Use access key #2 to skip to page content.

Questions for Fed Apologists

Recs

38

September 05, 2010 – Comments (34)

Well, we won't get any answers, but let's ask anyway.

Here are some questions to arm yourself the next time you speak with a Fed Apologist (or just one of those people that has no conception of anything else but an inflationary world.)

Thanks to George Smith:

[Sorry I haven't posted in a while.  I've been buried in the mind of this humorous, insightful, and occasionally nutty German bourgeois' ranting against the bourgeois.  After I have finished, we'll get back to fun stuff =D]

David in Qatar

1. How can a monetary system be regarded as "safe" when monetary policy has stripped the dollar of 95 percent of its value?

2. Why did the CPI take off in earnest following FDR's gold confiscation order of April 5, 1933, and Nixon/Volker's leap of faith to a world of pure fiat paper on August 15, 1971?

3. Why did the value of the dollar, though volatile at times, nearly double between 1865 and 1912, a period when "monetary policy" was rudimentary at best and Fed monetary policy was only a pipe dream for a few?

4. What historical data underlie the Fed's contention that massive money creation and huge deficits are the medicine needed to treat a bust? (Robert Higgs has rebutted the World War II argument about hyper-Keynesianism bringing prosperity.) Why was the depression of 1920–1921 in the United States short-lived in the absence of such interventions? Why is accommodation so highly regarded when Japan, in the same period, intervened to keep prices from falling but prolonged their recession for seven years?

5. What is the connection between the rise of central banking and the numerous hyperinflations in the twentieth century? What role did central banks play in making the European war that began in 1914 a world war? In what ways did Germany's post-war hyperinflation foment World War II?

6. Given the presence of money in virtually all economic transactions, that money "is the nerve center of the economic system," how can Bernanke justify saying, "I don't think that monetary policy was a particularly important source of the crisis"? (I LOVE THAT ONE!)

7. Why is a government-enforced monetary cartel somehow good for the public, when public cartels are generally recognized as harmful?

8. If gold is such a "barbarous relic" and too inflexible to be used as money, why is the Fort Knox Bullion Depository, home of the gold Roosevelt confiscated in the 1930s, so heavily protected that only an invasion — or Fed policy — could threaten its security? Why does gold require such protection but not the stuff the Fed issues?

9. Why is it that if a private individual or firm prints money they're engaged in the high crime of counterfeiting, which is another name for inflation, whereas when the Fed prints money it's called "monetary policy" and is considered our best tool for avoiding inflation?

The only good monetary policy is no monetary policy.

34 Comments – Post Your Own

#1) On September 05, 2010 at 10:07 PM, Quantemonics (98.77) wrote:

Bravo!!!

Great questions that few want to ask, or, for sure, answer in an honest manner.

Why has most everything prescribed in the original U.S. Constitution, been overturned, rewritten, amended, or ignored... while most everything we forbade from the beginning has become common place, conventional wisdom and expected as law by our leaders, courts and policy makers?????

When did the rule of law, become a society of perverted rules and regulations, rarely enforced?  Why do corporations have more rights than individuals?  Ask your ignorant, arrogant, paid off Congressman or woman (equal opportunity payola is alive and well in Congress).  What else could explain unconstitutional vote after vote?

Why do Presidents take a sworn oath of office to uphold the Constitution, yet are never punished for breaking this solemn oath?

Why ask why, when few on CAPS will read this message thread?

Why are many unemployed Americans working harder on their "fantasy football" draft this week, than finding a job?

Why is good, bad; and right, wrong in political discourse and on Wall Street?  Why are American economic policy decisions following the Karl Marx playbook and not Adam Smith's?

America will not change much until honesty and hard work are revered above fun and fraud.  The worship of money above all else, with no conscience, and no God will lead to our demise. 

We are following the prescription for failure that the founding fathers FEARED MOST - out of control government, no backing for money, military imperialism, outsized debts, undue corporate influence, and the slow destruction of individual rights and liberties... I weep for my nation.  The once glorious and uniquely successful American "experiment" in democracy and capitalism may be ending.

