4 ms·

> as the historical record in the US shows; see the first chart. The Greeks didn't print money out of paper. But let's be us-centric and focus on a short span

• throw0101a 5y ago
  >> a monetary system based on fixed currency often leads make deflation a problem for the average person > Why is this a problem? The problems arise from rising prices not the contrary. For one, moderate inflation reduces the burden of debt, which a good portion of people are in, e.g., mortgages, student loans. Deflation makes debt more burdensome. Further, The Haves are generally the ones lending money to the Have-Nots, and so deflation would make worse the effects of wealth inequality (which have hit levels last seen in the Gilded Age). * https://en.wikipedia.org/wiki/Deflation#Effects https://en.wikipedia.org/wiki/Deflation#Effects > Yeah we've moved on for a reason : to print more "money". It allows for more flexibility for various economic conditions. See James and Bemanke for example: > Deflation (and the constraints on central bank policy imposed by the gold standard) was an important cause of banking panics, which occurred in a number of countries in the early 1930s. As discussed for the case of the United States by Bernanke (1983), to the extent that bank panics interfere with nor- mal flows of credit, they may affect the performance of the real economy; indeed, it is possible that economic performance may be affected even without major panics, if the banking system is sufficiently weakened. Because severe banking panics are the form of financial crisis most easily identified empiri- cally, we will focus on their effects in this paper. However, we do not want to lose sight of a second potential effect of falling prices on the financial sector, which is "debt deflation" (Fisher 1933; Bernanke 1983; Bernanke and Gertler 1990). By increasing the real value of nominal debts and promoting insol- vency of borrowers, deflation creates an environment of financial distress in which the incentives of borrowers are distorted and in which it is difficult to extend new credit. Again, this provides a means by which falling prices can have real effects. […] > Once the deflationary process had begun, central banks engaged in competitive deflation and a scramble for gold, hoping by raising cover ratios to protect their currencies against speculative attack. Attempts by any individual central bank to reflate were met by immediate gold outflows, which forced the central bank to raise its discount rate and deflate once again. According to Temin, even the United States, with its large gold reserves, faced this constraint. Thus Temin disagrees with the suggestion of Friedman and Schwartz (1963) that the Federal Reserve's failure to protect the U.S. money supply was due to misunderstanding of the problem or a lack of leadership; instead, he claims, given the commitment to the gold standard (and, presumably, the absence of effective central bank cooperation), the Fed had little choice but to let the banks fail and the money supply fall. * http://www.nber.org/chapters/c11482 http://www.nber.org/chapters/c11482 The sooner that countries got off the gold standard in the Great Depression the sooner they started to recover. * https://en.wikipedia.org/wiki/Gold_standard#Causes_of_the_Great_Depression https://en.wikipedia.org/wiki/Gold_standard#Causes_of_the_Gr... For a history of the use of gold as currency see The Power of Gold: The History of an Obsession by Bernstein (the second edition has an introduction by Volcker): * https://en.wikipedia.org/wiki/Peter_L._Bernstein https://en.wikipedia.org/wiki/Peter_L._Bernstein Economic activity can be hampered by the lack of money if there is only a fixed amount: > Although there are instances in economic his- tory in which moderate deflation is accompanied by economic growth, deflation as extreme as in the 1930s is virtually always linked to falling output and employment. The literature suggests various mecha- nisms through which deflation may affect production and employment. Three in particular appear to have played a role in the Great Depression (see Bernanke and James, 1991; Bernanke, 1995): * https://www.snb.ch/en/mmr/reference/quartbul_2003_2/source/quartbul_2003_2.en.pdf https://www.snb.ch/en/mmr/reference/quartbul_2003_2/source/q... It is possible to literally run out of money and not be able to do business: * https://en.wikipedia.org/wiki/Great_Bullion_Famine https://en.wikipedia.org/wiki/Great_Bullion_Famine (Bernstein has a chapter on this.) Austerity economic measures are associated with deflation (or at least deflationary tendencies) in the past as well: * https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Dangerous_Idea https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Da...
