What's the downside to printing money?

[Zippyjuan]

Monetary base is not the same as the money supply. Monetary base is cash plus bank reserves. The money supply has not quintupled or even tripled. M2 is the most commonly used measure of money supply.

In the last ten years, M2 has gone from $6.3 trillion to $11.4 trillion. http://research.stlouisfed.org/fred2/series/WM2NS
Chart uses flash- use link to see it.

But even that is not enough to say that prices should almost double. It also depends on how much the economy grew (bigger economy can uses more money without any increase in inflation) or how fast that money is being spent (velocity).

Then you also need to look at supply and demand for every item in the economy. Not all prices move the same.

In reality, printing a currency is much more likely to cause demand for that currency to DECREASE.

In general, that is correct. However, today there is more money than there is demand for which is why there is so much money in banks (and stored at the Fed) as excess reserves and that is the reason that the monetary base is so high. If there was demand for that money, the monetary base would be very low (it won't go to zero because it includes cash money but the excess reserve component is usually near zero). Printing more money today would only increase the monetary base- not the demand.

[Madison320]

Monetary base is not the same as the money supply. Monetary base is cash plus bank reserves. The money supply has not quintupled or even tripled. M2 is the most commonly used measure of money supply.

In the last ten years, M2 has gone from $6.3 trillion to $11.4 trillion. http://research.stlouisfed.org/fred2/series/WM2NS
Chart uses flash- use link to see it.

But even that is not enough to say that prices should almost double. It also depends on how much the economy grew (bigger economy can uses more money without any increase in inflation) or how fast that money is being spent (velocity).

Then you also need to look at supply and demand for every item in the economy. Not all prices move the same.



In general, that is correct. However, today there is more money than there is demand for which is why there is so much money in banks (and stored at the Fed) as excess reserves and that is the reason that the monetary base is so high. If there was demand for that money, the monetary base would be very low (it won't go to zero because it includes cash money but the excess reserve component is usually near zero). Printing more money today would only increase the monetary base- not the demand.

Whatever. You're wrong. Printing money devalues the dollar, period.

Why am I even wasting my time with someone who won't even admit that the increase in the monetary base is the reason prices have risen so much since 1970 when we went off the gold standard?

[Zippyjuan]

Whatever. You're wrong. Printing money devalues the dollar, period.

Why am I even wasting my time with someone who won't even admit that the increase in the monetary base is the reason prices have risen so much since 1970 when we went off the gold standard?

Because is isn't true. It isn't because of the monetary base. I have tried to explain to you that the monetary base is not a measure of the money supply but you still seem confused. It is the sum of bank reserves plus cash money. Bank reserves is money not being lent out or spent. Money has to be spent to have an impact on prices.

Up until the Great Recession banks kept basically zero excess reserves which means that component of the monetary base was zero. That leaves the monetary base being comprised of cash money- dollar bills and coins. In that sense, it was a measure of a tiny portion of they money supply. Cash only comprises about ten percent of the money supply. Other money components grew much more.

Here is a chart of the Monetary Base since 1970. Note how slowly and steadily (until 2008) it grew (and note too that the population and economy were also growing- per capita it was probably shrinking):



http://commons.wikimedia.org/wiki/Fi...etary_base.png

Did inflation follow the same chart shape?



http://www.aboutinflation.com/inflat...storical-chart

If the rate of inflation was directly dependent on the monetary base then the rate of price inflation should have been steady and low since the monetary base grew at a steady and low rate. Obviously that did not happen and something else was going on.

[presence]

It's been 5 years since the Fed started QE and we haven't had big increases in prices so according to the "experts" this proves that printing money does not cause prices to rise. So my question is, what's the downside? Why don't we just crank up the presses and go all in is there's no downside?

[helmuth_hubener]

No, you believe in miracles.

You just never know what will happen. This particular "miracle" has been an ongoing reality for about 30 or 40 years, at least. The government keeps creating money. The hyperinflation and end of the dollar keeps not coming.

