4 ms·

> Not deciding to arbitrarily tying the dollar to a random commodity makes the dollar more efficient. How so? > it doesn't follow that people close to the Fed

> Not deciding to arbitrarily tying the dollar to a random commodity makes the dollar more efficient. How so? > it doesn't follow that people close to the Fed benefit more than anyone else does Its a well established fact that this is the case. Its called Seigniorage. Its called the Cantillion Effect. This isn't controversial in any way. > Private equity and venture capitalists are further from the fed than banks, but have grown even faster. Do you have a source for that? Banks are regulated in a way that limits the risks they can take, and therefore the return they can get, so it wouldn't be surprising that banks growth is smaller, especially over short time spans (eg years vs decades). Private equity and venture capitalists are often very close to banks too, so the difference is likely negligible. And I would have to imagine that people who own private equity firms are a lot more likely to also have equity in banks. > why not just do it another way like forcing a debt ceiling or limiting how much money can be created to a rate similar to that which gold is mined Yes, why not? I don't think I ever advocated that going back to a gold-backed dollar is the only solution. What was important about the gold standard was that it was a widely agreed upon culture of limited monetary supply. Any way that leads us back to that kind of culture where people undertand the importance of a limited money supply and fight to preserve it is a way out of our predicament.

Aunche 5y ago
I'm not an economist, but I do think my intuition about money is correct. >How so? Money is supposed to be medium for the exchange of goods and services. At first, gold acted as a perfectly acceptable medium. However, as the economy grows, the supply of gold does not at the same rate, hence why money slowly became less and less tied to gold. First came fractional reserve banking and then the end of the gold standard. As long as the dollar is tied to gold, you always need to factor in the opportunity cost of holding gold into making an investment or a loan. For the decades following WWII, the American government could ignore this effect because the Bretton Woods system basically allowed the American government to pass that opportunity cost onto the Europeans and Japanese who were desperate for economic stability, but that wasn't sustainable forever. The wealth the American government got from essentially renting out dollars trickled down to the people, which is why I think many people reminisce the gold standard. >Its called the Cantillion Effect... Private equity and venture capitalists are often very close to banks too So can you define what you mean by being "close to the Fed"? I think the Cantillon effect just describes how the rich asymmetrically benefit from monetary expansion. The rich and poor can both take advantage of cheaper debt, but only the rich can afford to use that to grow their wealth. I don't think that this is enough reason to stop monetary intervention though. I'd much prefer our status quo to another Great Depression. The problem isn't that the Fed expands the money supply when the velocity of money falls. The problem is that they are unable to shrink the money supply when the economy recovers because with the rest of the federal government is required to issue $1 trillion in debt every year to operate. In theory, returning to a gold standard would incentivize Congress to be better at fiscal policy, but I'm pretty sure that they would just instantly become bankrupt.
- billytetrud 5y ago
  > as the economy grows, the supply of gold does not at the same rate Correct. As the economy produces more at lower cost, you would expect that prices would fall, right? That's exactly what would happen in an inflation free currency. What is inefficient about that? > First came fractional reserve banking and then the end of the gold standard This is not a new pattern. It has happened over and over again throughout history. See https://www.principles.com/the-changing-world-order/ https://www.principles.com/the-changing-world-order/ . The reason is that it is too enticing for governments to pretend they have more money than they do. Creating promisory notes are easy to inflate, which gives the elites seigniorage rents. Its corruption that leads to things like fractional reserve, not some failing of backed currencies. > you always need to factor in the opportunity cost of holding gold into making an investment or a loan Yes.. So what? If you're implying that this limits how many investments are loans are made, then yes, it does limit those things. And that's good. Why? Because not all investments or loans are worth while. Giving resources to low-return businesses is inefficient. If you have lots of businesses with 5% ROIs around, its actively harmful to invest in an investment that yields 1% because of the 4% opportunity cost you're inurring. > So can you define what you mean by being "close to the Fed"? Basically anyone that does advantageous transactions with the Fed is "close to the Fed", this is primarily member banks, but there are also other financial institutions that get secondary advantageous transactions. For example, when the government borrows money, it sells bonds to banks, who then often turn around and sell it to the Fed at a higher price. Banks also get below-market loans (the discount rate). These are all mechanisms of seigniorage originating with the central bank's ability to create money. > Cantillon effect just describes how the rich asymmetrically benefit from monetary expansion That sounds right to me. > I don't think that this is enough reason to stop monetary intervention though Well Seigniorage is a huge cost on the economy. It saps wealth from those who need it most. But Seigniorage isn't the only negative effect of monetary intervention. The intervention itself distorts the market in harmful ways that paper over real problems that need to be fixed. When investments go bad and sentiments change, injecting money into the economy can make everything look like its all well and good again, but the fact of the matter is that its not. Monetary intervention is specifically built to smooth out superficial indicators of a bad economy to make people think they should continue acting as they have before. But when there are systemic problems in what people are doing, often the only way out is to have inefficient market actors go bankrupt. If people can remain profitable even when they aren't actually creating value for the world, that's a problem. The manipulation also assumes that a group of central bankers can perform actions that go faster than other market signals. However, this is clearly not the case. Any action the central bank does will propagate at the normal market speeds. There is no mechanism for central bankers to beat that. So when they try, they are always acting too late and exacerbating the problem rather than fixing it. Its sheer hubris that anyone believes they can predict the market, much less manipulate it in advance of that prediction. > I'd much prefer our status quo to another Great Depression Sure, but that's a false choice. The Great Depression isn't the only alternative to the status quo. > The problem is that they are unable to shrink the money supply when the economy recovers I'm not quite sure that would solve the whole problem. The problem is not just the devaluation of the currency, the large-scale market manipulation is a problem too, and so is the Seigniorage. > In theory, returning to a gold standard would incentivize Congress to be better at fiscal policy, but I'm pretty sure that they would just instantly become bankrupt. To be honest, I think congress going bankrupt would be the best thing that could happen. Rampant government debt fuels rampant government overgrowth. In the US, the governments of any jurisdiction (local, state, federal) collectively direct approximately half of all economic activity (either through direct spending 40% of the GDP, or requirements on businesses that cost 10% of the GDP). A congress that's better at fiscal policy is more than we could ever hope for.

