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Perhaps governments will stop spending beyond their means and producing fake money with their central banks. Perhaps. It seems more likely they will blame "the

Perhaps governments will stop spending beyond their means and producing fake money with their central banks. Perhaps. It seems more likely they will blame "the market" and use trouble they created as an excuse to extend their control over their economies.

mortenjorck 17y ago
Unfortunately, the market is no better. The governments allow their central banks to print fake money while the market allows its financial institutions to print fake assets. Whether it's currencies or CDOs, a bubble is a bubble. Valuation is an art that got lost somewhere in the science.
- Tichy 17y ago
  But the market can't force people to buy their assets. Ultimately of course that is true for money, too (people could go back to bartering or whatever), but it seems a much farther stretch.
philwelch 17y ago
You know, gold is "fake money" too. Money of any kind only works because everyone agrees to want it.
- BearOfNH 17y ago
  One difference is that gold is in limited supply, and cannot be instantly materialized by the State. Its scarcity, beauty and durability make it a natural store of value when the printing presses are running overtime. Of course the State knows this too. In April 1933, less than one month after taking office, FDR signed an executive order confiscating all the private gold in the country. I wouldn't be surprised to see that happen again some day.
  - philwelch 17y ago
    A mineral is only in limited supply when there isn't a rush. (See: 19th century American silver rush and bimetallism). Gold isn't that scarce or that beautiful after all, it's mostly a convention. The limited supply of gold can also be a hindrance, causing systemic deflation as an economy grows.
    - dantheman 17y ago
      Deflation isn't bad.
      - bff 17y ago
        I've heard arguments to the contrary, for example that deflation encourages people to invest their money under their mattresses. If money you hoard loses value then you feel a stronger need to invest it, which is better for the economy as a whole. Without that incentive once a person reached some level of wealth they would sit on their money instead of putting it into a nice retirement fund that puts it into the stock market.
        dantheman 17y ago
        It could perhaps be restated that deflation causes people to invest their money wisely and weigh the risks and rewards, whereas inflation causes people to chase rewards just to maintain their current wealth or underestimate risk to try and grow their investments. Inflation fundamentally is just stealing from people by devaluing their earnings, and it hurts the poor and the middle class the most. It encourages people to take on debts, since they will pay back less in the future. It also hurts anyone who gets paid by the hour or salary when they're not tied to inflation.
    - mhartl 17y ago
      The limited supply of gold can also be a hindrance, causing systemic deflation as an economy grows. Nope. The initial supply isn't what matters. With a fixed-supply currency (well-approximated by gold), the demand for money increases as an economy grows, so (for fixed supply) its price increases as well. Hence, no deflation. Intuitively, the money supply must increase as an economy grows. Intuitively, clocks tick just as fast at sea level as they do on top of Everest. Intuition is often wrong. Einstein can help you re-tune your clock-ticking intuition (http://en.wikipedia.org/wiki/Gravitational_time_dilation http://en.wikipedia.org/wiki/Gravitational_time_dilation). Rothbard can help you with money (http://mises.org/money.asp http://mises.org/money.asp).

mortenjorck 17y ago

Unfortunately, the market is no better. The governments allow their central banks to print fake money while the market allows its financial institutions to print fake assets. Whether it's currencies or CDOs, a bubble is a bubble. Valuation is an art that got lost somewhere in the science.

Tichy 17y ago
But the market can't force people to buy their assets. Ultimately of course that is true for money, too (people could go back to bartering or whatever), but it seems a much farther stretch.

philwelch 17y ago

You know, gold is "fake money" too. Money of any kind only works because everyone agrees to want it.

BearOfNH 17y ago
One difference is that gold is in limited supply, and cannot be instantly materialized by the State. Its scarcity, beauty and durability make it a natural store of value when the printing presses are running overtime. Of course the State knows this too. In April 1933, less than one month after taking office, FDR signed an executive order confiscating all the private gold in the country. I wouldn't be surprised to see that happen again some day.
- philwelch 17y ago
  A mineral is only in limited supply when there isn't a rush. (See: 19th century American silver rush and bimetallism). Gold isn't that scarce or that beautiful after all, it's mostly a convention. The limited supply of gold can also be a hindrance, causing systemic deflation as an economy grows.
  - dantheman 17y ago
    Deflation isn't bad.
    - bff 17y ago
      I've heard arguments to the contrary, for example that deflation encourages people to invest their money under their mattresses. If money you hoard loses value then you feel a stronger need to invest it, which is better for the economy as a whole. Without that incentive once a person reached some level of wealth they would sit on their money instead of putting it into a nice retirement fund that puts it into the stock market.
      - dantheman 17y ago
        It could perhaps be restated that deflation causes people to invest their money wisely and weigh the risks and rewards, whereas inflation causes people to chase rewards just to maintain their current wealth or underestimate risk to try and grow their investments. Inflation fundamentally is just stealing from people by devaluing their earnings, and it hurts the poor and the middle class the most. It encourages people to take on debts, since they will pay back less in the future. It also hurts anyone who gets paid by the hour or salary when they're not tied to inflation.
  - mhartl 17y ago
    The limited supply of gold can also be a hindrance, causing systemic deflation as an economy grows. Nope. The initial supply isn't what matters. With a fixed-supply currency (well-approximated by gold), the demand for money increases as an economy grows, so (for fixed supply) its price increases as well. Hence, no deflation. Intuitively, the money supply must increase as an economy grows. Intuitively, clocks tick just as fast at sea level as they do on top of Everest. Intuition is often wrong. Einstein can help you re-tune your clock-ticking intuition (http://en.wikipedia.org/wiki/Gravitational_time_dilation http://en.wikipedia.org/wiki/Gravitational_time_dilation). Rothbard can help you with money (http://mises.org/money.asp http://mises.org/money.asp).