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SPDR Gold Shares Message Board

  • wachoviaisgone wachoviaisgone Jan 4, 2012 12:06 AM Flag

    Why is Krugman flip-flopping?

    Paul Krugman (March 11, 2003):

    …last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

    …we’re looking at a fiscal crisis that will drive interest rates sky-high….But what’s really scary — what makes a fixed-rate mortgage seem like such a good idea — is the looming threat to the federal government’s solvency.

    …How will the train wreck play itself out? ….my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.

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    • That makes two of us! :)

      But what we want can not be allowed to happen, instantly... for obvious reasons...

    • You are a wise man :)

    • “When the money commodity is not used as a medium of indirect exchange but demanded purely for its own direct consumption use” is fractional value.

      Individual productivity (whole value) made into fractional value for exchange is a forced fractional donation of individual productivity without equal compensation rendering the individual’s productivity of lesser value to pay for debt, exchange goods and services, and for saving means.

      Fractional banking is socialism.

      A professors analogy about “grade equality” to socialism fits perfectly with fractional banking. The US is currently on the same path to get all F’s.

    • Not only does the Mises regression theorem fully explain the current demand for money and integrate the theory of money with the theory of marginal utility, but it also shows that money must have originated in this fashion—on the market—with individuals on the market gradually beginning to use some previously valuable commodity as a medium of exchange. No money could have originated either by a social compact to consider some previously valueless thing as a "money" or by sudden governmental fiat. For in those cases, the money commodity could not have a previous purchasing power, which could be taken into account in the individual's demands for money. In this way, Mises demonstrated that Carl Menger's historical insight into the way in which money arose on the market was not simply a historical summary but a theoretical necessity. On the other hand, while money had to originate as a directly useful commodity, for example, gold, there is no reason, in the light of the regression theorem, why such direct uses must continue afterward for the commodity to be used as money. Once established as a money, gold or gold substitutes can lose or be deprived of their direct use function and still continue as money; for the historical reference to a previous day's purchasing power will already have been established.

      The Austrian Theory of Money by Murray N. Rothbard

    • "Mises, however, succeeded in solving this problem in 1912 in developing his so-called regression theorem. Briefly, Mises held that the demand for money, or cash balances, at the present time—say day X— rests on the fact that money on the previous day, day X -1, had a purchasing power. The purchasing power of money on day X is determined by the interaction on day X of the supply of money on that day and that day's demand for cash balances, which in turn is determined by the marginal utility of money for individuals on day X. But this marginal utility, and hence this demand, has an inevitable historical component: the fact that money has prior purchasing power on day X -1, and that therefore individuals know that this commodity has a monetary function and will be exchangeable on future days fo r other goods and services. But what then determined the purchasing power of money on day X -1? Again, that purchasing power was determined by the supply of, and demand for, money on day X -1, and that in turn depended on the fact that the money had purchasing power on day X -2. But are we not caught in an infinite regression, with no escape from the circular trap and no ultimate explanation? No. What we must do is to push the temporal regression to that point when the money commodity was not used as a medium of indirect exchange but was demanded purely for its own direct consumption use. Let us go back logically to the second day that a commodity, say gold, was used as a medium of exchange. On that day, gold was demanded partly because it has a pre-existing purchasing power as a money, or rather as a medium of exchange, on the first day. But what of that first day? On that day, the demand for gold again depended on the fact that gold had a previous purchasing power, and so we push the analysis back to the last day of barter. The demand for gold on the last day of barter was purely a consumption use and had no historical component referring to any previous day; for under barter, every commodity was demanded purely for its current consumption use, and gold was no different. On the first day of its use as a medium of exchange, gold began to have two components in its demand, or utility: first, a consumption use as had existed in barter and, second, a monetary use, or use as a medium of exchange, which had a historical component in its utility. In short, the demand for money can be pushed back to the last day of barter, at which point the temporal element in the demand for the money commodity disappears, and the causal forces in the current demand and purchasing power of money are fully and completely explained.

    • Consider holding physical dollars is as close as a person can get for holding value in a fiat system. :)

    • I may be wrong but, imo, holding and transacting physical dollars are the savers of value and any electronic transacting/saving are savers of credit (fractional value), if that makes any sense.

      And Yes, Krugmanism is spending of value that does not exist.

      Only in theory I could see how fractional value could be counter-balanced against real value with interest returned.

      In any case, its very inflationary considering the amount of fractional value vs physical value and in an economy with DMR; and imo, it can not be fixed without:
      1) substantially devaluing the dollar,
      2) debt-forgiveness
      3)creating new demand for value,
      4) enforcing austerity
      5) altering peoples consumption
      6) drastically improved efficiency,
      7)drastically improved productivity and employee skill, and
      8)out with the old and in with new "everything".

      However, time is of the essence. Getting people to shift mindset to new and novel lifestyle changes is easier said than done. ;)

      But if it is accomplished, it will means less freedoms.

      >>But Krugmanism discourages savers(they are the victims) and encourages them to spend. Taken to its logical conclusion no one is willing to save and the money is without value?<<

    • Interesting. With inflation new money steals value from existing dollars which are given value through peoples willingness to save. Therefor for the new money to continue to have value you need people to remain willing to save in the currency. But Krugmanism discourages savers(they are the victims) and encourages them to spend. Taken to its logical conclusion no one is willing to save and the money is without value?

    • If money is not put to work, economic activity eventually comes to a halt.

      The Achilles heel to micro-managed, fractional money is diminishing marginal returns, and when played out to the end it will bring economic activity to a halt(cannot fetch “greater tax revenues year-over-year”).

      Continually applying fractionalized value for the exchange of goods and services will lead to an endpoint of free goods of excessively diminished value resulting in a worthless value of exchanges for the original value holder.

      Debt-interest and taxes are essentially the same; value is being fractionalized to benefit the receiver with credit (equal to real value), not the provider of real value rendering value for equal exchange. Therefore, Ricardo and Krugman are both wrong.

      The greater good is only a delay; the truth will come out sooner or later, but they must find out in time. ;) Otherwise, a truth becomes lie and a lie becomes truth.

    • Testing

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