems overly simplified. But until my understanding fails to stop explaining what I am seeing I am going to stick with my simplified perspective.

You said
“You certainly dont make an entity richer by definition,once you print more money and hand it to it.But what about “wealth/prosperity/human development” ?Why not?Whats the proof that money printing is inflationary?(Apart from Weimar and Zimbabwe that are special cases and i could elaborate on) Why do you assume that increased spending power would not cause increased demand which would not cause increased production and so on? ”

I am glad you asked the question. As usual I will strip things down to their most basic.
You have a farm. Imagine this is the world economy, to keep things simple. If you want, imagine it is a desert island.
The farm is self sufficient because we have not started mining the moon or mars etc etc.

To simplify yet further.
You have grass, cows, cow dung, people. The cows give meat and milk. They get their energy from the grass which gets it energy from the cow dung and the sun. People keep the whole thing going through management and in reward they get the milk and the meat.

Now you need to agree with me that this is a simplified system, but in essence the situation is completely scaleable from 3 people to 6 billion people. The only thing that changes is the complication. (Again another reason why central control is stupid because economies are so mind bendingly complex)

So from here on please, don’t pick holes, just say you don’t agree with the farm analogy and we can leave it at that.

Assuming your with me with the farm analogy. How does increasing the amount of money in circulation increase the wealth of this economy.

Does more money create more grass (don’t say buy fertilizer we are talking about a closed economy), does money make the sun shine more? Does money make the cows fatter? Does money make the cows produce more milk? etc etc

You can say creating money through loans is a good thing if the money is invested in new technologies like fertilizer etc but it is the research that creates the improvement, not the creation of the money. And besides the money will also cease to exist when the loan is paid back.

This quantitative easing that the ECB is doing is not the same as making loans for research.

Ill give an analogy for the quantitative easing. The farmer (ie the banks) invested in research for a new fertilizer (derivatives), His was predicting the fertilizer would increase productivity by 50% so the 20% interest rate would be no problem to service. Unfortunately his research came to nothing. So he has to play the loan back without any increase in efficiency which is impossible for him. So he has to shut down.

Okay, its tough for the farmer, but if things paid off he would have done well, he didnt so his assets has to be liquidated to make the lender whole.

What the ECB is proposing is that that farmer gets compensated by money printing. So all the other people using the same money have their money devalued because the increase in money has not been met with an increase in productivity.

In effect we are all poorer in order to compensate the farmer who took a gamble.

All money printing does is to reduce the value of peoples money. If technology stays the same, production stays the same, the number of labour hours stays the same, the only thing that can change is the value of what is already in existence. ie there is money more for the same amount of stuff which means everything increases in price.

More money in circulation does absolutely nothing for the economy as a whole. Money is a representation of things that are in existence ie labour and property. Nothing more. To state the obvious, more money does not equal more labour hours or more property for everyone.

Yes you have central banks pumping out “science” but in reality economies are too complex for one entity to understand. Maybe the biggest understatement I have ever made.

Economics is psychology not physics. If a marketing company came out with scientific formulas showing what their next ad campaign would do they would get laughed out the room, unfortunately economists do not get met with the same cynicism.

Economists and academics provide the facade of science in order for people to believe centralised control of something as hugely complex and important as money is justified, sensible, morally correct and “essential”. The USA until 1912 shows a central bank is not necesary and is actually a very bad thing for the population. More booms and busts and more wars being the obvious stand out negatives.

If you want to attack what I have said feel free but please be specific
Crossover
June 22, 2012 at 12:37 #
@Richard

Forgot to mention,about your M1 comment etc.The FED always targets price instead of quantity.Whenever they target quantity (such as the size of M1 or M2 etc) the outcome is not the one that was desired.I think they tried to target quantity instead of price druing QE2 and it turned out to be less effective than QE1.

Furthermore they cant really control the money supply in a direct way.Credit expansion (or contraction) is what drives the money supply for the most part.They can affect it indirectly by setting the price though, (interest rate).