-Thomas Jefferson

 

Report this comment
#2) On September 05, 2010 at 10:28 PM, starbucks4ever (97.41) wrote:

From a rational planning viewpoint, the Fed is a superfluous tool in the planner's toolkit. Policy goals can be realized successfully with fiscal and administrative measures alone. On the other hand, a planner may still choose to have this institution, but then he must use it responsibly. Greenspan and  Bernanke just used it as a pump that blows hot air into economy-distorting bubbles and enriches the first recipients who happen to stand near the pump. That's an example how NOT to use it. But when not abused, this tool becomes harmless, even though I still think it's not necessary.

Report this comment
#3) On September 05, 2010 at 11:08 PM, whereaminow (< 20) wrote:

zloj,

The points you bring up are things that I have spent way too long contemplating.  My only explanation for why they use this "tool" the way they do is because they know it makes them powerful.  That's all I can come up with.  They know the economic consequences, even if Fed "experts" do not.  Bernanke/Greenspan/Paulson and the other insiders have to know.  They have to.  They can't be that ignorant.  

Therefore, they must do it for power, and power alone.  And the institution itself was set up to help centralize power for men like them.  It's all I can come up with.

David in Qatar

Report this comment
#4) On September 05, 2010 at 11:53 PM, ChrisGraley (29.66) wrote:

If you want the normal answers...

It's just another tool and we can make up for it by tightening later. (tightening never comes)

Inflation is good for the economy. (Yeah, I'm sure our kids will thank us for the extra debt.) 

We are too big to fail.

The rest of the world is dumb and will always accept our debt.

Those were the ones that I could think of off the top of my head. 

Report this comment
#5) On September 06, 2010 at 1:42 AM, awallejr (85.56) wrote:

It just drives me nuts when people use the term "worth" as if it is some exact term of measure.  It isn't.  The term "worth" means exactly what someone is willing to pay for a given item at a given moment. That is it.

So to argue that something SHOULD be worth a certain amount is nothing but opinion, just as appraisals are.

So to say How can a monetary system be regarded as "safe" when monetary policy has stripped the dollar of 95 percent of its value? is just a made up number and nothing more. Report this comment
#6) On September 06, 2010 at 2:04 AM, whereaminow (< 20) wrote:

awallejr,

It is true that all prices are formed by subjective evaluations made by economic actors making buy and sell decisions at the margin.  However, one can evaluate the strength of a currency by taking stock of the inventory at those prices and determining how much can be purchased with a unit of currency.  The more stable (as in they don't undergo major changes) the items measured, the better.  We can compare how much it costs to buy a one pound chicken in 1913 with a one pound chicken in 2010, for example.  

So no, it's not a made up number.  

David in Qatar

Report this comment
#7) On September 06, 2010 at 12:12 PM, Robuh (25.27) wrote:

Hey David, I guess I'll take the other side of this one. Let's say that I wanted to create a society in which people of varying talents and ambitions peacefully co-existed. In order for my society to function everyone has to produce a certain amount of goods and services in their lifetimes as part of their respective contributions to this society. Things will never get to the point where people don't have to work. Every generation has to do their part.

Because the barter system does not work on a large scale we have to move to a form of currency to facilitate trade. However, I do not want this currency to be a store of long term wealth because that has negative consequences. Capital must be reinvested in order to stimulate new growth and sitting on a pile of promissory notes that retain their value is a barrier to this.

There is also a fundamental flaw with capitalism in that great wealth tends move to a small segment of the population and everyone else becomes poor. Knowledge and ability compound like money in a bank to the point where certain individuals have a staggering advantage over the rest of the population and have far more ability to generate wealth and exploit others. This has happened numerous times in human history and usually ends with redistribution of wealth through extremely violent events.

Knowing all of this and acknowledging that individual idleness is also destructive I'm going to try to create a system that:
 
1. Keeps people busy. This is getting increasingly more difficult due to productivity gains. Less and less people actually have to produce real value to sustain everyone.

2. Rewards hard work and talent but not to the point where these people can gain extreme advantages over the remainder of the population. They can't become idle (i.e. retire too early) and cease providing their valuable services to society

3. Keeps as few people as possible from feeling "poor" and unhappy from the perspective of financial wealth (i.e. create a middle class)

4. Reduces generational wealth (old money) as much as possible

The simple answer to this is redistribution of wealth in a controlled manner. While taxation is a direct way to achieve this we also must do this through gradual depreciation of the currency. Currency is not meant to be a store of long term wealth, it's a tool to facilitate trade. Complaining that the "value" of a dollar depreciates over time is like complaining that my hammer doesn't cut through lumber too well.

