What is the most import aspect of money?

That's true. "Floating" usually refers to how one currency relates to another. For example, under the Bretton Woods arrangement, major currencies were fixed relative to one another to facilitate trade. When that system ultimately failed, currencies were allowed to "float" and vary in their rate of exchange against each other.

I think the author may have been referring to excess reserves or base money, but the fact he calls it "floating currency" suggests his background in economics is limited.

 

I read Dennis' question in the context of whether the large amount of "floating currency" is going to trigger a far higher level of inflation (or hyper-inflation), as opposed to a continuation of the low level inflation that has been the goal since the 1970s.

 

Excellent questions.

The fact that the value of "a" dollar has decreased would only matter in a system where the number of dollars earned on average remained constant. However, we know that while the purchasing power of the dollar has declined by ~95% over the last 100 or so years, the quantity of dollars people earn has increased by 6600% on average (though there is a conversation to be had about the disparity in pay, this isn't the place to have it)

Not only that, but the number of choices and the availability of things to purchase has increased more times than I can calculate.

So the value of "a" dollar is meaningless outside of the context of the number of dollars on average earned by people in society who perform work.

As an example of how insignificant the actual number on a dollar is, there is an example in Brazil where the name of the currency was changed as a way to slow inflation. When it was all over the name of the currency was different and the number of dollars denominated in the same number had greater purchasing power.

Read about it here, it's an interesting story.

The economic consequences of a rising dollar.

One need only look at a virtual currency like bitcoin. As it rises in value, how eager are it's owners are to spend it? I mean, If a new TV is worth 1 bitcoin, but I fear that the price of bitcoins will increase, I'm less likely to spend it fearing that it can buy more than just a TV in the future. If Instead, I think of the coins as an investment I'm less likely to spend them and less spending decreases economic activity. Savings is a net drain on the economy. Not that saving isn't good, but too much savings can slow an economy leading to layoffs. It's called the Paradox of Thrift.

A little inflation assures people that money spent won't be worth more in the future and if people want to earn a return on their money, they need to make investments in the real world.

 

Well we're just grasping at straws here really. The value of the dollar has declined, this is a fact.

I think the burdern of proof is on you to prove that these levels of devaluation are planned or expected.

 

Denis' question also assumes that money held abroad used to make purchases here would automatically result in inflation. I mean, there is no doubt that demand for things could exceed supply given the enormous sums of cash held by foreign governments, but what happens when demand increases? Suppliers respond by hiring more people, building more plants, they go after increasing market share, new companies start up and try to fill the gaps. Inflation driven by spending is an opportunity to increase output. Today as a nation we see our overall productive capacity at 76% Historically (excluding WWII which is an outlier - extremely high) 85%-90% productive capacity is possible. With immigration and automation, I suspect that we could increase our total capacity as well.

Inflation driven by demand is a good problem to have, inflation driven by a loss of productivity is bad. Examples of inflation driven by losses in productivity are virtually every hyperinflation over the last century. Now there have been other causes, but none were caused by too much money creation or spending.

 

Tom, if you make $25,000k a year and pay $500 a month for your mortgage, or you make $100k a year and pay $2000 a month for your mortgage, what is different?

Until the 1980's incomes were increasing faster than inflation, so honestly, to would be more like $25k - $500 a month or $125k and $2000k. So, in fact, people were better off with lower purchasing power but more dollars to purchase with. What's changed over the last 30 years is that, for the bottom, 60% incomes aren't increasing. At best they are staying the same at worst they are declining while at the same time incomes for the top 20% are soring. Trickledown is an abject failure. None of this has to do with the purchasing power of the dollar and everything to do with policies that promote increases in wealth to the top 20%.

This is the problem:



And this:

 

Again if you can not point to policy decessions that devalue the dollar, he is still correct.

 

There is also the possibility or probability that supply will be reduced, if necessary.

 

I'm sorry, remind me, right about what?

 

Dude you are smart. You know damn well if that money didn't go to the top 40% it would lower the value of the dollar even more.

This whole system must be destroyed.

 

That his idea our floating currency is the reason for the devaluation of the dollar. Unless you can explain why consolidation of wealth lowers the value...

 

If the money went to the bottom 60% it would immediately be spent, as the bottom 60% saves less than 2% of their earnings. Once it's spent the top 40% have to compete for it. The difference is that instead of going straight to the top 40%, this way the bottom 60% get something, anything before the top 40% get it. This would raise the value of money as it would increase demand for goods and services that money can buy.

 

Consolidation of wealth lowers value because when fewer and fewer people have discretionary spending it decreases demand for things of real value. If you make $1 billion dollars, how many TV's, couches, dishwashers, cars, homes, and pairs of jeans do you think one family can own? Now that that billion dollars and divide it up into 10,000 people with $100,000

By comparison, how many TV's, couches, dishwashers, cars, homes, and pairs of jeans do you think 10,000 families will consume? More or less than a single billionaire?

The answer is obvious when there are more people to create demand it creates the incentive to create more goods and services. The value of the dollar, practically speaking, is measured by what people can buy with it. The greater the demand the greater the number of goods and services that can be bought at lower prices.

 

The Fed has a stated goal is 2% inflation and that has been the case for some time.

 

Why does the Federal Reserve aim for 2 percent inflation over time?
The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve's mandate for price stability and maximum employment.

https://www.federalreserve.gov/faqs/economy_14400.htm

 

We're talking about devaluation of the dollar right?

I take to heart specifically your last sentence. Why does demand increase yet price remain low?

 

The value of the dollar has been on the decline since the 70's.

How old is this 2% fed policy?

 

Yeah, my apologies, I wasn't clear there.

If demand increases and supply can keep pace, then there is no change in price. Here look at this simple equation:

Value=demand/ supply

If demand rises and supply keeps pace. that is, there are no shortages in labor or any of the materials need to make a product, the value stays the same. However, there are other factors like the economics of scale. If I order 100 units of raw materials at $1 each to make 100 finished products with a labor cost of $1, then my cost to produce is $2 per unit. But if I buy 1000 units of raw materials at .90 cents each and my labor cost is $1, then the cost of my finished product is now $1.90. That is leveraging economies of scale.

Remember that in a competitive economy with competition, as demand rises, companies don't simply raise prices, they increase output (if possible) to earn more revenue and increase market share.

Of course, this doesn't work for everything and buying in bulk has a rate of diminishing return in terms of the discounts one can get.

 

Actually the dollar with but a couple of temporary instances has devalued continually since 1934.

 

It just seems a little fishy that basic economic ideas are being flipped around now. Almost like we're grasping at straws here.

Did you find the amount of public and private debt yet? Is that ante up worth this? Is this economy even based on anything of value? Are the intrest payments worth this? Why are we paying interest to use the dollar? How do you redistribute wealth out of the money markets? Do we even want a sane stock market? Does this monetary system promote progress or easy money?

If this monetary system can be so easily abused, why keep it?

Logical humans know the answer...

 

is this good or bad? Why?

 

If there is abuse why so afraid to tell us the most obvious example of this abuse?????

 

???? not at all we want an insane stock market?????????????

 

it must since the iphone 10 is progress over the iphone 8 etc etc

 

if we didn't pay interest there would be no incentive for anyone to make a loan. 1+1=2