I hope that you are right and you actually are "covered." How much actual gold do you own, Madison, as a percentage of your net worth?

[Madison320]

Because is isn't true. It isn't because of the monetary base.

Yes it is. Look at a long term chart of the monetary base and a long term chart of commodity prices. Don't compare a cumulative chart to an incremental chart with govt stats. I agree that short term there are other factors but the overall, long term reason is the monetary base. Suppose we used gold as money. Not currency backed by gold but just gold. What would happen to prices if the physical amount of gold kept increasing by huge amounts every year.

So you tell me, why has the price of most everything gone up in terms of dollars like 50 times over the last 50 years or so? Animal Spirits? We're just running out of stuff?

[Dr.3D]

Wow, looks like Al Gores hockey stick.

[Zippyjuan]

Yes it is. Look at a long term chart of the monetary base and a long term chart of commodity prices. Don't compare a cumulative chart to an incremental chart with govt stats. I agree that short term there are other factors but the overall, long term reason is the monetary base. Suppose we used gold as money. Not currency backed by gold but just gold. What would happen to prices if the physical amount of gold kept increasing by huge amounts every year.

So you tell me, why has the price of most everything gone up in terms of dollars like 50 times over the last 50 years or so? Animal Spirits? We're just running out of stuff?

Don't like the rate of inflation as a measure of rising or falling prices? Like commodities and gold? Ok-what has happened to the price of gold over that time? Has its price reflected a steady but slowly increasing price as the monetary base experienced? Why wasn't the price of gold rising from 1980 to 2004 when the Monetary Base was increasing? That is a pretty long time. Twenty years.



Increasing the MONEY SUPPLY may lead to higher prices in the future (though changes in the money supply also do not necessarily track with the rate of inflation either). The problem is that you are trying to use the Monetary Base which is NOT a measure of the money supply.

[Madison320]

Don't like the rate of inflation as a measure of rising or falling prices? Like commodities and gold? Ok-what has happened to the price of gold over that time? Has its price reflected a steady but slowly increasing price as the monetary base experienced? Why wasn't the price of gold rising from 1980 to 2004 when the Monetary Base was increasing? That is a pretty long time. Twenty years.



Increasing the MONEY SUPPLY may lead to higher prices in the future (though changes in the money supply also do not necessarily track with the rate of inflation either). The problem is that you are trying to use the Monetary Base which is NOT a measure of the money supply.

You never answered my question. Why have prices increased by 30-50 times over the last 50 years or so?

[PRB]

You never answered my question. Why have prices increased by 30-50 times over the last 50 years or so?

who said it has?

[presence]

who said it has?

Average Cost Of New Home Homes
1930 $3,845.00 , 1940 $3,920.00, 1950 $8,450.00 , 1960 $12,700.00 ,
1970 $23,450.00 , 1980 $68,700.00 , 1990 $123,000.00 , 2008 $238,880 , 2013 $289,500 ,
Average Wages
1930 $1,970.00 , 1940 $1,725.00, 1950 $3,210.00 , 1960 $5,315.00 ,
1970 $9,400.00 , 1980 $19,500.00 , 1990 $28,960.00 , 2008 $40,523 , 2012 $44,321 ,
Average Cost of New Car Cars
1930 $600.00 , 1940 $850.00, 1950 $1,510.00 , 1960 $2,600.00 ,
1970 $3,450.00 , 1980 $7,200.00 , 1990 $16,950.00 , 2008 $27,958 , 2013 $31,352 ,
Average Cost Gallon Of Gas
1930 10 cents , 1940 11 cents , 1950 18 cents , 1960 25 cents ,
1970 36 cents , 1980 $1.19 , 1990 $1.34 , 2009 $2.051 , 2013 $3.80 ,
Average Cost Loaf of Bread Food
1930 9 cents , 1940 10 cents , 1950 12 cents , 1960 22 cents ,
1970 25 cents , 1980 50 cents , 1990 70 cents , 2008 $2.79 , 2013 $1.98 ,
Average Cost 1lb Hamburger Meat
1930 12 cents , 1940 20 cents , 1950 30 cents , 1960 45 cents ,
1970 70 cents , 1980 99 cents , 1990 89 cents , 2009 $3.99 , 2013 $4.68 ,

http://www.thepeoplehistory.com/70ye...icechange.html

[Madison320]

who said it has?

