Home › Forums › Financial Markets/Economics › Money Supply – Exploding Inflation
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November 30, 2011 at 11:06 PM #733701December 1, 2011 at 5:18 AM #733705SK in CVParticipant
[quote=markmax33]Yes every time. The average currency has lasted 27 years. The other ones that haven’t busted aren’t old enough. Name a currency that’s lasted since the 1800s. EVERY TIME. Please go find one.[/quote]
British Pound. (I win!)
I found the study you cite. It contains this tidbit that sort of makes your argument a bit silly.
According to a study of 775 fiat currencies by DollarDaze.org, there is no historical precedence for a fiat currency that has succeeded in holding its value. 20 percent failed through hyperinflation, 21 percent were destroyed by war, 12 percent destroyed by independence, 24 percent were monetarily reformed, and 23 percent are still in circulation approaching one of the other outcomes.
So 1 out of 5 fiat currencies fail due to hyperinflaction. 80% disappear for reasons unrelated to the currency. So not only is there no causality, there’s not even a high correlation between fiat currency and government failure. And roughly 160 are STILL in use which means they have NOT failed.!
Next.
December 1, 2011 at 6:07 AM #733706EconProfParticipantMarkmax33, I’m afraid that, in general, you are making overly sweeping generalizations based on too little, or simply weak, data. You may be right that hyperinflation will hit the US based on the clearly above-trend rate of increase in the money supply lately. But so far the recessionary factors have overwhelmed the monetary stimulus and we still have a deflationary environment–especially in wages and asset prices. Deleveraging is continuing in the balance sheets of most businesses and households, and it is a powerful force.
Yes, history shows an often sorry record for fiat currencies, esp. when politics and short-term oriented, politically attractive demagogues get control. But the $ is a fiat currency and is still strong by most measures relative to other currencies.
I certainly don’t know what the future holds for inflation here, but I have given up on strict monetarism, which I used to preach. Got tired of being wrong predicting inflation due to the clearly above normal rates of increase in money supply. Too many other factors, such as changes in money velocity and financial instruments now make obsolete the old connection between money supply and prices.
What also counts is how one defines “failure” of a fiat currency. Perhaps you would call a doubling of prices every 15 years a failure. But that’s actually only a 5% rate of increase per year. If wages, prices, investment returns, etc. went up at that same annual rate I think we could adjust to that. Back in 1980 we would have called that heaven. As monetarist Milton Friedman pointed out, it is big changes in inflation, either up or down, that does harm because some groups do not adjust fully or fast enough.
Relating all this to the housing price booms of the late 1970s, late 1980s, and late 1990s, those investors who jumped in and bought in mid-decade made out very well. It is interesting how the price decline or leveling out happened at roughly the first half of the following decade. Timing is everything.December 1, 2011 at 6:32 AM #733707SK in CVParticipantGreat comment EconProf. Logical and much nicer than I have been.
(And my how the paradigms shift. The more we know, the less we understand.)
December 1, 2011 at 7:31 AM #733709markmax33Guest[quote=SK in CV][quote=markmax33]Yes every time. The average currency has lasted 27 years. The other ones that haven’t busted aren’t old enough. Name a currency that’s lasted since the 1800s. EVERY TIME. Please go find one.[/quote]
British Pound. (I win!)
I found the study you cite. It contains this tidbit that sort of makes your argument a bit silly.
According to a study of 775 fiat currencies by DollarDaze.org, there is no historical precedence for a fiat currency that has succeeded in holding its value. 20 percent failed through hyperinflation, 21 percent were destroyed by war, 12 percent destroyed by independence, 24 percent were monetarily reformed, and 23 percent are still in circulation approaching one of the other outcomes.
So 1 out of 5 fiat currencies fail due to hyperinflaction. 80% disappear for reasons unrelated to the currency. So not only is there no causality, there’s not even a high correlation between fiat currency and government failure. And roughly 160 are STILL in use which means they have NOT failed.!
Next.[/quote]
SK – Again you are proven wrong by not looking at history:
“The gold standard was suspended at the outbreak of the war in 1914, with Bank of England and Treasury notes becoming legal tender. Prior to World War I, the United Kingdom had one of the world’s strongest economies, holding 40% of the world’s overseas investments. However, by the end of the war the country owed £850 million (£30.7 billion as of 2011),[14] mostly to the United States, with interest costing the country some 40% of all government spending. In an attempt to resume stability, a variation on the gold standard was reintroduced in 1925, under which the currency was fixed to gold at its pre-war peg, although people were only able to exchange their currency for gold bullion, rather than for coins. This was abandoned on 21 September 1931, during the Great Depression, and sterling suffered an initial devaluation of some 25%.[15]”.It became a fiat currency in 1931. The name sterling has been around since the 1600s BUT it has not been a fiat currency for the majority of that time. The name Sterling came from being backed by silver to begin with. You will will never win this argument.