  • yarky 5y ago
    So we must trust that money printing is better, yet I have not seen any evidence of such a system being any better for average people than a gold-based system. Do you mind explaining with an example what could potentially happen ? I don't see it. This is all I see : 1. Group A has tons of gold because it's the ultimate (physical) store of value. Group B has nothing. 2. Group B gets nano bits of gold in exchange for goods/labor. 3. Group A realizes the limits of their wealth. 4. Group A tries to convince group B of exchanging back their nano bits of gold for nano bits of paper + x%. They can also exchange their land and other assets for micro bits of paper + y%. 5. The system falls, everybody and nobody get blamed with no-one taking financial responsibility. 6. Group B ends up with tons of paper, zero assets and zero gold. ... This has already happened several times and even though it's quite unlike in a modern economy, it looks like the world's historical evidence does not support the theory that this is any better for average people holding average nano bits of gold.
    • throw0101a 5y ago
      > So we must trust that money printing is better, yet I have not seen any evidence of such a system being any better for average people than a gold-based system. Do you trust the historical record? > What about economic growth? Again, the gold standard was associated with greater volatility, not less. The following chart plots annual growth as measured by gross national product (gross domestic product only came into common use in the 1991.) The pattern looks quite a bit like that of inflation: the standard deviation of economic growth during the gold-standard era was more than twice that of the period since 1973. And, despite the Great Recession, the past quarter century has been even more stable. To use another, simpler, measure, in the period from 1880 to 1933 there were 15 business cycles identified by the National Bureau of Economic Research. That is, on average there was a recession once every 3½ years. By contrast, since 1972, there have been 7 recessions; one every 6 years. * https://www.moneyandbanking.com/commentary/2016/12/14/why-a-gold-standard-is-a-very-bad-idea https://www.moneyandbanking.com/commentary/2016/12/14/why-a-... Do you trust economic historians (like Bernstein)? Have you read much economic history? > 1. Group A has tons of gold because it's the ultimate (physical) store of value. Group B has nothing. It is debatable whether gold (or sea shell or giant stones (like in Micronesia)) are a useful or "ultimate" stores of value given they're completely arbitrary and a social constructs. Pre-Columbian societies (e.g., Actecs) were quite fond of gold for jewelry, but were puzzled by the Spanish fetish for it. The Chinese used silver as money because gold was for ceremonial purposes; see Goldstein: * https://www.goodreads.com/en/book/show/50358103-money https://www.goodreads.com/en/book/show/50358103-money The Chinese used paper currency successfully for many years/decades until it was stopped because the Imperial Court wanted to exert more control over people. > 6. Group B ends up with tons of paper, zero assets and zero gold. So Group B has absolutely no possessions? No clothes? No consumer goods (computers, cars)? No homes? The easy availability of credit allows for economic activity, and when folks gets "money" (however defined) for their labour, they can trade it for goods and services. A non-fixed money supply allows for greater monetary and fiscal flexibility so that people can prosper and be happy (which is the point of society; see Aristotle's Nicomachean Ethics). What you want in life is not money (however defined) in itself, but the things money can get you; see Housel: * https://www.goodreads.com/en/book/show/41881472-the-psychology-of-money https://www.goodreads.com/en/book/show/41881472-the-psycholo... I would hazard to say that the modern monetary system has helped to create more material prosperity for more people than any other period of time. By allowing private banks (née central banks or governments) to create money on an as-needed basis it has allowed for more economic activity by more people to create wealth for a larger portion of the population: * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 All that even with the wealth equality levels being what they are (i.e., roughly the same as in the Gilded Age).
• imtringued 5y ago
  Deflation has lead to two world wars in Germany. Remember the austrian school of economics? They thought all you have to do in a depression is do austerity and liquidationism. At the beginning of the 20th century the Germans followed their advice strictly and made a third of its population redundant in the process. This happened twice and everyone knows how many world wars they started. By the way, central banks don't print money and commercial banks usually lend out money because saving reduces the active money supply and lending replenishes the active money supply. What people refer to as printing money is actually people saving more money. People complain about low or negative interest rates because they want to save but they are too stupid to notice that this increase in savings leads to an increase in the money supply. Maybe they aren't stupid maybe they are just evil?