Come on, man.

[PRB]

http://www.thepeoplehistory.com/70ye...icechange.html

Some of the above can be explained due to the inflation over 70 years , but there are also many other reasons why some prices increased dramatically ( Housing Bubbles. Middle East Wars, Weather problems causing food price inflation, Population explosion, ) it also can work the other way due to improvements in technology offering much cheaper goods for example TV's, Calculators, Computers ETC.

1. Houses are not the same size, and varies by area

2. Wages increase 20x (if you are to go by this page's numbers), so anything that hasn't increased 20x in price means it's gotten cheaper. Wages does not mean mandatory minimum wage.

3. New cars have gotten better either by lasting longer or better miles per gallon, sometime smaller, sometimes bigger.

4. Gas is one which just left $1.00 in 2001.

5. Bread and meat vary widely on what quality, what area, what expiration date, it also fluctuates with diet habits, consumer trends...etc.

Examples of technology getting cheaper.
iPod 3GB in 2004 $300
iPod 16GB touch screen 2014 $150

Windows laptop in 2001 $1400
Windows laptop in 2014 $800

50" flat screen TV in 2005 $5000
50" flat screen smart TV in 2014 $500

[Madison320]

Some of the above can be explained due to the inflation over 70 years , but there are also many other reasons why some prices increased dramatically ( Housing Bubbles. Middle East Wars, Weather problems causing food price inflation, Population explosion, ) it also can work the other way due to improvements in technology offering much cheaper goods for example TV's, Calculators, Computers ETC.

1. Houses are not the same size, and varies by area

2. Wages increase 20x (if you are to go by this page's numbers), so anything that hasn't increased 20x in price means it's gotten cheaper. Wages does not mean mandatory minimum wage.

3. New cars have gotten better either by lasting longer or better miles per gallon, sometime smaller, sometimes bigger.

4. Gas is one which just left $1.00 in 2001.

5. Bread and meat vary widely on what quality, what area, what expiration date, it also fluctuates with diet habits, consumer trends...etc.

Examples of technology getting cheaper.
iPod 3GB in 2004 $300
iPod 16GB touch screen 2014 $150

Windows laptop in 2001 $1400
Windows laptop in 2014 $800

50" flat screen TV in 2005 $5000
50" flat screen smart TV in 2014 $500

None of those things you mentioned would cause a PERMANENT rise in prices.

I never said prices "relative to wages". Wages are a form of prices.

You can't compare prices in electronics to capture inflation. That's like saying an orange in 2000 is more than an apple in 2014.

There's only one thing that explains the HUGE increase in prices over the LONG run, the rise in the monetary base. All the other factors are temporary and cause prices to rise and fall. I'm not saying that the monetary base is the ONLY factor that causes prices to rise, or even the most powerful. But it's the only factor that is one way and that's UP!

[FindLiberty]

60 Second Adventures in Economics (combined)

https://www.youtube.com/watch?v=LCRNI04tnN8

(Printing money might go the dark side - starting at 1:41 in the video)

+++

http://www.amazon.com/The-Death-Mone...dp/1591846706/

[PRB]

None of those things you mentioned would cause a PERMANENT rise in prices.

I'm not the one who claims rises permanently rise, so don't look at me.

I never said prices "relative to wages". Wages are a form of prices.

You never said prices in American measured in terms of US dollars either.

You can't compare prices in electronics to capture inflation. That's like saying an orange in 2000 is more than an apple in 2014.

