Posted tagged ‘Printed Money’

Some Econ. Homework

June 22, 2016

The Fed Has Whiffed Again: Massive Monetary Stimulus Has Not Helped Labor, by David Stockman, at davidstockmanscontracorner.com. The Feds injection of 4 Trillion electronically printed dollars into the economy hasn’t produced a return worth that kind of “investment”. Fewer workers working fewer hours means less is being produced. Just because you print money doesn’t mean goods and services are being produced. It only means goods and services are being demanded by using money not backed by any production. Say’s law is being shown to be true.

“Say’s Law can be explained in the following terms:”

1) “The way that a buyer demands a good is by supplying a different good.”

2) “The supply of one type of good constitutes the demand for other, different goods.”

3) “The source of demand is production, not money. Money is only a temporary parking place for past production.”

“In the modern economy with division of labor, most of us demand goods when we supply our labor. I work as a software engineer. I supply my labor writing computer software. And from that supply I am able to demand other goods, such as coffee.”

Pity The Poor Central Bankers: Playing Masters Of The Universe Is No Longer Fun, by Charles Hugh Smith, at oftwominds.com. Here is an excerpt from the article: “Central Banks can create free money for financiers, but they can’t move the needle of the real economy, except to distort and cripple it with perverse incentives to gamble borrowed money on malinvestments and skimming operations…….as former Master of the Universe Ben Bernanke noted: “higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending (that) will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

I guess former Master of the Universe Ben Bernanke has never read Say’s Law: “The Source of demand is production, not money. Money is only a temporary parking place for past production.

Printing money distorts the pricing system. Market discovery of prices (not Fed manipulated prices) is how information about how much to produce and consume is transmitted to producers and consumers in a free market. The interest rate is the most important of these discoveries, because interest rates coordinates production across time. We live in a world where resources and capital have misallocated for the last decade plus. The cure is to quit printing money and allow the market to set interest rates. What are the odds?

The Fed Pours Water On The Job-Growth Hype, by Ryan McMaken, at mises.org. The administration and the media has been telling us how good the economy has been doing. I guess the Fed hasn’t received the memo. The Fed would normally raise interest rates if the economy is doing well because it would be afraid of it overheating.  The Fed will adjust its monetary policy to weather they think the economy is too hot, or too cold, or just right. The fact that the Fed has raised the interest rate once by a 1/4 point since they lowered it to near zero in 2008 tells us everything about what the Fed thinks of the economy. So where has most of the $4 trillion in printed money ended up? If you say in the financial markets to prop up asset prices, in order to help banks, go to the head of the class. Do you think these false stock prices can stay afloat without more printed money???

Central Banks Are Wrong About Inflation and Deflation, by Frank Shostak, at mises.org. Let’s go to Murray Rothbard writing in Man Economy And State for the definition of inflation and deflation.

ROTHBARD: “The process of issuing money beyond any increase in the stock of specie, may be called inflation. A contraction in the money supply outstanding over any period, (aside from a possible net decrease in specie) may be called deflation. Clearly, inflation is the primary event and the primary purpose of monetary intervention. There can be no deflation without an inflation having occurred in some previous period of time.

Movements in the  supply-of-goods and in the demand-for-money schedules are all the results of voluntary changes of preferences on the market. The same is true for increases in the supply of gold or silver. But increases in fiduciary or fiat media (printed money) are acts of fraudulent intervention in the market, distorting voluntary preferences and voluntarily determined pattern of income and wealth. Therefore, the most expedient definition of inflation is one we have set forth above: an increase in the supply of money beyond any increase in specie.”

The absurdity of the various governmental programs for “fighting inflation” now becomes evident. Most people believe that government officials must constantly pace the ramparts, armed with a huge variety of “control” programs designed to combat the inflation enemy. Yet all that is really necessary is the government and the banks (nowadays controlled almost completely by the government) cease inflating. The absurdity of the term “inflationary pressure” also becomes clear. either the government and banks are inflating or they are not; there is no such thing as “inflationary pressure”.

CONCLUSION

Let’s not be fooled by the “Masters of the Universe’ when it comes to monetary policy and interest rates. With a little bit of reading on the topic, you could come up with the policy for fixing our economic problems. That policy would be to quit electronically printing counterfeit money and allow the market to set the interest rates. The solution is very simple but it is not easy. Why?  Because of the Fed’s previous inflationary policy, the resulting recession that would occur when we implement the cure would be politically difficult for politicians and the Fed to let happen. They have been trying to keep the correction from happening since 08, but at some point economic reality will correct all the Feds previous money printing, and it won’t be pretty.

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Must Reads For The Week 11/7/15

November 6, 2015

Yellen Says Negative Rates On Table “If Outlook Worsens“, at zerohedge.com. The Fed has kept their interest rate at zero percent for the last six years. After talking about raising the rate for almost two years, they couldn’t even raise it a quarter of a point in October. Now they are floating the idea that of a negative interest rate. I have a few questions. Do you think our economy is improving or fragile? Does the Fed really think the economy is improving? Is the Fed just propping up the financial markets at our expense?   Some of the answers are in this article, Fed Admits “Something’s Going On Here That We Maybe Don’t Understand, at zerohedge.com.

The Unseen Victims Of Export-Import Bank Cronyism, at economicpolicyjournal.com. This is bi-partisan crony capitalism. More democrats than republicans voted for Ex-Im reauthorization.