Your other comments about only 20% of the currencies failing is not true. Monetary reform means that they reissued the currency because the initial currency was deemed worthless and they couldn’t print any more 0’s on the paper. Most currencies end during war times because the country can’t print enough money to sustain the war, acts of independence usually accompany a civil war which just means the currency isn’t old enough, remember we broke away from England because of their oppressive currency and taxes, the other currencies are to young to fail. THUS every fiat currency has failed the same way.
December 1, 2011 at 7:35 AM #733710NotCrankyParticipantRon Paul is a major wuss. How can anyone give a damn about a supposedly righteous and honorable guy who is happy to lose two national primaries in a row and then go back to whatever it is he does when he is not uselessly blabbing his mouth on the campaign trail? If he doesn’t run independent he should shut up already.
December 1, 2011 at 7:50 AM #733711scaredyclassicParticipantName ONE 19th c economist who is still alive. ONE! All humans fail.
Why should money be permanent. Perhaps it was meant to be in flux.
December 1, 2011 at 8:25 AM #733715markmax33Guest[quote=Jacarandoso]Ron Paul is a major wuss. How can anyone give a damn about a supposedly righteous and honorable guy who is happy to lose two national primaries in a row and then go back to whatever it is he does when he is not uselessly blabbing his mouth on the campaign trail? If he doesn’t run independent he should shut up already.[/quote]
1. He is in first place in Iowa by himself. He is the sole leader in Iowa among likely caucus goes. This number includes democratic switch overs.
Many democrats like him because he is against the wars and would not ban abortion or work toward it. He is in 2nd place in New Hampshire. I’m not sure what you are refering to?http://www.dailypaul.com/188676/breaking-new-iowa-poll-places-ron-paul-firmly-in-first-place-w-25
2. He can’t announce he’d run third party, that would be suicide to his GOP campaign. He’s already going to be on all 50 ballots either way as his supporters have already done the legwork to get a 3rd party on the ticket.
I’m not sure how that makes him a wuss? I think people that call names and don’t do research are much worse.
December 1, 2011 at 8:28 AM #733716NotCrankyParticipantI predict his presidential hopes will go the way of fiat currencies. However, what I really want to know is the trajectory for local tomato prices over the next few years?
December 1, 2011 at 8:39 AM #733718markmax33Guest[quote=EconProf]Markmax33, I’m afraid that, in general, you are making overly sweeping generalizations based on too little, or simply weak, data.[/quote]
Okay you are calling names and offering no facts here. I offer 775 currencies, a list of all of them and the data is weak and you have offered nothing to the arguement.
[quote=EconProf]You may be right that hyperinflation will hit the US based on the clearly above-trend rate of increase in the money supply lately.[/quote]
You are agreeing with me and everything I am saying here.
[quote=EconProf]
But so far the recessionary factors have overwhelmed the monetary stimulus and we still have a deflationary environment–especially in wages and asset prices. Deleveraging is continuing in the balance sheets of most businesses and households, and it is a powerful force.[/quote]Seriously? Most other currencies on that list failed during bad times too! How can you say our recession is protecting our currency? This seems very counterintuitive. Currencies generally fail as the central banks print money and had it out to the rich and poor get poorer. We are doing exact same thing! House hold balance sheets didn’t mean squat when the others failed. Show me a few examples please. You provide no facts here.
[quote=EconProf]
Yes, history shows an often sorry record for fiat currencies, esp. when politics and short-term oriented, politically attractive demagogues get control. But the $ is a fiat currency and is still strong by most measures relative to other currencies.[/quote]You are agreeing with me again, but wait our currency appears strong compared to other currencies. How do you measure that? How do you know? When currencies fail inflation is 5% per day! It happens rapidly and never gets reversed. What are you talking about sir?
[quote=EconProf]
I certainly don’t know what the future holds for inflation here, but I have given up on strict monetarism, which I used to preach. Got tired of being wrong predicting inflation due to the clearly above normal rates of increase in money supply. Too many other factors, such as changes in money velocity and financial instruments now make obsolete the old connection between money supply and prices.[/quote]Agreed we have many other people in the world using the dollar as their default currency through pegs or other things. Just because the ponzi scheme is being proped up, doesn’t mean it won’t fail. It is often the things that seem least likely to fail that end of failing the worst. Haven’t we learned that through history?
