I'm busy now, won't be able to give this debate the attention it deserves until Tuesday or Wednesday next week. I hope it will continue until
then.
Just a quick word, however, on the following:
Originally posted by Dae
Ive tried to find out what causes the value of money to fluctuate and found out about Trade Cycles, could you have a gander at
this page for me and tell me what you think (he links Inequality in
income distribution as one of the major causes of the trade cycle.)
I read the page. Mr. Moheyuddin, its author, gives a fairly standard textbook description of the nature and cause of economic cycles, apart from two
things.
1/ He imaginatively suggests that 'inequality' is the cause of the trade cycle, but does not show a causal connection. Or perhaps the connection he
makes is too subtle for me to follow. Could you make it more explicit for me?
2/ His explanation of the link between prices and wages is flawed. This is obvious, because in his explanation, wages remain static or fall regardless
of whether the economy is expanding or in recession. If this was the case, people would progressively earn less and less and their standard of living
would continue to decline until everybody starved to death. Obviously, that doesn't happen.
In fact, wages
rise during the expansion phase of the cycle. Why? Because increased demand calls for increased production to meet it, and
increased production results in more people being employed to create and distribute goods and services. Thus the demand for workers also increases.
But since the number of workers is not unlimited, increased demand results in wage rises.
It is wage rises that are the primary cause of
inflation.
Inflation then impacts negatively on demand, which decreases production, which puts people out of work, which increases the pool of the unemployed,
creating a supply-side imbalance that causes wages to fall.
Thus economic cycles are self-correcting. If left to its own devices, however, the market is cruel; the cycles can be rapid, short-lived and brutal.
Central banks exist to help smooth them out, promoting soft landings and steady growth. This is very difficult and central bankers, being human and
therefore limited in their capabilities, often get it wrong. The Fed didn't
cause the 1929 stock market crash and the Depression; like all
crashes, it was caused by foolish, greedy investors. But it is certainly possible that the Fed failed to prevent it, exacerbated its effects or even
promoted it through mismanagement.
So now you have the answers to some of your questions:
Originally posted by Dae
How does the ecomony grow? How does it recess? Would these things happen if we didnt have to deal with interest? Why should the value of $1 change?
Its just a number that doesnt even reflect any wealth (gold) anymore.
Mr. Moheyuddin's page explains growth and recession in fairly standard economic terms. With the reservations expressed above, it provides rough but
useful answers to your first two questions.
Would these things happen if we didn't have to deal with interest? Yes, they still would. Capitalists would continue to invest in enterprises,
expecting financial returns from the profits of those enterprises. However, capital flows would reduce and economic growth would be much slower. This
may not be a bad thing altogether, though you'd have a hard time convincing a capitalist of that!
Why should the value of $1 change? Because the productive capacity of the economy changes. And if you think that's just a central bank economist's
dream, consider the forex (money) markets. People buy and sell money, you know. How do you think they agree on its price? At bottom, currency prices
are based on the strength of the issuing country's economy, estimated using the same figures central bankers use. This, by the way, is yet another
reason why government control of central banks is a Bad Thing: governments may falsify economic statistics or artificially fix the price of their
currencies, which always impacts negatively on the value of the currency in the long run.
tom goose wanted to know why governents can't just print money and set its value arbitrarily. Answer: if you do that, you create a currency
black market and ruin your economy further.
When you make and sell goods and services, you create value...
Is this to do with that projection of growth?
Yes, it is.
Im going to write a statement... tell me if its correct or not.
Banks are allowed to issue new money as credit which is then immeadiatly called debt and can be sold at a profit.
No, only central banks are allowed to issue new money.
The Janus-faced nature of credit (once extended, it becomes debt) is all too real, sadly.
Caveat emptor.
"whosoever creates and issues money has absolute power." Rothschild.
It is the state, not its central bankers, that honours the 'promise to pay' embodied in currency. Never forget this.
No, no, it's money they have. It's just that it's money held in trust for depositors...
Hang on, hang on... Lets talk about the reserves not depositors money...
Reserves
are depositors' money. So is the money bankers lend. To repeat part of my earlier post, banks cannot lend more than depositors have
lent them -- unless they borrow if from another source and pay it back later, with interest.
Banks do not make money out of thin air. To
imagine they do is merely to misunderstand double-entry bookkeeping.
How does the Bank of Dae make Y100,000? Are you saying deflation causes wealth for the bank?
Gosh, back to square one. In 2006, when I borrow a million yen from the Bank of Dae, that million yen could buy a hundred thousand apples. In 2007,
when I pay it back, it buys 110,000 apples. So a million yen is worth more. So the bank gets back more value than it gets, even though the amount of
currency lent and returned is the same. Clear?
The buying and selling of money in my mind is wrong.
Why is it more wrong than buying and selling books or chickens?
Charging interest on money that didnt exist in the first place is evil beyond words.
But the stuff exists -- it certainly exists in effect -- so charging interest on it isn't evil at all
".. if you want to be slaves of bankers and pay the cost of your own slavery, then let the bankers control money and control credit." Sir
Josiah Stamp, Director, Bank of England, c1940 