More to the point, we're all in the same boat. If we were to live in a society where currency was a form of wealth retention then everyone would have the same advantage meaning that no one would have an advantage. While the short-sited viewpoint may be "I'm frugal and responsible and would benefit from this type of system" it is likely that the aggregate effects would be devastating.

I'm completely happy that a dollar today will be worth only half as much in 25 years or so. I'm happy that my children will need to compete, contribute, and find their own places in the world. This is how society continues to function. I'm amazed that a western society of hundreds of millions of people have found a way to live in relative harmony given all the intrinsic problems in human nature and technological/scientific advances. A lot of that is due to our current monetary system.

Report this comment
#8) On September 06, 2010 at 12:25 PM, whereaminow (< 20) wrote:

Robuh,

You are not allowed to accuse anyone else of wanting to create a utopia.  It's what you are advocating and it has been shown repeatedly that your goals can't be accomplished through central planning.

Quick question: why do you get to choose how my money is spent, and how much of my money gets stolen from me through inflation (dollar depreciation)?  Why is that your prerogative and your choice?  I don't remember entering into any agreement with you on this matter.  

How do you plan on creating a perfect society when you don't even have the slightest consideration for my wishes or desires?  I tell you, feel free to do whatever you want as long as you don't steal from me.  You can't follow that simple rule and then you tell me that I'm too rigid and short-sighted as you justify your theft.  You know this, of course, so you rely on the government to extract my wealth for you.

Yet somehow, you will be surprised that your utopian society of perfectly distributed wealth (egalitarianism - the least efficient way to organize society) is inefficient and violent.

I'll have more on this later.  

David in Qatar

Report this comment
#9) On September 06, 2010 at 12:43 PM, starbucks4ever (97.41) wrote:

Robuh,

Inflation is the wrong instrument to destroy unfair advantages or generational wealth. Quite on the contrary, it is precisely the way to increase these advantages and income disparity.

In your model, people are fools who will watch helplessly as the Fed is destroying their savings. Well, I have news for you. The hard-working proles may in fact behave in this way. But the old money is not so stupid. They will obtain credit which is not available to the proles because proles are too poor to be reliable borrowers, and watch happily as inflation destroys their debt rather than assets. Then one day the proles will wake up, get their financial education, and try to do the same with their $5K worth of savings. They will find asset prices in the stratosphere, and most of them will lose everything during one of those bear markets that wipe out the weaker players. Does this sound familiar?

Report this comment
#10) On September 06, 2010 at 1:15 PM, GeneralDemon (< 20) wrote:

Let's call this FED thing a new (ha, 1913) hurdle for individuals - those that adapt to it will survive only by their own wits (the rich will buy the needed wits).

But, am I wrong to think this was only set up to protect the national monetary system from foreign perturbations? Another 'individual cost' to go for national defence?

BTW, I'm not saying this weapon can't be used against it's own people. It has turned out that this is exactly what has happened.

Report this comment
#11) On September 06, 2010 at 1:22 PM, Robuh (25.27) wrote:

David. I'm not accusing you of creating a utopia I'm just offering a counterpoint. 

Yes, I want the government to take wealth away from you and redistribute it. I also want a rule of law that prevents me from going 200 km/hr in my car and making littering a fineable offence. I want a justice system with due process that represents the collective best interests of society based on laws passed by people much smarter in those matters than I am. I would prefer that these people be the most qualified of all available but that is a problem of Western democracy.

I want government intervention on many levels and I recognize that these laws and policies will never be universally accepted by all. I accept a certain level of corruption and inefficiency simply because there is no viable alternative given where we are as a civilization.

When you say that anyone can do anything as long they don't steal from you I can't imagine you really believe it. Do you want to live in a world without public roads, parks, and old age security? Would you not care for publically funded police protection if your family was in danger far greater than you could personally handle? Do you want to see seas of beggars starving in the streets? Do you really want an environment where all of these services are provided only to those that can afford it? If you do want to redistribute the wealth in order to prevent this then who is an acceptable candidate to do so?

I'm afraid that your interests and desires are part of the minority's. I suggest running for public office, acquiring vast amounts of wealth, or becoming an influential author if you really want to change anything. I've never minded contributing a large part of my income to help the whole and I can't imagine a different way.