I'm not the one arguing for inflation.

There's only one thing that explains the HUGE increase in prices over the LONG run, the rise in the monetary base. All the other factors are temporary and cause prices to rise and fall. I'm not saying that the monetary base is the ONLY factor that causes prices to rise, or even the most powerful. But it's the only factor that is one way and that's UP!

I hope you've invested all your money accordingly.

[oyarde]

So , what exactly are the benefits to the common man of this phantom paper?

[PRB]

So , what exactly are the benefits to the common man of this phantom paper?

"Money (like time) is what you make of it"

[FindLiberty]

"Money (like time) is what you make of it"

"Why, I can make a hat or a brooch or a pterodactyl"

[Madison320]

I'm not the one who claims rises permanently rise, so don't look at me.



You never said prices in American measured in terms of US dollars either.

OK, prices have been rising, in terms of american dollars over the last 100 years (since the Fed was created), by 30-50 times. Agree or disagree?

[helmuth_hubener]

Madison, how much gold do you own? Just as a percentage of your net worth.

[PRB]

OK, prices have been rising, in terms of american dollars over the last 100 years (since the Fed was created), by 30-50 times. Agree or disagree?

1. there is no proof prices were going down prior to it
2. not everything rises equally, so while you gave yourself a convenient 30-50 range, there's still things that are less.
3. prices in dollars is meaningless if not compared against wages

So in a short answer, not everything has gone up 30-50x, and those that have, do not tell the whole story.

If you just want me to say "most things have risen in price over the past 100 years in terms of US dollars, regardless of supply, demand, population increase, wage increase" then yes.

[Madison320]

Madison, how much gold do you own? Just as a percentage of your net worth.

Maybe 20%. Plus about another 15% in gold mining stock. Why?

Do you agree that the main reason that prices have gone up so much over the last 100 years is because of the increase in the monetary base?

[Madison320]

1. there is no proof prices were going down prior to it
2. not everything rises equally, so while you gave yourself a convenient 30-50 range, there's still things that are less.
3. prices in dollars is meaningless if not compared against wages

So in a short answer, not everything has gone up 30-50x, and those that have, do not tell the whole story.

If you just want me to say "most things have risen in price over the past 100 years in terms of US dollars, regardless of supply, demand, population increase, wage increase" then yes.

Some things have gone up more than 30-50 times. Some things less. But on average if you just look at the price of things that are a constant, like oil, bread, eggs, gold, they've gone up a lot since FRNs have been created. Maybe 40 times if I had to guess. In other words the dollar has lost almost all of its value. Do you agree?

I told you, wages are prices also. I'm not trying to measure purchasing power, only that prices have gone way, way up and the dollar has gone way, way down.

[helmuth_hubener]

Maybe 20%. Plus about another 15% in gold mining stock. Why?

Just wondering if you had some actual skin in the game, or if this was all theoretical for you.

20% sounds pretty good. I personally would up it to a little bit more, 25%, but even with just 20% you should be protected fairly well if high price inflation does hit. So that's good.

There are four possible economic states: inflation, deflation, prosperity, and recession. You could plot them on two axes like this:





Because we never know what state the economy will be in, it's best, in my humble opinion, to take the humble approach and be prepared for all four. That means:

[Madison320]

Just wondering if you had some actual skin in the game, or if this was all theoretical for you.

20% sounds pretty good. I personally would up it to a little bit more, 25%, but even with just 20% you should be protected fairly well if high price inflation does hit. So that's good.

There are four possible economic states: inflation, deflation, prosperity, and recession. You could plot them on two axes like this:



Because we never know what state the economy will be in, it's best, in my humble opinion, to take the humble approach and be prepared for all four.

Do you agree that the main reason that prices have gone up so much over the last 100 years is because of the increase in the monetary base?

[helmuth_hubener]

Do you agree that the main reason that prices have gone up so much over the last 100 years is because of the increase in the monetary base?

Obviously.