@Demetri

Once we understand that government debt denominated in domestic free floating fiat currency issued by the government itself,is not really what it sounds “Government debt”,leverage will stop being a problem.
Thats because,once the private sector becomes overleveraged,the gvt would run the needed deficit (no matter its size) and allow the prv sector to delever without wrecking havoc.What we have in Greece for example is that both the gvt and the prv sector are trying to delever.That ends in recession,hands down.
Demetri
June 22, 2012 at 12:42 #
Richard

That is what you understood from all of what i wrote?
That Greece absolutely needs Germany’s help?
First of all when i talk about Germany ,i am not talking about it as country and people ,i am talking about the official Germany as the primary servant of the banksters.

Every surplus country in the union has the obligation to direct usable forms of energy.

Greece can be a rich country ,that is for sure.
Since we are in a union and since in a union there are the surplus countries and the deficit countries ,because that is how it MUST be ,the surplus countries have the obligation to direct the energy.

The surplus countries are the source of energy. Period.
ECB too.
No matter how rich ,Greece can be. In the union she may be one of the deficit countries if you want to be one of the surplus countries. Period.
This has nothing to do with Greece specifically.
Surplus countries must exist together with deficit countries. Always. Period.
Also the surplus countries have all the surplus exactly because there are the deficit countries. The transfers are not Gift. You do not feed us. If you want the power ,you also have the responsibility to direct the energy properly. Period.

Delors said the politicians did too little ,too late. No.
They did too much ,too fast in the opposite direction.

It is Germany that wants to have all the pie and eat it too.

You want to make the southerns cut the energy supply while you do not.
So it is not a matter of balanced budget.
We are connected. If we are to have a balanced budget ,then you need to cut the energy supply to your own country not to us. As simple as that.

And you need to redirect the excess energy in a usable form. Not as more debt for old debt. But as an investment. Period.

You think we ask for your help? YOU ARE OBLIGED TO DIRECT THE ENERGY. Otherwise give up your power. Period.

We need you as much as you need us. But you parasitic leaders found the opportunity ,now that they gathered too much surplus and overleveraged their banks ,to use that surplus to roll over the bad debt of the banks to the periphery. It is a matter of covering up their butts.

The only thing they had to do is admit the mistake and then reform the banks. You already spent money but in the worst possible way.
And because the stupid leaders block all usable forms of energy ,eventually you will get hurt too.

You should have been the ones having austerity for your banks and your pain would have been nothing. Now everything gets worst.

You see ,people yell about the mutualization of debt ,thinking why should we pay for the debt of the periphery ,but it is the exact opposite. You do not want mutualizastion of debt because you want tthe periphery to pay for your inanities and bad management.

The deficit of the periphery is just an excuse for those that do not understand that the deficit is not only normal ,it is a must. Otherwise you wouldn’t have such a surplus in the first place.

And as for the MP ,the problem is not the specific centralized power ,it is the fact that the central banks are private corporations. They must not be. Also the MP is to function in a way that does not give more uncontrolled power to the banksters and countries lose all their sovereignty.

Fascism exists only when there are absolute rules at the narrower frames of human activity. At the broader frames we need the rules.

The neoliberal ideology does the exact opposite. It makes the markets act as the broader frame of society instead as a part of society. So everything is based on the markets. Then you have the markets totally free and the people that control the flow control the markets as they see fit.

The few control the many. You have no control at the broader frames of society and too much control at the smaller frames ,at the level of everyday human activity. So the top brains are free to do anything and we are obliged to listen to them for everything.
NOW WE HAVE FASCISM DISGUISED AS DEMOCRACY. Now the bankers have all the power without proper control.

What the MP does is the exact opposite. It establishes a broader controlled frame so that the markets work for us ,not us for the markets (the few that control them now).

It is amazing how you think everything totally against the natural order of things. Everything opposite. Everything in reverse.
Richard
June 22, 2012 at 18:33 #
Demetri, your comment is rammed full of contradictions. Your living in 1984 http://en.wikipedia.org/wiki/Doublethink I dont mean that as an insult, we are all brothers.