Report this comment
#12) On September 06, 2010 at 1:36 PM, Robuh (25.27) wrote:

Zloj, I completely disagree. Debtors do not get off the hook over the long term and obtaining/leveraging capital through credit or other means is a different topic entirely.

American society is founded on the premise that a person of any birth can elevate him/herself through talent and hard work. I've seen this my entire life. And losing their wealth through a "bear" market simply means they weren't competent in managing wealth to begin with.

Wealth is relativistic in nature and there will always be rich and poor. There always has to be somebody to sweep the floors. The important thing is that everyone has the opportunity to compete and gain financial success. A myriad of social programs (paid for by tax dollars) exists to facilitate this.

Report this comment
#13) On September 06, 2010 at 1:48 PM, starbucks4ever (97.41) wrote:

" Debtors do not get off the hook over the long term and obtaining/leveraging capital through credit or other means is a different topic entirely"

There are statements that are too hard to disprove, but even harder to take seriously... 

Report this comment
#14) On September 06, 2010 at 5:43 PM, Robuh (25.27) wrote:

Zloj, I'm not sure in what way you can disagree with this particularly after the wave of predatory lending that the U.S. has just endured.  We were talking about monetary policy and preserving wealth.  Private debt is a very different topic.

When two parties enter into a debt contract it is the responsibility of both to negotiate terms such that an equitable agreement is reached. It is certainly the case that inequitable agreements are made but it is almost always to the advantage of the creditor. If you have arguments against this generality I'd love to hear it.

You can profit in being a debtor (at the creditor's expense) by taking a collateralized loan where the collateral is worth less than the principal of the loan. You can also profit by defaulting on an unsecured loan as long as you are willing to live with the consequences (which can be dire.) If you can personally achieve some sort of financial advantage from either of these approaches then please share because I'd like to know how to get myself some free money.

I don't know what sort of personal experience you have that would make you scoff at this point as you have. I know that the simpleton's response would be to observe what's happening with the sub-prime mortgage crisis where uncreditworthy people were allowed to obtain financing for purchasing real estate. I assure you that these people will not "win" in the long term. They are victims of their own ignorance.

The winners (as in persons) in this arrangement did not take on any personal debt. This type of crisis was a failure of private lending institutions and not of government. If proper regulation was in place (not the toothless Frank-Dodd crap) then it would not have happened. Even if all of the big banks were allowed to fail the debtors would still be among the victims.

Report this comment
#15) On September 06, 2010 at 7:28 PM, whereaminow (< 20) wrote:

I don't see how you can attempt to work out things so thoroughly (which is admirable), and then jump to "good regulation would save us."  If you worked that one out, perhaps you'd feel differently.  It's not a very sound foundation from which to build your belief system.  

David in Qatar

Report this comment
#16) On September 06, 2010 at 8:30 PM, Robuh (25.27) wrote:

Sorry David, I'm not sure what you meant in that last comment. If you're asking whether I believe in regulation then the answer is yes. I believe in policies that restrict predatory lending, monopolies, price fixing, wealth polarization, and any number of other imbalances that can arise from laissez faire economics. I also believe that patent enforcement and publicly funded projects help drive innovation. The problem is that we're very bad at implementing good policy.

It is very difficult to argue for an imperfect system that works for the most part when the counter-argument details a system that has not been tested in modern times. It's easier to promise sunnier days than to acknowledge that sustaining a functioning society requires the constant choosing of lesser evils. Perhaps you've covered it elsewhere but I'd like to hear how you would address all of the issues that would arise from deregulation and eliminating the federal reserve. I don't think that you'd claim it to be a panacea and I'd like to hear what you'd be willing to sacrifice for what you would gain.

I've enjoyed this as always and appreciate passionate debate. You always get a rec from me.

Report this comment
#17) On September 06, 2010 at 9:58 PM, ChrisGraley (29.66) wrote:

Robuh, I'm really intrigued on how you would answer your own questions given your admission of the problem of implementing good policy.

I would argue that your imperfect system that works for the most part actually never works as intended and is never worth the money spent on the regulation itself.

In my opinion, I can avoid predatory lending  without the help of government.