[quote=EconProf]
What also counts is how one defines “failure” of a fiat currency. Perhaps you would call a doubling of prices every 15 years a failure. But that’s actually only a 5% rate of increase per year. If wages, prices, investment returns, etc. went up at that same annual rate I think we could adjust to that. [/quote]We are increasing the money supply at around 10% per year and we have not had wage inflation anywhere close to that. We are getting poorer and poorer by the year.
[quote=EconProf]
Back in 1980 we would have called that heaven. As monetarist Milton Friedman pointed out, it is big changes in inflation, either up or down, that does harm because some groups do not adjust fully or fast enough. [/quote]Exactly, stop putting water behind the dam. The dam is going to burst. It can only hold so long.
[quote=EconProf]
Relating all this to the housing price booms of the late 1970s, late 1980s, and late 1990s, those investors who jumped in and bought in mid-decade made out very well. It is interesting how the price decline or leveling out happened at roughly the first half of the following decade. Timing is everything.[/quote]exactly the problem, a few lucky people got massively rich and everyone else lost their retirements, homes, jobs, etc. It is a rigged system with no predictability owned by a group of small wealthy men. This rigged system is bad for 95% of the people.
December 1, 2011 at 8:40 AM #733719(former)FormerSanDieganParticipant[quote=walterwhite]Name ONE 19th c economist who is still alive. ONE! All humans fail.
Why should money be permanent. Perhaps it was meant to be in flux.[/quote]
😮
I nominate this for post of the week.
December 1, 2011 at 8:43 AM #733717AnonymousGuest[quote=markmax33]Here is a list of 775 currencies:
[…][/quote]
Thanks for the links. That’s a really cool list and I enjoyed the little walk though the history of currencies.
I did notice some of the same things that SK did: Seems that many currencies – in fact most currencies – did not fail due to inflationary monetary policy. And there are over a hundred currencies that have never failed. Some of these have been around for more than a century (including ours.)
BTW, is there an equivalent list for gold-backed currencies? How have they fared through history?
It’s interesting how many currencies have failed due to war and political upheaval. Especially in times where nations were ruled by political extremists.
Seems the biggest threat to economies is extremist political ideas and leaders who want to drastically change the economic structure of a nation and attempt to implement their own, untested ideas.
Do we know of any current politicians that are like that?
[quote]The US currency has failed a few times already, leaving everyone broke, thus the saying,”not worth a continental” in reference to the continental dollar that was around during the civil war.[/quote]
It was the American Revolution, not the Civil War. And the reasons it failed were a little more complex:
http://en.wikipedia.org/wiki/Continental_dollar#Continental_currency
BTW, what are the other times that the US currency has failed?
And were these dates before or after the existence of the Fed?
December 1, 2011 at 8:51 AM #733720(former)FormerSanDieganParticipant[quote=markmax33]
[quote=EconProf]
Relating all this to the housing price booms of the late 1970s, late 1980s, and late 1990s, those investors who jumped in and bought in mid-decade made out very well. It is interesting how the price decline or leveling out happened at roughly the first half of the following decade. Timing is everything.[/quote]exactly the problem, a few lucky people got massively rich and everyone else lost their retirements, homes, jobs, etc. It is a rigged system with no predictability owned by a group of small wealthy men. This rigged system is bad for 95% of the people.[/quote]
Let’s use some simple logic here.
If x% got massively rich, then everone else consists of 100% – x%.Suppose 2% of the people got massively rich, then according to your statement the remaining 98% must have lost their retirements, homes, jobs, etc.
I may have the numbers wrong (i just guessed), but I would be interested in seeing the data that indicate the actual percentages.
Can you cite a source ?Thanks in advance,
FSDP.S. – Maybe the trick is in the etc. (if we assume etc is stuff like losing their TV remote, or their wallet, keys, glasses, or perhaps lose their way I guess it could be correct)
December 1, 2011 at 8:52 AM #733721CoronitaParticipant[quote=markmax33]
exactly the problem, a few lucky people got massively rich and everyone else lost their retirements, homes, jobs, etc. It is a rigged system with no predictability owned by a group of small wealthy men. This rigged system is bad for 95% of the people.[/quote]Don’t you have an OWS protest to go to?
December 1, 2011 at 9:15 AM #733723sdduuuudeParticipant[quote=paramount][quote=SK in CV][quote=sdduuuude]The graph shows 7 years of money supply increase.
Inflation has, in that 7 years, been unremarkable.Seems if the increase in money supply was going to cause major inflation, we would see some movement by now. Something else must be in effect.
I’m with Arraya and Econ Prof on this one.[/quote]
[/quote]
An otherwise bad economy is almost always a price inflation killer.[/quote]
I was thinking the other side of the coin is the deleveraging that has and will continue to occur.
I wonder how many of those currencies that failed due to hyperinflation failed smack-dab in the middle of a world-wide deleveraging cycle.
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