I dont want to sound like a complete prick but please, get yourself a coffee, a pack of cigarettes if you smoke, sit down in front of a computer and spend an hour reading articles on my blog. http://independence4wales.com/ I state sources constantly and there is a recommended reading list http://independence4wales.com/i4w-store-powered-by-amazon-uk

Most of the points you are raising I have addressed. If you can stand the spelling mistakes and the dodgy grammar I think it can contribute something to your understanding of what is going on in Greece. 90% of the articles are about Greece.
Crossover
June 22, 2012 at 14:19 #
@Richard

Also,look no further.If money printing was inflationary by definition, the US economy would have faced inflation instead of growth after the stimulus:

Richard
June 22, 2012 at 17:37 #
Crossover, non offense but this wall is starting to become uncomfortable.

Here is another link, spot the similarities?http://goldprice.org/charts/history/gold_10_year_o_usd.png

I will ask again. How does money printing create prosperity? For example, how does printing more currency make people richer? ie how does money printing make it possible for people to buy more stuff? I am prepared to here your view if you would like to share it but please explain in layman’s terms.
Richard
June 22, 2012 at 18:35 #
The irony, your entity/formula explains why there is not hyperinflation, the velocity of money has decreased. It hurt to say the E and F words when thinking about economics at the same time.
Demetri
June 22, 2012 at 18:56 #
Crossover

“Once we understand that government debt denominated in domestic free floating fiat currency issued by the government itself,is not really what it sounds “Government debt”,leverage will stop being a problem.”

Indeed. Understood.
But for the sake of natural production and to limit immoral speculation and all the problems it causes no matter the abilities of the government we still could have a limit on leverage. Couldn’t we?

And we could do that by using fiat money and free-floating ,silver – based ,weight-based drachma(?) together for different purposes.
Couldn’t we?

I know we could only have fiat money and use the “proper rules” for anything we want but let’s face it. We are imperfect human beings. We need natural counteracting stabilizers together with our own “fiat” efforts.
So ,why not have a metal coin too?
Demetri
June 22, 2012 at 19:44 #
Richard

Central banks are needed. Private central banks are not needed.

Money creation by itself does nothing.
You have to direct it as long as the potential of output is greater than actual output.

So no money dont make grass grow but if there are people that want to work and grow grass then you direct the money for this. You buy a cow ,etc etc. Your farm grows.

As long as the potential remains higher than actual output.
Got it?

Today already bad investment has been made by corruption. Investment in wrong places ,directing money only for the purpose of speculation and having the taxpayer pay the bill. That does not mean there is no potential for growth and that money printing will cause inflation.

As long as it is directed properly. When more money is in circulation it must be destroyed. Now even though many have overleveraged ,still money creation will not cause inflation as long as there is the potential for growth.
So it can be used for stimulus if properly managed. Now already “they” spent money but in the worst way possible. As more bad debt.
Got it?

Balance can also be achieved by not overproducing ,that is over the ability of demand to absorb the production. So certain countries have to slow down ,otherwise they only spent resources for nothing.

And guess what. Germany is the spendthrift.
Richard
June 23, 2012 at 10:42 #
Demetri, Im reluctant to ask, but who do you think should be directing the money?
Crossover
June 22, 2012 at 21:28 #
@Richard

A simple example.
The US produced 10 cars per day pre-08.Lets say 10 cars was the maximum productive capacity (although it probably was greater ie there was still an output gap pre-08).Then the crash comes people loose jobs and stop buying.They fire some workers and produce 6 cars now.They print money and the demand for cars increases again because people have more money to spend.The hire more workers and build 10 cars a day again.These workers are also consumers.They too have money to spend now that they’re not unemployed and this flow of money keeps goin. so the circuit is fixed again.No inflation no nothing.