I can prove my point today, because even though we have regulation today, we still have predatory lenders and I'm able to avoid them. 

I'm very interested on your viewpoint that regulation is good to stop monopolies and price fixing and yet you support patent enforcement which seems to create monopolies and price fixing.

I understand your point about a system that hasn't been tested as a whole in modern times, but flight was not tested before we flew, boats were not tested before we sailed, and walking was not tested before we stood on 2 feet. 

I would prefer what is not tested over what has been proven not to work myself, especially when I'm overpaying for the system that isn't working.

I don't want to steal Dave's thunder here, but I'm willing to trade a lot for a new system, because I value the freedom that I'm trading away in this system more than a lot of other things that I may trade in the next one.

Dave always gets a rec from me too. 

 

Report this comment
#18) On September 06, 2010 at 10:11 PM, whereaminow (< 20) wrote:

ChrisGraley,

Thanks Chris. Very well said.

Robuh,

I'm trying not to be too confrontational.  I'm just pointing out that in your comment you attempted to construct a justification for the current system.  But then you stated that it would all be better if the regulation was better.  Now, I disagree.  However, what really interested me is whether or not you have ever taken seriously this idea that regulation improves the system, and worked it out the way you attempted to justify our monetary system, for example.  I guessed that you hadn't.

So, we've moved from a regulation-free society at the turn of the 19th century to a regulation-dependent society today.  America has 1,200,000 civil servants, most engaged in some kind of regulation.  If you Wiki: "U.S. federal agencies", it takes 5 seconds for the page to load.  Our regulatory agencies must consume billions upon billions of $$ every year.

So, how is it that we don't have "good regulation" already?

David in Qatar

Report this comment
#19) On September 06, 2010 at 11:01 PM, Robuh (25.27) wrote:

Hey Chris. First and foremost international patent law is absolutely screwed up. It hasn't adapted to the times. You don't need to go further than the ridiculous lawsuits filed by Paul Allen to see that. However, I believe that it's a system that needs to be fixed rather than discarded. Patents absolutely drive innovation.

I have absolutely no doubt that you can protect yourself from the normal pitfalls of debt however the majority of your population cannot. I don't see a problem with regulating lending anymore than I see a problem with making loan sharking illegal.

You are overpaying for a system that is extremely inefficient but we are living in very unique times where we face many problems that have not been addressed before. So much has changed in the last 20 years and there are very complicated issues that require regulation and criminalization. The number of new dangers that come up every year is staggering. How do you handle the manipulation of our capital markets through practices such as HFT? How do you handle bioengineered babies? How do you prevent the indentured servitude of millions that don't have wealth to preserve or the means to acquire it? How do you prevent highly effective predatory marketing to very susceptible people? How do you battle the creation and distribution of designer drugs that can devastate our society?

This is going all over the place but I absolutely want policies in place to prevent the very worst of us from taking advantage of everyone else. We've become too good at manipulating large groups of people using very effective methods.

From my perspective the problem that you need to solve is not one of monetary policy and regulation but of effective leadership and representation. The American form of democracy is antiquated and broken but unfortunately that is one of the things that you (as a people) hold most dear. If you want to take a leap of faith on a new system I personally would start there.  

Anyways it's late and I'm blabbering.

Report this comment
#20) On September 06, 2010 at 11:15 PM, Robuh (25.27) wrote:

David, that's a long discussion and I'm beat. There are so many factors to consider including technological/scientific advances, globalization, changes in social behavior, productivity enhancements, and the overarching theme of a decadent society entering into the twilight of their global dominance. I'll take a rain check. Sleep time.

Report this comment
#21) On September 06, 2010 at 11:36 PM, awallejr (85.56) wrote:

We can compare how much it costs to buy a one pound chicken in 1913 with a one pound chicken in 2010, for example.

And that would be apples to oranges.  Silver once sold for over $50 an ounce  too. It doesn't sell anywhere near that now.

Report this comment
#22) On September 07, 2010 at 3:12 AM, whereaminow (< 20) wrote:

awallejr,

You're confusing prices with purchasing power.   Prices affect purchasing power, but they are not purchasing power.  If the price of silver (or a chicken) spikes to $50/oz, people choose to buy other things and the price of silver drops.  Although the price of silver has risen, the purchasing power of the currency has not been affected.  And you would still be able to measure silver in the basket of goods if you used the yearly average.

