Money

Generali

I fnially got round to doing the blog thing on the money supply. It's a big topic so I've split it into sections, the first one posted today.

http://anothereconomicblog.blogspot.com/2010/07/what-is-money-well-i-promised-id-do.html

I thought I'd do inflation next as it seems logical after money supply.

Housebear51

So what are your thoughts on gold and silver`s value now?

Blacklight

Plain English that even I can understand. Thank you.

You might have labeled budgie smugglers NSFW though

nearlynew

Nice one !!!!!!.

Not a bad start.


I have to pull you up on one point though.....

The "store of wealth" function of money needs to be considered over a longer time frame than saving for a holiday and needs to be considered alongside the inflation which is inherent is a debt-based, fractional reserve money system.

Under these conditions our current money clearly fails to fulfil its role as a store of wealth.

Generali

Housebear51 wrote: »

So what are your thoughts on gold and silver`s value now?

I don't really have any. I don't think they're a great investment as a rule because they don't pay an income and if you want a hedge against the breakdown of society a farm is probably better.

princeofpounds

First part very strong, I think you cover fractional reserve banking and the concept of fiat currency too briefly and quickly. I would delay fractional banking until you have stopped talking about money and started talking about banking.

I would also point out that perhaps you are allowing your feelings about fiat money to get in the way a bit. Fiat money is backed by a requirement that it be used to pay taxes and other state-related transactions - there doesn't have to be (and generally isn't) a requirement for third parties to accept it in transactions for goods and services.

Generali

nearlynew wrote: »

I have to pull you up on one point though.....

The "store of wealth" function of money needs to be considered over a longer time frame than saving for a holiday and needs to be considered alongside the inflation which is inherent is a debt-based, fractional reserve money system.

Under these conditions our current money clearly fails to fulfil its role as a store of wealth.

Fair enough and TBH I don't think people do think of money any more as a true store of wealth for the very long term. People these days (wisely IMO) will split their investments between cash for a rainy day, shares, bonds, a house, commercial property and other things besides. Of course a lot of that diversification goes on in their pension fund but it is there still.

princeofpounds

The "store of wealth" function of money needs to be considered over a longer time frame than saving for a holiday and needs to be considered alongside the inflation which is inherent is a debt-based, fractional reserve money system.

Yes, but probably not worth discussing until you have translated money into money supply, which leads to the discussion of inflation, which leads to the discussion of real vs nominal returns.

Generali

princeofpounds wrote: »

Yes, but probably not worth discussing until you have translated money into money supply, which leads to the discussion of inflation, which leads to the discussion of real vs nominal returns.

I won't deal with real vs nominal returns in money supply. I will if I do inflation next though as it is an interesting topic.

Hsarcgib

Is fiat currency doomed to failure? Is there an argument that it may survive this time?

Generali

Hsarcgib wrote: »

Is fiat currency doomed to failure? Is there an argument that it may survive this time?

I guess it depends if you think that all countries are doomed in the end.

A big difference between a fiat currency and a commodity-currency is that if the Government collapses you are still left holding something which may have a value to someone else. However with a fiat currency, if the system of Government collapses there's a good chance your cash will go with it.

An example is when Germany reunified. Was it a merger or a takeover? Well the West Germans got to keep their currency whereas East Germans found DDM (Mark Der DDR) swapped for DEM (Deutsche Mark) at a rate of 2:1 above DDR4,000. The old system collapsed and (some of) the fiat currency went with it.

If they'd had notes issued against gold held in a vault somewhere I suspect there would have been a very similar outcome, whether issued by a fractional reserve banking system or at parity with the gold held. If they'd had actual gold coins then they wouldn't have suffered any loss particularly unless the East German government had propped up the value of gold against output by diktat which would be possible in a closed market with fixed prices.

If your Government doesn't collapse then there's no good reason why the currency should as long as everyone is very sensible.