It doesnt get any simpler than that.
Richard
June 23, 2012 at 10:54 #
Crossover, what happens when that money is spent? They go back to making 6 cars no? Or you think they should just keep printing? Do you believe if the central bank keeps printing cash there is enough money for everyone and all is good? A yes or no will suffice.

About the analogy. Let me make it even simpler. You have 3 people living on a desert island, they live happily and sustainably. The use a currency called TEM, lets say there is a 100TEM on the island. Do you believe if the amount of TEM in circulation on this island doubled (one of the people acted as central banker and doubled the currency in circulation) there would be a corresponding doubling in the amount of food they could eat or a doubling in the amount of fishing rods/equipment they had access to? If so can you please explain it to me because I cannot get my head round it at the moment
Crossover
June 23, 2012 at 00:29 #
“The irony, your entity/formula explains why there is not hyperinflation, the velocity of money has decreased. It hurt to say the E and F words when thinking about economics at the same time.”
Its not mine.
I did tell you that Velocity tends to move opposite from the money supply.This simply proves how special is the circumstance of money printing causing inflation.It requires constant or increased velocity and also constant or decreased output.No reason for any of them to happen let alone for both of them to happen simultaneously….
Demetri
June 24, 2012 at 12:13 #
Richard

MP adresses a bit the problem of SRM (Surplus recycling mechanism).

Redirection is controlled by the surplus countries and the individual governments of the receiving countries..
The problem in this system is the corruption at the top where no control of the flow occured. They just did what ever they wanted.

——————-
If the CB prints more TEM ,the printing by itself will not be responsible for the production of more food. If the earth can not produce more food then more money will cause inflation and they must be destroyed.

If there is potential for more production and absorption of the production then the money will eventually be used for growth. Inflation will not be caused.

Today we have many opposing problems.

1. While we have more potential for growth all over the globe ,growth has been limited only in the so called civilized countries and it has been artificially enhanced.

2. Those that produce ,overproduce and expect their production to be absorbed by a limited amount of consumers.

The so called civilized world economically is the whole world because they get the resources from third world countries to use them for their own people.

If we think Europe as the whole world ,then the problem is overproduction and too much bad debt caused by bad management ,overleverage and elite corruption in general. So someone has to slow down and others need to become more efficient. Together and at the time needed. Production must not be too much so that resources get spoiled or cause artificial demand by giving uncontrollable loans everywhere. Also those that receive the natural transfers (not more) by the surplus countries must use them effectively to become more efficient and productive without themselves causing artificial demand and overproduction.

There is a limit ,you can not just ask others to absorb your production over their abilities. And you certainly can not ask them to do that with artificial demand caused by loans. And they shouldn’t do that in the first place. Get the loans and not use them efficiently. But when everybody is in it…….

If in Europe we have potential for growth (we do) ,we need to use energy to materialize that potential. Stimulus. The absorption of production has a natural rhythm and it must be respected. The surplus countries must stop overproducing and cause more internal demand no matter how efficient the other countries become.

The plan of Troika to prop up demand is by blocking the flow of energy and make internal reforms. But without energy ,no reforms are possible anyway. So ,while we have potential for growth we have no flow. So no growth. Then even if we had growth ,Troika wants this growth to be over the natural abilities of the countries so that demand can be absorbed without the surplus countries cutting their production and increasing internal demand. Then at the same time Troika wants the periphery to have so much more growth in no time that the output can pay back loans that were given not to prop up growth but for reforms that are not possible anyway without energy. And to pay back loans that are not of the periphery but of the corrupted northern banks.

Then Troika demands from the periphery for even more growth than that so that the production of the surplus countries that was absorbed by America ,be now absorbed by the periphery.

And all these without the surplus countries cutting their own production and increasing internal demand.