So no, it would not be apples to oranges. Don't get wrapped up in individual price movements.  They don't have much effect on purchasing power.  Two things primarily impact the purchasing power of a currency: amount in circulation, amount of goods available.  Simplistically: More goods + fewer dollars = strong dollar.  Few goods + many dollars = weak dollar.  

David in Qatar 

Report this comment
#23) On September 07, 2010 at 8:19 AM, ChrisGraley (29.66) wrote:

This is going all over the place but I absolutely want policies in place to prevent the very worst of us from taking advantage of everyone else.

The problem is that are current system enables the very worst of us to take advantage of everyone else.

They are called politicians and we keep giving them greater power.

Report this comment
#24) On September 07, 2010 at 9:16 AM, russiangambit (29.16) wrote:

> The simple answer to this is redistribution of wealth in a controlled manner. While taxation is a direct way to achieve this we also must do this through gradual depreciation of the currency.

I can't believe someone can say this with a straight face. You know what I've lived through 3  full rounds of that in USSR, where this was at exterme. Every 10 years or so the population was completely cleaned of all its savings because the country was bankrupt.

I see the same in the US, just at a slower pace. You simply cannot get ahead if you are starting at the bottom. You get to the middle class and then you are stuck because you are bled dry through various fees and taxes. Until then you were simply too poor to bother with. You cannot ever get rich unless you rise through corporate ranks , kind of like in USSR again, where the road to the rcihes was to rise through the communist party ranks.

 > American society is founded on the premise that a person of any birth can elevate him/herself through talent and hard work. I've seen this my entire life. And losing their wealth through a "bear" market simply means they weren't competent in managing wealth to begin with.

Yes, well I guess it was founded this way. At least, that is what history books tell us. There is none of this left today. If you work in a corporate workpalce (and that is majority of americans) you are taught to toe the line, not  to be too argumentative. In other words, be average and suck it up to the boss. Again, it is no different from anywhere else, including third world countries and  communist countries. The only difference is the quality of life. And that is what is being equalized at this moment right before our eyes. Because if there ever was anything special about America that allowed it to achieve the prosperity, it ain't no more. Most of it is gone, given away, stolen away. A few vestiges still remain, such as respect for the law. But hungry people lose the respect for the law quite fast.

Report this comment
#25) On September 07, 2010 at 9:56 AM, Quantemonics (98.77) wrote:

Many of the "fixes" for America are easy and will not cost taxpayers a dime!  I outlined them in my CAPS blog last December... http://caps.fool.com/Blogs/how-to-fix-america/302070

American "democracy" could still work, with a few simple fixes.

First, the Supreme Court could decide that corporations have LESS rights than individuals, instead of MORE, as we outlined in the original U.S. Constitution.  The early 2010 Supreme Court ruling that corporations can give UNLIMITED amounts in campaign contributions may be the WORST decision in the nation's history, while individuals are LIMITED to $200-$500 in many direct contributions.

Second, serving in political life was idealized as a "leadership" reward for strong private sector accomplishments or masterful battlefield fighting/victories.  Today we have career politicians bred from birth to maintain corporate dominance in decision and policy making for all citizens.  The simple answer to right the ship is: MAKE ALL PAC AND CORPORATE DONATIONS TO POLICITICANS ILLEGAL, AND LIMIT ALL INDIVIDUAL DONATIONS TO $1,000 PER PERSON, EVEN OUT OF YOUR OWN POCKET IF RUNNING AS A MULTI-BILLIONARE.

As the net result of doing the above, we "the people" would actually elect honorable and qualified individuals to run our government and create a society of lasting appeal the world over, as originally intended by our founding fathers.

Getting control of Wall Street and HFT shenanigans is quite easy - bring back the simple and time-tested "uptick rule" for short selling!!!  Obama could do this with a simple executive order, and override any misguided feelings at the SEC or by the corrupt Wall Street lobby.  Unlimited selling of a product you do not own, should be outlawed, or at least regulated.  This is legalized fraud, and it is used/abused to the detriment of economic growth and job creation EVERY MINUTE OF EVERY TRADING DAY!  Read my December blog for more information.