Aunche 5y ago

I'm not an economist, but I do think my intuition about money is correct. >How so? Money is supposed to be medium for the exchange of goods and services. At first, gold acted as a perfectly acceptable medium. However, as the economy grows, the supply of gold does not at the same rate, hence why money slowly became less and less tied to gold. First came fractional reserve banking and then the end of the gold standard. As long as the dollar is tied to gold, you always need to factor in the opportunity cost of holding gold into making an investment or a loan. For the decades following WWII, the American government could ignore this effect because the Bretton Woods system basically allowed the American government to pass that opportunity cost onto the Europeans and Japanese who were desperate for economic stability, but that wasn't sustainable forever. The wealth the American government got from essentially renting out dollars trickled down to the people, which is why I think many people reminisce the gold standard. >Its called the Cantillion Effect... Private equity and venture capitalists are often very close to banks too So can you define what you mean by being "close to the Fed"? I think the Cantillon effect just describes how the rich asymmetrically benefit from monetary expansion. The rich and poor can both take advantage of cheaper debt, but only the rich can afford to use that to grow their wealth. I don't think that this is enough reason to stop monetary intervention though. I'd much prefer our status quo to another Great Depression. The problem isn't that the Fed expands the money supply when the velocity of money falls. The problem is that they are unable to shrink the money supply when the economy recovers because with the rest of the federal government is required to issue $1 trillion in debt every year to operate. In theory, returning to a gold standard would incentivize Congress to be better at fiscal policy, but I'm pretty sure that they would just instantly become bankrupt.

billytetrud 5y ago
> as the economy grows, the supply of gold does not at the same rate Correct. As the economy produces more at lower cost, you would expect that prices would fall, right? That's exactly what would happen in an inflation free currency. What is inefficient about that? > First came fractional reserve banking and then the end of the gold standard This is not a new pattern. It has happened over and over again throughout history. See https://www.principles.com/the-changing-world-order/ https://www.principles.com/the-changing-world-order/ . The reason is that it is too enticing for governments to pretend they have more money than they do. Creating promisory notes are easy to inflate, which gives the elites seigniorage rents. Its corruption that leads to things like fractional reserve, not some failing of backed currencies. > you always need to factor in the opportunity cost of holding gold into making an investment or a loan Yes.. So what? If you're implying that this limits how many investments are loans are made, then yes, it does limit those things. And that's good. Why? Because not all investments or loans are worth while. Giving resources to low-return businesses is inefficient. If you have lots of businesses with 5% ROIs around, its actively harmful to invest in an investment that yields 1% because of the 4% opportunity cost you're inurring. > So can you define what you mean by being "close to the Fed"? Basically anyone that does advantageous transactions with the Fed is "close to the Fed", this is primarily member banks, but there are also other financial institutions that get secondary advantageous transactions. For example, when the government borrows money, it sells bonds to banks, who then often turn around and sell it to the Fed at a higher price. Banks also get below-market loans (the discount rate). These are all mechanisms of seigniorage originating with the central bank's ability to create money. > Cantillon effect just describes how the rich asymmetrically benefit from monetary expansion That sounds right to me. > I don't think that this is enough reason to stop monetary intervention though Well Seigniorage is a huge cost on the economy. It saps wealth from those who need it most. But Seigniorage isn't the only negative effect of monetary intervention. The intervention itself distorts the market in harmful ways that paper over real problems that need to be fixed. When investments go bad and sentiments change, injecting money into the economy can make everything look like its all well and good again, but the fact of the matter is that its not. Monetary intervention is specifically built to smooth out superficial indicators of a bad economy to make people think they should continue acting as they have before. But when there are systemic problems in what people are doing, often the only way out is to have inefficient market actors go bankrupt. If people can remain profitable even when they aren't actually creating value for the world, that's a problem. The manipulation also assumes that a group of central bankers can perform actions that go faster than other market signals. However, this is clearly not the case. Any action the central bank does will propagate at the normal market speeds. There is no mechanism for central bankers to beat that. So when they try, they are always acting too late and exacerbating the problem rather than fixing it. Its sheer hubris that anyone believes they can predict the market, much less manipulate it in advance of that prediction. > I'd much prefer our status quo to another Great Depression Sure, but that's a false choice. The Great Depression isn't the only alternative to the status quo. > The problem is that they are unable to shrink the money supply when the economy recovers I'm not quite sure that would solve the whole problem. The problem is not just the devaluation of the currency, the large-scale market manipulation is a problem too, and so is the Seigniorage. > In theory, returning to a gold standard would incentivize Congress to be better at fiscal policy, but I'm pretty sure that they would just instantly become bankrupt. To be honest, I think congress going bankrupt would be the best thing that could happen. Rampant government debt fuels rampant government overgrowth. In the US, the governments of any jurisdiction (local, state, federal) collectively direct approximately half of all economic activity (either through direct spending 40% of the GDP, or requirements on businesses that cost 10% of the GDP). A congress that's better at fiscal policy is more than we could ever hope for.