Do you see the lunacy?
Can the loans be repaid? NO
Will we manipulate space and time to pay back illegal debt? NO

The problem is not that there is no potential for growth ,so no inflation will get caused if we create money. The problem is that
1. we have a problem of aggregate demand
2. We have no stimulus for demand and growth
3. surplus energy is used for more bad debt than growth

From one side they ask for more demand and growth that is ever possible and from the other side they ask all of these to occur without stimulus for growth. Even with growth it wouldn’t be enough to absorb the overproduction with natural demand and to pay back illegal debt.
Only with artificial demand again. And that means ,the same problems in the near future. More bad debt.
Even with growth the debt must be paused and extended. Imagine now with out growth and only with reforms that are no possible anyway without energy.

Everything they have done is the exact opposite from what they should.

We have 1000 trillion debt with only 70 trillion world output.
The endgame is near.
Richard
June 25, 2012 at 13:53 #
“Redirection is controlled by the surplus countries and the individual governments of the receiving countries.. The problem in this system is the corruption at the top where no control of the flow occured. ” – I believe the flow should be controlled by the citizens to eliminate manipulation and corruption. Centralizing control is asking for problems ask Romanians, Albanians etc etc etc
Crossover
June 24, 2012 at 14:57 #
@Richard
“what happens when that money is spent? They go back to making 6 cars no? Or you think they should just keep printing? Do you believe if the central bank keeps printing cash there is enough money for everyone and all is good? A yes or no will suffice.”
The money doesn’t magically disappear.The car manufacturer (and the new workers) receive this money which equals increased spending power.They too increase their demand for stuff since they are able to pay for it.The wealth effect,affects everyone involved as money circulates.If the money you payed for your own car didn’t disappear but instead were spent by the manufacturer of your car and so on, then there is no reason for new money to disappear.

“Let me make it even simpler. You have 3 people living on a desert island, they live happily and sustainably. The use a currency called TEM, lets say there is a 100TEM on the island. Do you believe if the amount of TEM in circulation on this island doubled (one of the people acted as central banker and doubled the currency in circulation) there would be a corresponding doubling in the amount of food they could eat or a doubling in the amount of fishing rods/equipment they had access to? If so can you please explain it to me because I cannot get my head round it at the moment”

Your example assumes that this particular economy is already working at maximum capacity and full employment.There is no reason to alter anything at such an economy. However This isn’t the case in US let alone in today’s Europe.There are unemployed and there is underutilization of the productive factors.New money can help mobilize them through increased demand.
Richard
June 25, 2012 at 14:14 #
About the cars. You have a factory that needs to be given money from the printing press otherwise it would only make 6 cars. So when the car manufacturer stops getting money from the printing press it will go back to 6 cars. If it didn’t go back to 6 cars it would have been making 10 cars to begin with without money from the printing press. If not, what is the explanation for it making only 6 cars?

About the island. Okay, you have 3 people. 2 work, the other does not work, let us say because he chooses not to because the other 2 give him money. Does the wealth of everybody on the island increase if there are 200TEM instead of 100TEM?

No, things only change is if the 3rd guy works, things do not change because the amount of money doubled. Money is only a reflection of something that exists, if you give the 3rd guy money it does not make him productive.

Let me try and fast forward this.

You are one a desert island. You have nothing. An economist comes to the island and says you can either have 100Dollars or a 100gallons of water or a drilling machine so you can drill for water. Which would you take?

Of course you would take the drilling machine because that has value. You would not take the money because it has no inherent value because you cannot buy anything with it.

Money only has value when there is something to buy. If there is nothing to buy then money is worthless.

So, assume the US economy is static for 10 years. Assume the only thing that changes was that at the end of the first year the amount of money doubled. Nothing else has changed.
The only thing that has changed is that people have twice the money to spend, consumption might go up in the short term, and I mean really short term because you have twice the cash chasing the same amount of things so prices will increase to reflect the amount of money in existence. Nothing will change in the long run.

Do you see why printing money does not help anything on the long term?

The only thing that can help is increasing of efficiency, ie allowing things to be made with less time and/or less materials. This is the only thing that can create prosperity. Money is reflection of what is in existence ie jobs and materials. Printing money does not create more jobs or materials in the long run.