-Thomas Jefferson

 

Report this comment
#26) On September 07, 2010 at 11:09 AM, awallejr (85.56) wrote:

Don't get wrapped up in individual price movements.  They don't have much effect on purchasing power.  Two things primarily impact the purchasing power of a currency: amount in circulation, amount of goods available.  Simplistically: More goods + fewer dollars = strong dollar.  Few goods + many dollars = weak dollar.

I'm really not wrapped up in individual price movements, my silver example was in reply to your chicken example. So I guess it is really silver to chicken.

In any case, you are right that several things can impact a currency's value.  I think you are being too simplistic tho with the above quote.

Last week the US dollar was down against the Euro.  Today it is up, hence it's purchasing power in europe for example, rose.  I doubt this has anything to do with goods available and supply of dollars, but, rather, simple market fluctuations.  And while you threw out a "95%" decline in value (although I don't know what your starting point was),  in fact the US dollar has increased in value at least with the Euro in the last couple years.  It hasn't with other countries (like Japan).

Now if you are trying to limit the dollar's "value" to just within the US, well that ignores the whole globalization of the world economy that has been taking place.  I don't think it very useful to compare it's value today with 1913 since our economy then is dwarfed by our economy now.  I find it no different than comparing baseball teams then to baseball teams today. 

However, I do agree with an old song's line as being equally applicable today:  "the rich get rich and the poor get poorer."

 

Report this comment
#27) On September 07, 2010 at 12:37 PM, whereaminow (< 20) wrote:

awallejr,

I'm just trying to help you flush macro wacko nonsense out of your head.  If the dollar improves vs. the euro, what does that matter if it is only because they both dropped in purchasing power, just the dollar dropped less.

That's normally what happens.  But the media doesn't report it that way because you would realize you are getting robbed along with the Europeans.  Modern paper money is a cripple race to the bottom.  Cheering  because your retard is less retarded is kind of pointless.

David in Qatar

Report this comment
#28) On September 07, 2010 at 1:20 PM, awallejr (85.56) wrote:

That still doesn't change the fact that the dollar's purchasing power increased in Europe.  You can still buy the same goods there for less money.  Your "more goods + fewer dollars" simply doesn't apply in that scenario.

 

Report this comment
#29) On September 07, 2010 at 1:24 PM, awallejr (85.56) wrote:

And as a followup.  Don't get me wrong, I think we are getting robbed.  But I think it is by politicians, wall street and many corporate heads.

Report this comment
#30) On September 07, 2010 at 2:32 PM, whereaminow (< 20) wrote:

That still doesn't change the fact that the dollar's purchasing power increased in Europe.

I'm not claiming otherwise.  I'm saying it would have increased even more in Europe without a meddlesome Federal Reserve,  In fact, you'd be vacationing in Europe, laughing at the French as you buy whatver you want on a middle class American salary, if it wasn't for the Fed.

They've robbed you blind.  Imagine if the dollar was worth, say, 15 Euro's.  A night in a 5 star hotel in France would be $50, instead of $800.

Americans would be phenomenally better off economically without the Fed.

David in Qatar

Report this comment
#31) On September 07, 2010 at 6:04 PM, awallejr (85.56) wrote:

The people that robbed me blind was as I said: Congress (for letting the shadow banks into the mortgage business which they never should have done), Wall Street (for being greedy as hell and just dishing out money and churning those MBSs) and corporate heads (for being irresponsible and ripping off their shareholders with outrageous pay packages).

You want to throw the FED in there too for being overly accomodative, that's fine.  But would Americans be better off economically without the Fed?  That I can't say. But I can say I would never want Congress to have the FED's job.

Your thread, so you get to have the last word if you wish..

Report this comment
#32) On September 07, 2010 at 9:44 PM, whereaminow (< 20) wrote:

My last word is:

You shouldn't want anyone to do the Fed's job. Their job, literally, is to take money out of your pocket and give it to the politically connected.  That is the real definition of monetary policy.

The best monetary policy is no monetary policy.

David in Qatar

Report this comment
#33) On September 08, 2010 at 12:38 AM, Option1307 (29.69) wrote:

Nice discussion Fools, +1!

Report this comment
#34) On September 19, 2010 at 5:50 AM, redneckdemon (< 20) wrote:

I agree: excellent discussion.  And I wish I could give it an extra rec for RussianGambit's comment alone.

Report this comment

Featured Broker Partners


Advertisement