Now I'm not getting hung up on stupid semantic quibbles like "monetary base" vs. "money supply." I understand what you mean by monetary base and by your question. Prices have gone up in terms of the US dollar because there keep being more and more US dollars created. It's pretty simple.

[Carson]

It's been 5 years since the Fed started QE and we haven't had big increases in prices so according to the "experts" this proves that printing money does not cause prices to rise. So my question is, what's the downside? Why don't we just crank up the presses and go all in is there's no downside?

Isn't that what we've been doing the last fifty years or so? Prices have rose.

Have you really thought about this on a basic fundamental level? We are allowing someone with nothing to print money backed by nothing and then we are giving them all of our everything for it. It is totally ludicrous.

We've got a lot of people now sitting around divvying up all of that everything and I suspect they will continue to do so as long as the Idocracy last.

Welcome to the new world order of things.

[osan]

It's been 5 years since the Fed started QE and we haven't had big increases in prices...

What planet are you on? Have you not been paying for food?

so according to the "experts" this proves that printing money does not cause prices to rise. So my question is, what's the downside? Why don't we just crank up the presses and go all in is there's no downside?

electronic currency is the game changer, IMO. Prior to the 1970s, there was effectively no such thing. It took until the 80s but when electronic currencies became ubiquitous, the whole "money" game was altered in a fundamental way.

When one actually prints money, as in with an engraving press with ink on paper, once that paper is out the door, one has very little control over it. Electronic currency, however, is fundamentally different. It can be repatriated at any time by whomever it is with the means and, presumably, the formal authority to take it from one place (bank account) and cause it either to no longer exist, or to be transferred. The presumptive non-governmental owner of the currency has basically no say in whether he actually keeps those digital dollars. This was made evident in Cyprus the other year when their illustrious governors decided to give EVERY bank account a 10% haircut. During the days leading up to the event, the banks were officially closed, thereby disallowing runs and all accounts frozen to prevent electronic transfers of funds out of the account, presumably to non-Cypriot banks. People from all over the world had "foreign" accounts on Cyprus and every last one of them took a 10% too lie right up the butt and they were powerless to do a thing about it.

The same has been the case for decades in the USA since the idiot Reagan ramped up the "war on drugs" and his successors obediently instituted civil forfeiture laws wherein agencies such as DEA and so forth are now empowered to empty your bank accounts on the mere stated suspicion that those funds "may" have been acquired through the sale of illicit drugs. Once confiscated, there is very little one can do to get the money back. While such monies often take the form of hard cash, they are also very often nothing more than blips on a disk drive somewhere, a place where access to remove those digital signals is very simple if you have the access, and the "state" always has that.

That all said, any time undesired inflation threatens, it is the easiest thing to recall electronic funds under the flimsiest of pretexts. M2, paper currency and other tangible assets, represents a fairly small proportion of MZ (M-Zero), which it the totality of all financial assets.

With that brand of control, money can be tightened and loosened on demand.

[PRB]

In other words the dollar has lost almost all of its value. Do you agree?

I would only agree "dollar lost almost all its value" if you agree in contrast "commodities appreciated in value and people who saved in commodities are rich".

But even you'd have to admit, if I saved a house for 100 years, a house is still worth a house. I may be worth 20x the dollar value 100 years ago, but that doesn't mean I'm 20x richer than I was 100 years ago. You'd have to say a person with a million dollars today is richer than a person with 100,000 in the past for such statements to be meaningful in any way.

We shouldn't measure wealth solely by dollars. Nor should we measure living expenses and cost of commodities solely on dollars. So while it may be true the value of a dollar vs a loaf of bread has relatively decreased, we shouldn't conclude "therefore a loaf of bread is harder to earn today" unless and until you've controlled for wages and salaries.

I told you, wages are prices also. I'm not trying to measure purchasing power, only that prices have gone way, way up and the dollar has gone way, way down.

Population has also gone up, and consumption habits have changed here and there.