Back to the desert island, money is only a reflection of something in existence that has value. If nothing has value there is no need for money. Creating money does not make worthless stuff have value.
Demetri
June 24, 2012 at 15:10 #
Richard

I read the link you posted about “doublethink”.
I loved it.

First let me tell you that in this universe everything exists and everything applies at the same time. So contradictory statements can be true at the same time.

“Up” exists at the same time with “down”. You may think than when you go up you do not go down at the same time ,but that is exactly what you do.
It all depends
1. On your perception and focus
2. On your goal ,prefered result.

Whenever you push something it also exerts power back at you.

Think of the expression “two sides of the same coin”.
Just because one side affects you more this time ,that doesn’t mean the other side does not affect you also just because you are not focused on it. It also doesn’t mean ,it doesn’t affect something else except you.

Think of a trampala as we say in Greece. Here is an image.
http://www.iptamenokastro.gr/files/1136/trampala.jpg

When something goes down ,something else must come up.
Now think of more than one trampala. All affecting eachother.

You see there is nothing contradictory. As long as you know what affects what.

Doublethink is not what i do. Doublethink is what “they” do ,since they know people will not accept seemingly contradictory statements. So they choose to use whatever suits them each time ,without giving the full explanation of how all things are interconnected.

In other words there never is anything contradictory. It seems there is when you do not know how and when a force applies while the opposite of it also applies. Maybe simultaneously or at different times.
But even though the opposite of what you focus on ,may express itself at another time ,there still is an opposite force right now that is the “counterweight” of what you are focused on now.
The difference is that you just do not pay attention do the expression of that opposite force ,that is the counterforce of the phenomenon you watch.

For instance the fact that the surplus of Germany is the deficit of other countries.

They choose what to present to you for their own purposes.
They present to you the surplus of Germany as good management and the deficit of Greece as bad management and you just believe it because you do not know the interellations and everything else is seemingly contradictory.

Read again what i wrote above. There is nothing contradictory. See the whole picture.
Richard
June 25, 2012 at 14:16 #
About the trampoline, I agree. Central planners try to tell the jumper where they should be, rather than letting gravity and tension decide which is where things go wrong. You know my position on Germany.
Demetri
June 25, 2012 at 23:11 #
Richard

About money creation.
What you say is correct but it has nothing to do with inflation.

Money by itself has no value but it is used to represent value and is a common medium of transactions. If the economy has potential for growth but the money is too scarce then we have deflation. Even if someone wants to work ,one may not find work because less money go around and businesses will not hire. So a business will not become more effective and will not produce value.

If money are more than needed (money by itself do not create growth) then we have inflation and money must be destroyed.

Today we are in a deflationary spiral. Since money is the common medium of exchange this is the energy that makes the economy go around. So even for the slightest change one needs money.

Money by itself does not bring growth but it is a precondition.

Your example is good. If someone does not want to work while there is potential for growth then we have a problem with him.

But today there is no work anyway because money is scarce.
If the energy is enough but not more than the potential of growth that exists today then someone can use that energy for growth. If full potential is reached we try to keep the same amount of money in circulation so that it doesn’t lose value and prices don’t get higher.

If more money is created without potential for growth then the money must be destroyed. If new potential for growth appears and money that already exists is not enough to stimulate that new potential then we create some.

Today money got out of circulation too much. Deflation. No money ,no growth. Not because money by itself brings growth but because it is a precondition. Noone will give materials to your business if you do not pay. So how will you become more efficient.

The problem in Greece is that the money got “grabbed”. And most of them got back at the hands of the elite. So no growth in Greece because of corruption and while threre is potential in Greece.

The solution is elimination of corruption ,not having the same corrupted friends (Troika – Samaras) and certainly not making money scarce for the real economy to cover the banksters.

Real economy has no money to use for growth. All the money go to the so called bailouts of the sovereigns which are bailouts of the banks.
And more and more money are been withdrawn from economny through austerity. So ,severe deflation.

————————-
Now as for people controlling the flow ,i agree.
But whether we like it or not we need a broader structure.