Bernie Sanders Bashes Uber, Uses It For His Taxi Rides, by Blake Neff, at thelibertarianrepublic.com. This is typical. People who hate the free market blast it, while benefiting from the goods and services created by the free market. They have no idea where all their stuff came from.

Airbnb Wins In San Francisco Vote, at targetliberty.com. The leftists in San Francisco stood up for property rights and against the hotel industry. Is this an aberration, or a ray of hope?

Pot Battle In Ohio, at mises.org. In spite of the cartel members spending millions of dollars advertising issue 3 as  marijuana legalization, Ohio voters understood that issue 3 was going to create a cartel for growing pot voting it down almost 2 to 1.

China Two-Child Policy Not Valid Until March, Government Says, at bbc.com. How many people know that China had a one child policy? The Chinese Government said they were changing because of China’s aging population, and to help their economy.

Muslim Man Warns German: “We Will Marry Your Daughters And Conquer You With Births” at zerohedge.com. Demographics is destiny. Mark Steyn wrote about this in America Alone.

Johnny Can’t Read Or Add, at tammybruce.com. All the money we spend on education isn’t benefiting the students. It’s benefiting the teachers unions and school administrators.

For World Health Organization, Red Meat Is A Red Herring, by Yuri Multsev, at mises.org. Excerpt from the article. “This new anti-meat campaign, however is not about your health, but about the “health of the planet”. WHO’s attack on meat is happening just before the Paris gathering on global warming and is a part of the slow motion socialist revolution poorly disguised as “climate change awareness”.”

Why Are More Young Adults Still Living At Home, at stlouisfed.org. Student loan debt, higher housing prices, and unemployment or low paying jobs are the reason given by the St. Louis Fed. It’s funny that all these reasons were caused by the Federal Reserve electronically printing counterfeit money and its zero interest rate policy.

It Begins: Government To Pay Doctors To Tell Patients To Kill Themselves, at economicpolicyjournal.com. Excerpt from the article: “When you are a drain on government coffers rather than a taxpayer, and the crony health insurance sector fears you will become expensive to keep alive, the government would rather see you dead.

Real Savings = True Credit. Printed Savings = False Credit

March 12, 2015

In this article titled, Understanding True Credit And False Credit, by Frank Shostak at mises.org, explains the difference between real credit that is backed by savings from real production, and counterfeit credit that is created by the printing press.

Don’t think of money when we talk in terms of real credit, think in terms of real things that are first produced, then saved and finally loaned as credit. Money is how we facilitate the exchange of goods and services either in the present or at some time in the future because of saving. Credit is a part of this future exchange.

Here are some excerpts from the article.

“Banks cannot expand true credit as such. All that they can do in reality is to facilitate the transfer of a given pool of savings from savers (i.e., those lending to the bank) to borrowers.

“Consider the case of a baker who bakes ten loaves of bread. Out of his stock of real wealth (ten loaves of bread), the baker consumes two loaves and saves eight. He lends his eight remaining loaves to the shoemaker in return for a pair of shoes in one-week’s time. Note that credit here is the transfer of ”real stuff,” i.e., eight saved loaves of bread from the baker to the shoemaker in exchange for a future pair of shoes….Note that the saved loaves of bread provide support to the shoemaker. That is, the bread sustains the shoemaker while he is busy making shoes. This means that credit, by sustaining the shoemaker, gives rise to the production of shoes and therefore to the formation of more real wealth. This is the path to real economic growth.

“The introduction of money does not alter the essence of what credit is. Instead of lending his eight loaves of bread to the shoemaker, the baker can now exchange his saved eight loaves of bread for eight dollars and then lend them to the shoemaker….Money fulfills the role of a medium of exchange. Thus, when the baker exchanges his eight loaves for eight dollars he retains his real savings, so to speak, by means of the eight dollars. The money in his possession will enable him, when he deems it necessary, to reclaim his eight loaves of bread or to secure any other goods and services.”

“The existence of banks does not alter the essence of credit. Instead of the baker lending his money directly to the shoemaker, the baker lends his money to the bank, which in turn lends it to the shoemaker. In the process the baker earns interest for his loan, while the bank earns a commission for facilitating the transfer of money between the baker and the shoemaker….Despite the apparent complexity that the banking system introduces, the essence of credit remains the transfer of saved real stuff from lender to borrower.

“Trouble emerges when instead of lending fully backed money, a bank engages in issuing empty money (fractional reserve banking) that is backed by nothing….When unbacked money is created, it masquerades as genuine money that is supposedly supported by real stuff. In reality however, nothing has been saved. So when such money is issued, it cannot help the shoemaker since the pieces of empty paper cannot support him in producing shoes — what he needs instead is bread. Since the printed money masquerades as proper money it can be used to divert bread from some other activities and thereby weaken those activities. This is what the diversion of real wealth by means of money out of “thin air” is all about.”

“We can thus conclude that as long as the increase in lending is fully backed by real savings it must be regarded as good news since it promotes the formation of real wealth. False credit, which is generated out of “thin air,” is bad news since credit which is unbacked by real savings is an agent of economic destruction.

Here is a previous post titled, Printed Money Doesn’t Represent More Savings, in which we talk about how electronically printing counterfeit money doesn’t produce any good or service, it is just the creation of a piece of paper that allows who ever receives it the legal right to demand someones production.

Related ArticleWhat Comes First, Production Or Consumption, at austrianaddict.com.

Related ArticleCapital Consumption aka Eating Our Seed Corn, at austrianaddict.com.

Related ArticleThe Role Of Interest Rates In A Market Economy, at austrianaddict.com.