When that structure is stable then we can have multilatteral controls.

We need absolute rules at the broader frames of the system that are easily checked by many so that certain people can not manipulate them.

This kind of centralized power we want. What we do not want is the centralized power of private bankers. A totally different story.

Then at the narrower frames of the system we need free enterprise but with respect to the rules of the broader frames.
For this look at http://www.ChrisColes.com

And lastly for the trampala. We do not need central planners to manipulate everything but we do need stabilizing controls because if we leave ourselves totally free to gravity (markets) then maybe an uncontrollable fluctuation (push by the one side of the trampala) ,may hurt the legs of the other guy on the other side.

This is what happened today. The solution is not huge government but is also not free markets at the broader frames. The solution is a combination with controls easily checked by everyone. So we need a system that is simple and common by many at the broader frames. This kind of centralized power we want.
So that anyone can see and check.
Richard
June 26, 2012 at 18:55 #
Hi Demetri. If I can address the first part of your comment regarding the creation of money for growth. This is going to seem an alien idea but there is nothing wrong with defaltion. Deflation means falling prices which is the normal state of affairs.

Let me explain. Today it takes less resources and less labour to harvest a field of corn. ergo it is cheaper to harvest a field of corn today than it was in the 1700′s.

Let me give another real world example, the falling prices in the USA before the Fed was created. Deflation ie falling prices is natural. It encourages people to save, which makes money available for loans it also ensures the money you save for retirement does not get wiped out.

Unfortunately for the common man, governments cannot operate in a deflationary environment because their borrowing would quickly become unmanageable due to the value of the debt increasing not decreasing like it does with inflation. Why is government borrowing not sustainable? It is not productive. Business borrowing is productive because it either leads to cheaper products or machines that produce more for the same amount of input. This increase in efficiency is what pays for the interest. The performance gains have to be at a minimum enough to pay the interest. No way government borrowing can do that. No way.

This is the key to the central banking business model. The biggest possible customer is the state. The state can only borrow in an inflationary environment which is why there is inflation, not because inflation is natural. Central banks create inflation which allows government to borrow. The common man then loses out because instead of us keeping the fruits of our labour we are forced at gunpoint to pay interest through taxes on loans taken out in our name by the government.

How do central banks make money if they are printing more of it, don’t they lose out if they themselves are creating inflation? Good question. I would say they do not profit in pure monetary terms they profit by having people work and use resources in order to pay the taxes in order to pay the interest, and this takes us back to the question, what is money.

About Greece today. It is a completely, COMPLETELY artificial environment at the moment created by the Greek government. The increasing of taxes and the reduction in spending has led to the downward spiral. The capitalist free market has been destroyed in Greece by socialism/fascism. ie the government has bitten the hand that feeds it.

If the government had simply been allowed to fail the private sector would have picked up the slack, why? Taxes would not have increased, the government would no longer have been able to borrow meaning lower interest payment for Greeks in the form of lower taxes because there would be no debt to service. There are no downsides to the Greek government defaulting, none. It would have been better 4 years ago but it is still the best solution
Demetri
June 27, 2012 at 13:05 #
Richard

Hi Demetri. If I can address the first part of your comment regarding the creation of money for growth. This is going to seem an alien idea but there is nothing wrong with defaltion. Deflation means falling prices which is the normal state of affairs.

Let me explain. Today it takes less resources and less labour to harvest a field of corn. ergo it is cheaper to harvest a field of corn today than it was in the 1700′s.

Let me give another real world example, the falling prices in the USA before the Fed was created. Deflation ie falling prices is natural. It encourages people to save, which makes money available for loans it also ensures the money you save for retirement does not get wiped out.

Unfortunately for the common man, governments cannot operate in a deflationary environment because their borrowing would quickly become unmanageable due to the value of the debt increasing not decreasing like it does with inflation. Why is government borrowing not sustainable? It is not productive. Business borrowing is productive because it either leads to cheaper products or machines that produce more for the same amount of input. This increase in efficiency is what pays for the interest. The performance gains have to be at a minimum enough to pay the interest. No way government borrowing can do that. No way.

This is the key to the central banking business model. The biggest possible customer is the state. The state can only borrow in an inflationary environment which is why there is inflation, not because inflation is natural. Central banks create inflation which allows government to borrow. The common man then loses out because instead of us keeping the fruits of our labour we are forced at gunpoint to pay interest through taxes on loans taken out in our name by the government.

“How do central banks make money if they are printing more of it, don’t they lose out if they themselves are creating inflation? Good question. I would say they do not profit in pure monetary terms they profit by having people work and use resources in order to pay the taxes in order to pay the interest, and this takes us back to the question, what is money.

About Greece today. It is a completely, COMPLETELY artificial environment at the moment created by the Greek government. The increasing of taxes and the reduction in spending has led to the downward spiral. The capitalist free market has been destroyed in Greece by socialism/fascism. ie the government has bitten the hand that feeds it.

If the government had simply been allowed to fail the private sector would have picked up the slack, why? Taxes would not have increased, the government would no longer have been able to borrow meaning lower interest payment for Greeks in the form of lower taxes because there would be no debt to service. There are no downsides to the Greek government defaulting, none. It would have been better 4 years ago but it is still the best solution”

Before the Fed was created you are talking about an era where the government printed the money at the amount needed always so they never had to really worry about inflation or deflation. Prices were falling because the government notes were debt-free ,potential for growth was immence ,money were checked to be enough for businesses to grow ,and competition was healthy. It is another scenario. When potential is less than the money supply needed we destroy money.

Inflation and deflation are both good as long as they are checked and are in specific ranges. But because life is more compex than that ,there are times you have to push a little bit more for either (inflation or deflation) ,to allow for growth. There is always a limit. If this limit is surpassed the opposite effect takes place. No growth. Since for anything to be done money is needed ,money is a prerequisite for growth. Simply because this is the means of exchange. When deflation (or inflation) gets out of hand ,then this is the one of the first things we have to correct. Today deflation is too much ,no more money in the real economy ,so even if more efficiency can be achieved ,a certain amount of money is a must. No more ,no less.
Now it is a lot less. So it doesn’t matter that today it takes a lot less resources and labour to be more efficient. The money supply is even less than the amount needed for any efficiency.
Even a super efficient car needs at least some gas.

Today the situation is artificial everywhere. Especially because it is a debt-based system and the CBs are private corporations.
Greece underproduced ,Germany overproduced ,banks overleveraged. A totally uncontrollable market (neoliberal ideology).
But it is only uncontrollable for the small guy. The guys at the top control the flow.
This system in general is artificial and extremely unnatural.
And in Greece specifically it is not only by the Greek government ,because even though we do not have an official fiscal union ,these cuts were asked by the Troika and implemented the way they wanted. So now deflation is extreme. They should have done the exact opposite. First structural reforms and stimulus.
Ofcourse we would still be in deficit even if we were a superstate. Otherwise Germany would get in trouble.

Now if government had failed ,defaulted back then ,this is a different story. Why? Because we get into more geopolitical matters. There are many reasons they didn’t want Greece to default back then. No matter if eventually would be good for Greece.
Unfortunately one of them seems to be scapegoating.

(We should have defaulted and let the pain be transfered directly to Germany and the banks. That would teach the Germans that feel they have to punish the Greeks without knowing what they are talking about.)

The idea is to find the balance inside the EZ.
They do not want that. Atleast for now.
Why? Because of power ofcourse. Not money. They couldn’t care less about the money.

And with less money to go around (since money is a prerequisite) ,potential is not materializing ,debt is increasing and real wealth is being transfered for nothing.
They may eventually “save” the euro with or without Greece.
But first real wealth would have transfered ,banks would be covered ,Greece would be the one to blame.

All this is happening to bailout and preserve the status quo.
Many solutions exist and people must understand that in reality no true problem exists. Everything happens willfully.

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